Title: Malpass v. Dept. of Treasury (Opinion - Leave Granted)
Citation: N/A
Docket Number: 145367, 144430, 144431, 144432, 145368, 145369, 145370
State: Michigan
Issuer: Michigan Supreme Court
Date: June 24, 2013

MALPASS v DEPARTMENT OF TREASURY 
 
WHEELER ESTATE v DEPARTMENT OF TREASURY 
 
HUZELLA v DEPARTMENT OF TREASURY 
 
WRIGHT v DEPARTMENT OF TREASURY 
 
WHEELER v DEPARTMENT OF TREASURY 
 
Docket Nos. 144430, 144431, 144432, 145367, 145368, 145369, 145370.  Argued March 5, 
2013 (Calendar Nos. 1, 6).  Decided June 24, 2013. 
 
 
Tad and Brenda L. Malpass (Docket No. 144430), Tracy and Brenda K. Malpass (Docket 
No. 144431), and Fred and Barbara Malpass (Docket No. 144432) brought separate actions in 
the Court of Claims, seeking a reversal of the Department of Treasury’s decision to deny the 
Malpasses’ amended individual income tax returns for the years 2001, 2002, and 2003.  The 
Malpasses owned East Jordan Iron Works, a Michigan corporation that operated an iron foundry 
in East Jordan, Michigan; they also owned Ardmore Foundry, Inc., a Michigan corporation that 
operated an iron foundry located in Ardmore, Oklahoma.  Both companies were classified as S-
corporations under the Internal Revenue Code.  For the specified years, the Malpasses treated the 
companies as separate, non-unitary entities for taxation purposes, which resulted in income from 
East Jordan being attributed to Michigan and Ardmore’s losses being attributed to Oklahoma.  
The Malpasses later filed amended returns for those tax years and requested refunds totaling 
more than $1 million, claiming that they could combine East Jordan and Ardmore’s profits and 
losses because they were a unitary business.  The department denied the Malpasses’ amended 
returns.  The court, Rosemarie E. Aquilina, J., granted the Malpasses’ motion for summary 
disposition, finding that East Jordan and Ardmore were a unitary business, that the unitary 
business principle applied to the Income Tax Act, MCL 206.1 et seq. (ITA), and that the 
Malpasses could combine the income and losses of East Jordan and Ardmore and then apportion 
the aggregate.  The Court of Appeals, SHAPIRO, P.J., SAAD and BECKERING, JJ., reversed, finding 
that East Jordan and Ardmore were separate business entities and that the ITA did not allow 
individual taxpayers to combine their business income from separate business entities and then 
apportion on the basis of the combined apportionment factors of the entities.  295 Mich App 263 
(2012).  The Supreme Court granted the Malpasses’ application for leave to appeal.  493 Mich 
864 (2012).   
 
 
The Wheeler estate (Docket No. 145367), Nicholas and Lisa J. Huzella (Docket No. 
145368), Patrick and Michaelon Wright (Docket No. 145369), and Thomas R. and Patsy 
Wheeler (Docket No. 145370) (collectively, the taxpayers) filed petitions in the Tax Tribunal, 
challenging the assessment of taxes for the tax years 1994 and 1995.  Members of the Wheeler 
 
Michigan Supreme Court
Lansing, Michigan
Syllabus 
 
Chief Justice: 
Robert P. Young, Jr. 
 
Justices: 
Michael F. Cavanagh 
Stephen J. Markman 
Mary Beth Kelly 
Brian K. Zahra 
Bridget M. McCormack 
David F. Viviano 
This syllabus constitutes no part of the opinion of the Court but has been  
prepared by the Reporter of Decisions for the convenience of the reader. 
Reporter of Decisions: 
Corbin R. Davis 
family were shareholders of Electro-Wire Products, Inc., a Michigan-based S-corporation.  
Electro-Wire acquired the assets of Temic Telefunken Kabelsatz, GmbH, which resulted in two 
general partnerships: Temic Telefunken Kabelsatz (TKG), the operating partnership, and 
Electro-Wire Products, GmbH (EWG), the holding partnership.  The acquisition resulted in one 
S-corporation (Electro-Wire) and two general partnerships (TKG and EWG), with all the income 
and losses passing through to the owners as individual income.  The taxpayers reported the 
income by treating the businesses as unitary and apportioned the income using the combined 
apportionment factors of both Electro-Wire and TKG.  Following an audit, the department 
asserted that the unitary business principle did not apply to individuals and that the taxpayers 
were required to apply Electro-Wire’s apportionment factors to its income alone, resulting in 
liabilities and interest totaling more than $2 million.  The tribunal granted the taxpayers’ motion 
for summary disposition, determining that under the ITA, the unitary business principle applied 
to individuals as well as to separate corporate entities.  The Court of Appeals, HOEKSTRA, P.J., 
and SAWYER and SAAD, JJ., affirmed, concluding that Electro-Wire and TKG were a unitary 
business, the taxpayers could use combined reporting under the ITA, and that the apportionment 
could include income from business activity that was unitary with its Michigan business, Electro-
Wire.  297 Mich App 411 (2012).  The Supreme Court granted the Department of Treasury’s 
application for leave to appeal.  493 Mich App 865 (2012). 
 
