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The Michigan Tax Tribunal recently ruled income from out-of-state limited liability companies (LLCs) that were nut unitary with the Michigan qualified subchapter S subsidiary (QSUB) activities should be excluded from business income for individual income tax purposes. [Glieberman v. Dept. of Treasury, Mich. Tax Trib., No. 288104, (2003)]
Michigan resident taxpayer, Bernard Glieberman, was sole shareholder of a parent S corporation of a QSUB group that includes Tralon Corporation. In 1998, Tralon was a 50 percent partner in an Arizona LLC, and a 50 percent owner in a California LLC. The taxpayer made a federal QSUB election to disregard the subsidiaries on his federal return, thus treating the QSUB group as one corporation for federal tax purposes. The taxpayer subtracted the net income from these two non-Michigan entities from his 1998 Michigan income tax return as "non-Michigan business income."
The Michigan Department of Treasury, applying the federal tax treatment to...