Michigan Schedule of Apportionment

Schedule of Apportionment
2023 MICHIGAN Schedule of Apportionment MI-1040H
Reset Form
Michigan Department of Treasury (Rev. 02-23)

2023 MICHIGAN Schedule of Apportionment MI-1040H
Issued under authority of Public Act 281 of 1967, as amended.

Include with Form MI-1040, MI-1041, or Form 807. Type or print in blue or black ink.

Attachment 09

1. Owner’s Name

2. Identifying Number

3. Name of Business Entity

4. Federal Employer Identification No. (FEIN)

5. Combined Unitary Apportionment

Check this box if you elect to combine the apportionment of business income (loss) from entities unitary with one another. If this box is
checked, write the word “Unitary” in box 3 and leave box 4 blank.
NOTE: If you elect to use combined apportionment, you must use combined apportionment for every unitary group from which you receive
income (loss).

PART 1: COMPUTATION OF SALES FACTOR FOR APPORTIONMENT PERCENTAGE
6. Michigan sales (see instructions regarding throwback sales) .................

6.

00

7. Total sales................................................................................................

7.

00

8. Apportionment Percentage. Divide line 6 by line 7. ............................................................................
9.

8.

%

Check this box if you filed a U.S. Form 461 with a current year federal limitation on business losses and complete
Form MI-461. Important: See instructions before continuing to Part 2.

PART 2: COMPUTATION OF INCOME ATTRIBUTABLE TO ANOTHER STATE(S)
10. Business income included in adjusted gross income that is subject to apportionment
(include ordinary, portfolio, and all other business income from this business activity).......................... 10.

00

11. Multiply the amount on line 10 by the apportionment percentage on line 8. .......................................... 11.

00

12. Income or loss attributable to another state(s). Subtract amount on line 11 from line 10.
Enter here and on Schedule 1, line 13 (income) or line 4 (loss). Nonresidents and part-year
residents: Include this amount on the appropriate line in column C of Schedule NR............................. 12.

00

PART 3: COMBINED APPORTIONMENT UNDER THE UNITARY BUSINESS PRINCIPLE

13. If you checked box 5 above, list below the entities that are unitary with one another for which you are combining apportionment.
Include a separate schedule showing your computations. If more than eight entities will be listed, include additional
Form(s) MI-1040H with “Unitary” on line 3 and lines 6 through 12 left blank.
Entity Name

+ 0000

2023 41 01 27 6

Federal Employer Identification Number (FEIN)

2023 MI-1040H, Page 2

Instructions for Form MI-1040H, Schedule of Apportionment

General Information
Michigan defines business income as all income (loss) arising
from transactions, activities, and sources in the regular course
of the taxpayer’s trade or business. Michigan business income
(loss) includes the distributive share of income (loss) from
a flow-through entity, including portfolio income. Portfolio
income includes interest income, dividend income, royalty
income, and net short-term and long-term capital gain (loss)
reported on the federal Schedule D. For more information see
the MI-1040 booklet.
Business income from business activity that is taxable both
within and outside Michigan is apportioned to Michigan for
individual income tax (IIT) purposes using this form. This
form is also used to apportion business income for fiduciary and
composite filers.
In order to determine if apportionment is required rather than
allocation, a taxpayer must determine if the business activity
causes the taxpayer’s income to be subject to tax in both
Michigan and another state. The Michigan Income Tax Act
definition of “state” includes a foreign country.
A taxpayer’s business income is taxable in another state if:
1. In that state the taxpayer is subject to a net income tax, a
franchise tax measured by net income, a franchise tax for the
privilege of doing business, a corporate stock tax, or
2. That state has jurisdiction to subject the taxpayer to a net
income tax regardless of whether the state does or does not.
For IIT purposes, Michigan uses the standards prescribed by
federal Public Law (P.L.) 86-272 to determine whether another
state has jurisdiction to subject the taxpayer to a net income tax.