 
In a unanimous opinion by Justice VIVIANO, the Supreme Court held: 
 
 
Under the ITA, individual taxpayers may combine the profits and losses from unitary 
flow-through businesses and then apportion that income on the basis of those businesses’ 
combined apportionment factors.  For the 1994 and 1995 tax years, the apportionment could 
properly be applied to a foreign entity if the foreign entity and the individual taxpayer’s in-state 
business were unitary.   
 
 
1.  The unitary business principle provides that a state may tax multistate businesses on 
an apportionable share of the multistate business conducted in the taxing state.  The following 
factors are appropriate guides for determining whether business operations are unitary: (1) 
economic realities; (2) functional integration; (3) centralized management; (4) economies of 
scale; and (5) substantial mutual interdependence.  Individual taxpayers in Michigan may use 
either a separate-entity reporting method to apportion income, or a combined reporting method.  
Separate-entity reporting requires each entity with a nexus to the taxing state to be considered as 
a separate and distinct entity, regardless of whether it could comprise a unitary business with 
other entities.  Combined reporting requires each member of a unitary business to compute its 
individual taxable income attributable to activities in the state by taking a portion of the 
combined net income of the group through the utilization of combined apportionment factors.  In 
Malpass, the parties did not dispute that East Jordan and Ardmore were unitary.  In Wheeler, 
considering the totality of the circumstances, the tribunal’s finding that Electro-Wire and TKG 
were a unitary business was supported by competent, material, and substantial evidence on the 
whole record, and the Court of Appeals properly affirmed that conclusion.   
 
 
2.  MCL 206.4(2), 206.102, 206.103, and 206.110(1) clearly require an individual 
taxpayer with business income stemming from business activity both within and outside of the 
state to allocate and apportion all business income using the formula set forth in MCL 206.115.  
Section 115 provides for the application of formulary apportionment, but does not expressly 
require that a particular method of apportionment be used.  Rather, the MCL 206.115 language is 
broad enough to allow both the separate-entity reporting and combined reporting method of 
formulary apportionment.  Although the department has required individuals to use separate-
entity reporting for flow-through business income in the past, it has not promulgated such a rule 
and the Supreme Court declined to adopt the department’s preferred methodology; the ITA 
permits combined reporting because it satisfies the clear mandate of MCL 206.115 that all 
business income be apportioned to the state.  
 
 
3.  Taken together, MCL 206.103, 206.105, and MCL 206.20 require unitary businesses 
that include foreign entities to allocate and apportion their income as provided by the ITA.  For 
the tax years 1994 and 1995, the version of MCL 206.115 in effect at that time stated in part that 
all business income shall be apportioned to Michigan; the language of the statute did not limit 
formulary apportionment to the domestic entities of a unitary business.  Accordingly, for the 
1994 and 1995 tax years, under MCL 206.115 an individual may use combined reporting for 
income derived from a foreign entity that is unitary with a domestic business taxable in 
Michigan.  In Malpass, the Court of Appeals erred by concluding that the ITA did not allow the 
Malpasses to first combine the income from their unitary flow-through entities and then 
apportion it on the basis of the combined apportionment factors of East Jordan and Ardmore.  In 
Wheeler, the Court of Appeals properly affirmed the tribunal’s conclusion that the ITA contained 
no geographical limitation for the 1994 and 1995 tax years; combined reporting was proper even 
though the unitary business of Electro-Wire and TKG included an entity located in a foreign 
country.   
 
 
Malpass reversed and remanded to the Court of Claims for reinstatement of the order 
granting summary disposition in favor of the Malpasses. 
 
