On March 31, 2010, Michigan Public Act 38 (HB 5937) was signed into law alleviating much of the concern regarding the tax treatment of single member limited liability companies (“SMLL Cs”) under the prior Michigan Single Business Tax (“SBT”). In our March 10, 2010 Sutherland SALT Shaker, we described a Notice issued by the Michigan Department of Treasury (“Department”) retroactively applying the SBT to SMLLCs that are disregarded for federal tax purposes. This Notice was promulgated in light of Kmart Michigan Prop. Servs LLC v. Dep’t of Treasury, 283 Mich. App. 647 (Mich. Ct. App. 2009), appeal denied, 772 N.W.2d 421 (Mich. 2009) where the court found that a SMLL C was a taxable “person” for purposes of the SBT.
HB 5937 rescinds the Notice’s retroactive application of the Kmart ruling and provides the following treatment to taxpayers that filed SBT returns that included their SMLL Cs: (1) the Department will not assess the taxpayer an additional tax or reduce an overpayment because the disregarded SMLL C was included in its return; and (2) the Department shall not require SMLLCs to file a separate return for any prior period. The act is curative, may be retroactively applied, and according to the enacting section of the legislation, is specifically “intended to correct any misinterpretation” concerning the treatment of disregarded SMLLCs caused by the Kmart decision. Finally, the legislation does not apply to the successful plaintiff in the Kmart case or other taxpayers in similar litigation.