Tax Exemption For Michigan Business Entity

SECTION 35 TAX EXEMPTION FOR FLOW-THROUGH ENTITIES

POLICY ISSUECan a partnership, limited liability company, joint venture, general partnership, limited partnership, unincorporated association, or other group or combination of entities acting as a unit (Hereinafter referred to as a Flow-Through Entity or Entities) receive the exemption provided in MCL 208.35(1)(c) if it conducts business activity that is unrelated to the charitable, educational, or other purpose or function that is the basis for the exemption under the internal revenue code from federal income taxation of its partners or members?POLICY DETERMINATIONYes. MCL 208.35(1)(c) extends the tax exempt status of a Flow-Through Entity's partners or members to the Flow-Through Entity when its business activity is exclusively related to the charitable, educational, or other purpose or function that is the basis for its partners or members exemption under the IRC from federal income taxation.MCL 208.35(5) provides that "exclusively" is to be defined as the term is applied for purposes of section 501(c)(3) of the IRC. 26 CFR Section 1.501(c)(3)-1 provides the method to be used to determine if an entity's activities are exclusively related to an activity listed in 501(c)(3). Accordingly, a Flow-Through Entity is eligible for the SBT exemption provided in MCL 208.35(1)(c) if it conducts business activity that meets the application of the term exclusively found in 26 CFR Section 1.501(c)(3)-1.