Identification
For individual income tax filers, enter the owner’s name and
full nine-digit Social Security number on lines 1 and 2. For
fiduciary and composite filers, enter the name of the estate or
trust, or the name of the company and the full Federal Employer
Identification Number (FEIN).

Part 1: Computation of Sales Factor for
Apportionment Percentage

Business income subject to apportionment is sourced to
Michigan by applying a sales factor. To compute the sales
factor, divide the total sales in Michigan during the tax year by
the total sales everywhere during the tax year.
“Sales” includes gross receipts from sales of tangible property,
rental of property, proceeds from the sale of property used in
the business and providing of services that constitute business
activity. Exclude all receipts of nonbusiness income.
Sales of tangible personal property are in Michigan if:
1. The property is shipped or delivered to a purchaser (other
than the United States government) within Michigan regardless
of the free on board (F.O.B.) point or other conditions of the
sale, or
2. The property is shipped from an office, store, warehouse,
factory or other place of storage in Michigan and the purchaser
is the United States government or the taxpayer is not taxable in
the state of the purchaser.
NOTE: The numerator of the sales factor for individual income
tax may include “throwback sales.” Throwback sales are sales

of tangible personal property that originate in Michigan made to
a purchaser in another state or country, and are “thrown back”
to the numerator as Michigan sales because they are not taxable
by the other state. Throwback sales follow federal P.L. 86-272
standards; the business must have physical presence in the other
state or activity beyond solicitation of sales in order to exclude
sales into another state or country from the numerator. There is
no “water’s edge” for individual income tax purposes.
Sales of other than tangible personal property (e.g., services) are
in Michigan if:
1. The business activity is performed in Michigan, or
2. The business activity is performed both in Michigan and in
another state(s), but based on cost of performance, a greater
proportion of the business activity is performed in Michigan.
There are special apportionment formulas for transportation
companies and other authorized taxpayers. Those formulas are
identified in Chapter 3 of the Michigan Income Tax Act.

Part 2: Computation of Income Attributable to
Another State(s)

If you filed a U.S. Form 461 with a current year federal
limitation on business losses, complete Michigan Excess
Business Loss (Form MI-461) before completing Part 2.
Michigan’s definition of business income differs from the federal
definition of business income. Due to the differences in the
business income reported for federal purposes, the federal business
income and loss reported on Form MI-461 may not include all
business income or loss for Michigan purposes (e.g., interest
and dividends). Therefore, line 10 of this form should exclude
amounts reported and apportioned on Form MI-461. However,
apportionable interest, dividends and other business income not
reported on Form MI-461 must be reported on line 10.
If apportioned business capital gains (losses) are reported on line 3
and/or line 8 of Form MI-1040D or Form MI-461, do not include
those amounts on line 10 of this form.
Guaranteed payments to partners are not considered business
income for Michigan purposes and should not be included on line
10 of this form.
A separate Form MI-1040H should be used for each business
activity that requires apportionment. If you have more than one
MI-1040H and are a Michigan resident, do not net income and
losses from multiple forms together. Instead, combine losses on
line 12 with other losses on line 12 and enter the total losses from
other states on Schedule 1, line 4; combine income on line 12
with other income on line 12 and enter total income from other
states on Schedule 1, line 13. Nonresidents with more than one
Form MI-1040H should net income and losses from line 12 of all
MI-1040H forms before entering the total on Schedule NR,
column C.

