Discussion:Montana Filing Requirements

Montana imposes a corporate license tax for the privilege of doing business in the state. The rate is 6.75%, and the base is federal taxable income after certain state adjustments. The annual tax may not be less than $50. "Doing business" for this purpose is very broadly defined as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit." Mont. Code Ann. § 15-31-101(2). A corporation that is doing business in more than one state apportions its income to Montana by an equally-weighted three-factor formula (the standard UDITPA property, payroll and sales formula).

If the corporation will continue to do business in Michigan, you might as well leave it there and obtain a certificate of authority to do business in Montana. If there will not be any more Michigan activity, reincorporating in Montana will avoid the requirements of filing annual reports and Michigan Business Tax returns in Michigan.

Thanks for the Feedback

What kind of business is this?

As you probably know, the old Michigan Single Business Tax has been replaced by the new Business Tax. The MBT is imposed on domestic (i.e., organized in Michigan) and foreign corporations with business activity in Michigan. If the corporation no longer has any business activity in Michigan, it is not subject to the MBT. "Business activity" for this purpose is defined as "...a transfer of legal or equitable title to or rental of property, whether real, personal, or mixed, tangible or intangible, or the performance of services, or a combination thereof, made or engaged in, or caused to be made or engaged in, whether in intrastate, interstate, or foreign commerce, with the object of gain, benefit, or advantage, whether direct or indirect, to the taxpayer or to others...." Mich. Comp. Laws Ann. § 208.1105(1), effective 1/1/08.

It does not matter where the brokerage is located. The interest income is not from a Michigan source, even though the funds invested in the CDs arose from Michigan business in the past. If the corporation is no longer conducting any business activity in Michigan, it is not subject to the MBT.

The relevant Michigan code sections are: Mich. Comp. Laws Ann. §208.1201(1), §208.1113(3), and §208.1117(5).

Your client would be wise to reincorporate this entity in Montana. Forms for accomplishing this are no doubt available on the Secretary of State web sites of the two states. For federal income tax purposes this will be a tax-free reorganization under IRC Sec. 368(a)(1)(F).

The MT corporation license tax is imposed on every corporation, domestic or foreign, that is engaged in business or doing business in Montana. "Engaging in business" and "doing business" are both defined as "actively engaging in any transaction for pecuniary gain or profit."

If the corporation did nothing but hold intangibles, collect interest and dividends, and distribute dividends to its owners, it probably would not meet the definition of "doing business" and would not be subject to the tax. The fact that it has one or more employees performing services on its behalf in Montana, however, suggests that more is going on than just holding intangibles. California, which defines "doing business" in similar terms, would consider signing the payroll checks in the state to constitute an activity for pecuniary gain or profit (why else would you pay an employee?).

References: Mont. Code Ann. §15-31-101(2); Mont. Code Ann. §15-31-406; Mont. Admin. R. §42.23.102.

Does bonus pay in MT considered MT apportionment Factor?

The corporation license tax (analogous to the California franchise tax) is imposed by Part 1 of Chapter 31 of Title 15 of the Montana Code on corporations engaged in business or doing business in Montana. There is a $50 annual minimum under the corporation license tax. See Mont. Code Ann. Sec 15-31-101 and Sec. 15-31-121.

The corporation income tax (analogous to the California corporate income tax) is imposed by Part 4 of Chapter 31 of Title 15 of the Montana Code on corporations that are subject to net income tax in Montana but are not subject to the license tax -- IOW, corporations that derive income from sources in Montana but are not doing business in the state. There is no minimum under the corporation income tax. See Mont. Code Ann. Sec. 5-31-401.

Your client's corporation is clearly subject to Montana tax, but the question is whether it is doing business so as to be subject to the license tax, or is subject to the income tax. If it does nothing in Montana but hold intangibles, collect interest, and pay dividends, it may be subject to the income tax rather than the license tax. Also, if it is not engaged in business, its income is not apportionable; it is nonbusiness income as defined by Mont Code Ann Sec. 15-31-302, which is the UDITPA definition. The interest earned after the corporation moved to Montana would be nonbusiness income allocable to Montana (the commercial domicile of the corporation after that date). The tax would be 6.75% of the $13,000 of income earned after the corporation became commercially domiciled in Montana.

You should probably consult a local practitioner who is familiar with the Montana tax system. Only a knowledgeable person who has access to all of the relevant facts and circumstances can really give you an answer as to which tax your client is subject to. It depends on a lot of things. For example, you said the assets had been moved to Montana -- does that include the assets of the electrical contracting business? Is that business going to be carried on in Montana in the future? Or is the client effectively retired from the electrician business? It may be possible that the corporation is subject to the income tax in one year (e.g., the part of 2008 after the move) and the license tax the next. You need local help with this.

thank you

Hopefully, this will all blow over, and they'll move back to Michigan.

However, reading over the facts of your situation, I can't help but think that the Husband here is running away from something, rather than running toward something. Has he gotten a warning from the Mob? Did he bet the farm on GM stock?

I think you need to have these clients investigated. On the bright side, maybe the feller has gone green, and he's set his sights on a windfarm.

As for betting the farm on GM stock----NOT.

Michigan people in the manufacturing sector have suffered a big loss in the automotive industry and I for one am hoping that these people can ride out the storm.

The husband is not running away from something, he wants to go Fly Fishing. He probably has seen the movie "A river runs through it" too many times - once may be too many!

Send them the movie, upon discovering Fly Fishing, their marriage will be over, then your client will be forced to move back. I should patent this evil plan.

No takers from Montana!!!! I see, to busy Fly Fishing. I got it.

Phones will be ringing in MT on Monday!!!!!! Talk to you then.