Defendant appeals as of right from a judgment of the Michigan Tax Tribunal modifying defendant's single business tax assessments against plaintiffs for the taxable years 1984 to 1987. The tribunal ruled that payments plaintiffs received from consumers for computer software that plaintiffs modified and then distributed pursuant to licensing agreements were royalties that could be deducted from plaintiffs' single business tax base. It also distributes these items and computer software to businesses and individuals for their own use. ZDS and Heath acquire their computer software from copyright owners who created or acquired substantial rights in the software such as the right to exploit trademarks and copyrights.
Plaintiffs then enter into licensing agreements with the end users for use of the modified software.
Plaintiffs also contract with distributors who distribute the computer software to the end users. Plaintiffs included in their single business tax base the payments they made to the copyright owners for the rights they acquired in the computer software. However, plaintiffs deducted from their single business tax base the payments they received pursuant to the licensing agreements because they considered these to be royalty payments. Defendant assessed plaintiffs for tax deficiencies, claiming that the payments made by end users were not royalty payments. Plaintiffs then petitioned the tax tribunal to modify these assessments with respect to the deductions plaintiffs had claimed for royalty payments received in the taxable years of 1984 to 1987.