On February 5, 2010, the Michigan Department of Treasury (“Department”) issued a Notice explaining the effect of Kmart Michigan Prop. Servs LLC v. Dep’t of Treasury, 283 Mich. App. 647 (Mich. Ct. App. 2009), lv. denied, 772 N.W.2d 421 (Mich. 2009), where the Michigan Court of Appeals found that a single member limited liability company (SMLLC) that is disregarded for federal income tax purposes must be treated as a separate taxable entity for purposes of the former Michigan Single Business Tax (SBT). The Kmart decision effectively overturned the Department’s position taken in Revenue Administrative Bulletin 1999-9 (RAB 99-9) that SMLLCs treated as disregarded entities for federal income tax purposes would be treated in the same manner for SBT purposes.
In the Notice, the Department concludes that precedence requires to give judicial decisions full retroactive effect even if such decisions are contrary to the Department’s own guidance. Therefore, all previously disregarded SMLLCs that followed RAB 99-9 and filed as a division of the owner for SBT purposes, must now file a separate SBT return for all open tax periods. Since previously disregarded entities are considered non-filers for statute of limitations purposes, returns must be filed for all tax years (potentially going back to the SBT’s introduction in 1997) for which the previously disregarded entity exceeds the filing threshold. All required returns must be filed by September 30, 2010.