Mich. Admin. Code R. 206.12

Current through Vol. 24-19, November 1, 2024

Section R. 206.12 - Allocation and apportionment of income; adjustments

Rule 12.

(1) Salaries, wages, and other compensation received by a Michigan resident are allocated to Michigan. The credit provided in section 255 of Act No. 281 of the Public Acts of 1967, being § 206.255 of the Michigan Compiled Laws, may be claimed if the compensation was earned in another state and taxed by that state.

(2) Salaries and wages earned in Michigan by a nonresident are allocated to Michigan.

(3) Income from a trade or business as defined in R 206.1 is allocated or apportioned to the state in which the activity takes place.

(4) Business income that is attributable to Michigan and 1 or more other states shall be apportioned as provided in sections 115 to 195 of Act No. 281 of the Public Acts of 1967, as amended, being §§ 206.115 to 206.195 of the Michigan Compiled Laws.

(5) Net rents and royalties from real property are allocated to the state in which the real property is located.

(6) Net rents and royalties from tangible property are allocated to Michigan, if either of the following provisions applies:

(a) The personal property is utilized in Michigan.

(b) The rent is received by a Michigan resident or the recipient has a commercial domicile in Michigan and is not organized under the laws of, or subject to tax by, the state in which the property was utilized.

(7) Capital gains and losses from the disposition of real property are allocated to the state in which the real property is located.

(8) Capital gains and losses from the disposition of personal property are allocated to Michigan if any of the following provisions apply:

(a) The property was located in Michigan at the time of sale.

(b) The taxpayer is a Michigan resident.

(c) The taxpayer has a commercial domicile in this state and is not taxable in the state in which the property had a situs.

(9) Capital gains and losses from the disposition of intangible personal property are allocated to Michigan if received by a Michigan resident.

(10) Interest, dividends, and pension and annuity income are allocated to Michigan if received by a Michigan resident.

(11) Patent and copyright royalties are allocated to Michigan if either of the following provisions applies:

(a) The patent or copyright is used in Michigan.

(b) The owner is a Michigan resident or has a commercial domicile in Michigan and is not taxable in the state in which the patent or copyright was used.

(12) A patent is used in Michigan if the patented product is produced in Michigan or the patent is used in Michigan production, fabrication, manufacturing, or other processing.

(13) A copyright is used in Michigan if the printing or publication of the copyrighted item takes place in Michigan.

(14) Income includable in federal adjusted gross income not specifically allocated or apportioned by this rule is allocated to Michigan when received by a Michigan resident. Credit for tax paid to another state on income subject to tax in the other state may be claimed by the Michigan resident.

(15) The following forms of income may be claimed as a subtraction from adjusted gross income if not allocated or apportioned to Michigan; conversely, losses not allocated or apportioned to Michigan shall be added to adjusted gross income:

(a) Trade or business, including farming.

(b) Rents and royalties from real and personal property.

(c) Capital gains from the disposition of real and tangible personal property.

(d) Capital gains from the disposition of intangible personal property.

(e) Interest and dividends.

(f) Pensions and annuities.

(g) Patent and copyright royalties.

(16) Distributive share items received by a partner are allocated or apportioned as follows:

(a) Ordinary income is apportioned to Michigan by the partnership apportionment factors provided in sections 115 to 195 of Act No. 281 of the Public Acts of 1967, as amended, being §§ 206.115 to 206.195 of the Michigan Compiled Laws.

(b) Salary allocated to Michigan when received by a Michigan resident. Credit may be claimed for tax paid to another state if the salary was earned in the other state. Salary earned in Michigan by a nonresident partner is allocated to Michigan.

(c) Short-term capital gains (losses), long-term capital gains (losses), involuntary conversion gains (losses), and other gains (losses) from real or personal property that had a situs in Michigan at the time of sale are allocated to Michigan. Capital gains from the sale of intangible personal property are allocated to Michigan when received by a Michigan resident.

(d) Additional first-year depreciation on property located in Michigan is allocated to Michigan.

(e) Distributive items from a partnership not allocated or apportioned to Michigan may be claimed as a deduction from adjusted gross income. Conversely, losses and deductions not allocated or apportioned to Michigan shall be added to adjusted gross income.

(17) All distributive income from a subchapter S corporation includable in the shareholder's adjusted gross income is subject to tax if allocated or apportioned to Michigan.

(18) Dividend distributions taxable as ordinary income, plus undistributed income taxable as ordinary income, are apportioned to Michigan if all of the corporation's business activities are confined to Michigan. If the corporation is taxable both within and without Michigan, such income is apportioned to Michigan as provided in sections 115 to 195 of Act No. 281 of the Public Acts of 1967, as amended, being §§ 206.115 to 206.195 of the Michigan Compiled Laws.

(19) Dividend distributions taxable as long-term capital gains and undistributed long-term capital gains are allocated as follows:

(a) Capital gains from the disposition of real property are allocated to Michigan if the property is located in Michigan.

(b) Capital gains from the disposition of tangible personal property are allocated to Michigan if the property has a situs in Michigan at the time of sale.

(c) Capital gains from the sale of intangible personal property are allocated to Michigan when received by a Michigan resident.

(20) Distributive income from a subchapter S corporation not allocated or apportioned to Michigan may be claimed as a subtraction from adjusted gross income. Conversely, losses not allocated or apportioned to Michigan shall be added to adjusted gross income.

Mich. Admin. Code R. 206.12

1979 AC; 1998 - 2000 AACS