Defendant appeals as of right a judgment of the Court of Claims granting plaintiffs motion for summary disposition. Plaintiff filed a complaint in the Court of Claims seeking a refund of payments made to defendant for tax deficiencies assessed for the years 2000 and 2001. The Court of Claims granted plaintiffs motion for summary disposition and ordered defendant to refund the payments. We affirm.
I. FACTS AND PROCEDURAL HISTORY
Plaintiff is a resident of Tennessee and owns Life Care Affiliates II (LCA II), a Tennessee limited partnership. Plaintiff owns 99 pеrcent of LCA II, 98 percent as a general partner and 1 percent as a limited partner.
LCA II is a general partner in 22 lower-level partnerships that own a total of 27 nursing homes operating in 11 different states. Each of these 22 рartnerships is structured in the same fashion, with LCA II owning a 99 percent interest as general partner, and plaintiff owning a 1 percent interest as a limited partner. Ninety-nine percent of the profits and losses from each of the nursing homеs are distributed to LCA II as the general
In 2007, defendant audited plaintiffs individual income tax returns for the yeаrs 1998-2001. Following the audit, defendant assessed income tax deficiencies for the years 2000 and 2001, totaling $27,145, plus $11,202.60 in interest because defendant disagreed with plaintiffs apportionment of income and losses from LCA II. During the years at issue, RMI repоrted gains to LCA II. However, some other partnerships reported losses. When filing his Michigan individual income tax returns for these years, plaintiff treated all the income and losses distributed from LCA II as business income and apportioned it among all the states in which LCA II had partnerships. Thus, the income that RMI reported from the nursing homes in Michigan was offset by losses from other partnerships.
Defendant contends plaintiff was required to apportion all his income derived from RMI to Michigan and is not permitted to apportion income and losses from other partnerships because the other partnerships did not operate in Michigan. Plaintiff requested an infor
The hearing referee, who рresided over the informal conference, rejected plaintiffs argument and recommended that plaintiff be assessed the tax deficiency as originally determined. Defendant then issued a final bill of taxes due for the amount of $38,347.62, whiсh plaintiff paid under protest. Plaintiff then filed a complaint in the Court of Claims for a refund of monies paid. After conducting discovery, both parties filed motions for summary disposition.
The Court of Claims conducted a hearing on plaintiffs motiоn for summary disposition, and granted plaintiffs summary disposition motion from the bench. While acknowledging defendant’s contention that LCA II was a pass-through entity, nevertheless, the Court of Claims concluded that it was clear that the businesses were аll related and that they were intended to operate as one unit, with LCA II serving as the head. Defendant filed a motion for reconsideration, which the Court of Claims denied. This appeal ensued.
On appeal, defendant argues thаt plaintiff is required to apportion the income that LCA II received from RMI to Michigan because RMI operates exclusively in Michigan. Defendant further asserts that under the Michigan Income Tax Act, MCL 206.1 et seq. (MITA), income derived from multistate business аctivities can only be apportioned if the income arose as part of a “unitary business.” Defendant contends that the income LCA II received from the other partnerships cannot be combined and apportioned under the MITA because the
II. STANDARD OF REVIEW
A trial court’s decision regarding a motion for summary disposition is reviewed de novo, as are questions involving statutory interpretation. GMAC LLC v Dep’t of Treasury,
III. DISCUSSION
Although the United Stаtes Constitution does not impose a single tax formula on the states, apportionment is often implemented because of the difficulties in trying to allocate taxable income on the basis of geographic boundaries. Allied-Signal, Inc v Dir, Div of Taxation,
Pursuant to the MITA, Michigan has аdopted an apportionment-based tax scheme. If a taxpayer’s income-producing activities are confined solely to Michigan, then the taxpayer’s entire income must be allocated to Michigan. MCL 206.102. Howevеr, if a taxpayer has income from business activities that are
In order to apply Michigan’s apportionment formula there must “ ‘be some sharing or exchange of value not capable of precise identification or measurement— beyond the mere flow of funds arising out of a passive investment or a distinct business operation — which renders formula apportionment a reasonable method of taxation.’ ” Holloway Sand & Gravel Co, Inc v Dep’t of Treasury,
Defendant advances three main arguments in support of its position that we should disregard the existence of LCA II for tax purposes and preclude plaintiff from apportioning his LCA II income. First, defendant cites Mich Admin Code, R 206.12(16), which provides:
Distributive share items received by a partner are allocated or apportioned as follows:
*735 (a) Ordinary income is apportioned to Michigan by the partnership apportionment factors provided in [MCL 206.115 to 206.195].
Defendant argues that LCA II is the partner referenced in Rule 206.12(16) and that RMI and the other lower-level partnerships are the partnerships referenced in subsection (a). Therefore, defendant contends LCA IPs only Michigan income is its distributive share from RMI. Defendant’s interpretation, however, ignores the existence of plaintiff. It looks only at LCA II’s distributed share income from the 22 lower-level partnerships and then attempts to place plaintiff in the position of LCA II.
This argument is a strained reading of the administrative rule. By its plain language the rule provides that ordinary income received by a partner is apportioned by the partnеrship apportionment factors. In this case, plaintiff is the partner, and his distributed share of income received from LCA II is apportioned by the partnership apportionment factors. Although defendant asserts that the apрroach to apportionment referenced in its brief has been consistently applied, it cites no authority to support this. Rather, it simply cites the existence of Rule 206.12(16)(a).
Defendant next argues that we simply ignore LCA II for tax purрoses because plaintiff is an “indirect partner” in all 22 lower-level partnerships, that is, plaintiff holds an interest in the partnerships through a “pass-thru partner.” In support of this argument, defendant relies on 26 USC 6231(a)(9) and (10). Under 26 USC 6231(a)(9), “ ‘pass-thru partnеr’ means a partnership . .. through whom other persons hold an interest in the partnership with respect to which proceedings under this subchapter are conducted.” 26 USC 6231(a)(10) provides that “ ‘indirect partner’ means a
Howevеr, MCL 206.2(2) provides that “[a]ny term used in this act shall have the same meaning as when used in comparable context in the laws of the United States . . ..” Thus, MCL 206.2(2) only applies when a term used in the MITA has been used in a similar context under the IRC. Because “indireсt-partner” and “pass-thru partner” are terms not used in the MITA, defendant’s argument must fail.
Finally, defendant argues that the unitary business principle does nоt apply. We disagree.
In its brief in response to plaintiffs motion for summary disposition, defendant did not argue that the unitary business principle did not apply to LCA II, but argued, as it does on appeal, that the principle is not recognized at all because Holloway is not binding.
Affirmed.
Notes
LCA is wholly owned by plaintiff, and plaintiff serves as its CEO.
Furthermore, 26 USC 6231(a)(9) and (10) only apply to very limited situations. The general rule for partnerships under the IRC is that “[i]n determining his income tax, each partner shall take into account separately his distributive share of the partnership’s” gains and losses. 26 USC 702(a). Therefore, under the IRC, in determining his income tax, plaintiff would take into account his gains and losses from LCA II.
Defendant contends that “Holloway is not binding on Treasury for the reason that [in thаt case] the Court of Appeals was addressing a single entity that had two business operations, one in Michigan and one in Texas.” Defendant does not explain, or cite any authority that explains, why consideration of a single business entity with two operations should be treated differently than a single entity with 22 operations.