Part 3: Combined Apportionment Under the
Unitary Business Principle
Michigan Supreme Court held that combined apportionment under
the unitary business principle may be used to calculate IIT taxable
income at the election of the taxpayer, Malpass v. Department
of Treasury, 494 Mich 237 (2013). A taxpayer has the option to
apportion each discrete legal entity’s income (loss) separately or to
combine apportionment when entities are unitary with one another.
When a taxpayer elects to combine apportionment factors of the

2023 MI-1040H, Page 3

unitary business the taxpayer must control the entities included in
the combined apportionment filing and those entities must have a
flow of value between their various operations. A taxpayer with
control may elect to combine apportionment when the business
operations show:
• Economic realities
• Functional integration
• Centralized management
• Economies of scale
• Substantial mutual interdependence
These factors are not exhaustive or exclusive and the ability to
elect combined apportionment will depend on the totality of the
circumstances.
A unitary business may include non-Michigan entities. An
individual taxpayer may only include entities that have business
income or loss reported in the individual’s adjusted gross income.
The election to use combined apportionment is made on an annual
basis. Generally, to compute combined apportionment, all the
Michigan sales of every company in the group are combined to
arrive at “Michigan sales” in Part 1 of the MI-1040H. Then the
total sales of every company in the group are combined to arrive
at “Total sales” in Part 1 of the MI-1040H. When calculating the
Michigan sales and the total sales of each company, intercompany

sales may be eliminated. In addition, each company’s Michigan
sales and total sales are multiplied by the individual’s ownership
interest percentage in the corresponding company. The business
income (or loss) from all the companies in the group, to the extent
included in AGI, is combined to arrive at business income subject
to apportionment in Part 2 of the MI-1040H.
Individual taxpayers who use the combined apportionment method
must provide a statement identifying the members in the group.
The statement must show the combining calculations and include
a description detailing the unitary relationship between the entities
included in the combined apportionment filing. The statement
must be included with the MI-1040H filed with the MI-1040
return. An illustrative example of the statement that provides the
required information is below.

Combined Apportionment Example
Robert is a shareholder in two companies. He has a 75% ownership interest in Ajax Company and a 60% ownership interest in Acme
Company. The companies operate as a unitary business. Robert’s adjusted gross income includes distributive share income from both
companies. Robert’s distributive share income from the companies is subject to apportionment as one or more companies in the combined
apportionment group has business activity within and outside of Michigan. Robert elects to combine apportionment factors of his unitary
business and prepares the following worksheet to submit with his MI-1040H to be filed with his MI-1040 return.
To support the election to use combined apportionment on the MI-1040H, Robert includes with his worksheet a written statement that
includes all of the relevant facts and information supporting the unitary relationship between Ajax and Acme. In this statement, Robert
first demonstrates that he has control over each of the entities based upon his 75% controlling interest in Acme and his 60% controlling
interest in Acme. Robert then provides a description of the business operations between Ajax and Acme sufficient to satisfy each of the
factors generally used to determine the existence of a unitary relationship — economic realities, functional integration, centralization
of management, economies of scale, and substantial mutual interdependence. As one example of the information included within this
statement, Robert describes the centralization of management between the two companies by describing how overall and day-to-day
management decisions of Ajax were centralized and directed by the managers of Acme. Robert provides in this statement a similar
explanation for each of the other relevant factors considered in establishing a unitary relationship so that, based on the totality of the
circumstances, Robert successfully demonstrates that a unitary relationship exists between Ajax and Acme.
Taxpayer Name: Robert
Social Security Number : 123-45-6789
Tax Year: 2023
Gross
Michigan Sales

Intercompany Michigan
Sales Elimination

Ajax Company

19,000

(3,000)

Acme Company

26,225

Unitary Business Group - Everywhere Sales

Net Michigan Sales

Ownership
Interest

16,000

75%

12,000

26,225

60%

15,735

Total Michigan Sales, enter on line 6 of MI-1040H

27,735

Gross Everywhere
Sales

Intercompany
Everywhere Sales
Elimination

Ajax Company

30,333

(10,000)

Acme Company

34,500

Unitary Business Group - Everywhere Sales

Net Michigan Sales x
Ownership Interest

Net
Everywhere Sales

Ownership
Interest

Net Everywhere Sales x
Ownership Interest

20,333

75%

15,250

34,500

60%

20,700

Total Everywhere Sales, enter on line 7 of MI-1040H

Robert describes the unitary relationship between Ajax Company and Acme Company.

35,950