 
Wheeler affirmed, but part III(A) of the Court of Appeals’ opinion vacated because it 
relied on Malpass, which was reversed by this decision.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
©2013 State of Michigan 
FILED JUNE 24, 2013 
 
S T A T E  O F  M I C H I G A N 
 
SUPREME COURT 
 
 
TAD MALPASS and BRENDA L. 
MALPASS, 
 
 
Plaintiffs-Appellants, 
 
 
v 
No. 144430 
 
DEPARTMENT OF TREASURY, 
 
 
 
Defendant-Appellee. 
 
 
 
 
TRACY MALPASS AND BRENDA K. 
MALPASS, 
 
 
Plaintiffs-Appellants, 
 
 
v 
No. 144431 
 
DEPARTMENT OF TREASURY, 
 
 
 
Defendant-Appellee. 
 
 
 
FRED MALPASS and BARBARA 
MALPASS, 
 
 
Plaintiffs-Appellants, 
 
 
Michigan Supreme Court
Lansing, Michigan
Opinion 
 
Chief Justice: 
Robert P. Young, Jr. 
 
 
Justices: 
Michael F. Cavanagh 
Stephen J. Markman 
Mary Beth Kelly 
Brian K. Zahra 
Bridget M. McCormack 
David F. Viviano 
 
 
 
 
 
2
 
v 
No. 144432 
 
DEPARTMENT OF TREASURY, 
 
 
 
Defendant-Appellee. 
 
 
 
WHEELER ESTATE, 
 
 
Petitioner-Appellee, 
 
 
v 
No. 145367 
 
DEPARTMENT OF TREASURY, 
 
 
 
Respondent-Appellant. 
 
 
 
NICHOLAS HUZELLA and LISA J. 
HUZELLA, 
 
 
Petitioners-Appellees, 
 
 
v 
No. 145368 
 
DEPARTMENT OF TREASURY, 
 
 
 
Respondent-Appellant. 
 
 
 
PATRICK WRIGHT and MICHAELON 
WRIGHT, 
 
 
Petitioners-Appellees, 
 
 
v 
No. 145369 
 
DEPARTMENT OF TREASURY, 
 
 
 
Respondent-Appellant. 
 
 
 
 
 
 
 
3
THOMAS R. WHEELER and PATSY 
WHEELER, 
 
 
Petitioners-Appellees, 
 
v 
No. 145370 
 
DEPARTMENT OF TREASURY, 
 
 
 
Respondent-Appellant. 
 
 
 
 
BEFORE THE ENTIRE BENCH  
 
VIVIANO, J.  
In these consolidated cases, we address the application of Michigan’s statutory 
apportionment formula for individuals with flow-through business income under the 
Michigan Income Tax Act (ITA).1  In both cases, the individual taxpayers received 
income from in-state and out-of-state, flow-through businesses.  The Michigan 
Department of Treasury (Department) refused the taxpayers’ attempts to combine the 
flow-through income from their respective businesses and then apportion the income 
using the businesses’ combined apportionment factors, and instead required the income 
of each entity to be apportioned separately.  
We hold that the ITA does not prohibit individual taxpayers from combining the 
profits and losses from unitary flow-through businesses and then apportioning that 
                                              
1 MCL 206.1 et seq.  The statutory provisions at issue in this opinion are to the versions 
of the ITA applicable to the tax years at issue.  The Legislature has since amended many 
of these provisions.  Except as discussed herein, those amendments have no bearing on 
these cases.   
 
 
 
4
income on the basis of the businesses’ combined apportionment factors.  Moreover, we 
hold that the ITA did not limit apportionment of income to domestic businesses during 
the 1994 and 1995 tax years, and that the apportionment could properly be applied to a 
foreign entity to the extent that the foreign entity and the individual taxpayer’s in-state 
business were unitary.   
Accordingly, (1) we reverse the Court of Appeals’ judgment in Malpass and 
reinstate the order entered by the Court of Claims granting summary disposition in favor 
of the Malpasses, and (2) we affirm the Court of Appeals’ judgment in favor of the 
Wheelers.   
I.  FACTS AND PROCEDURAL HISTORY  
A.  MALPASS v DEPARTMENT OF TREASURY  
Plaintiffs, individual members of the Malpass family, owned and operated East 
Jordan Iron Works (East Jordan), an iron foundry in East Jordan, Michigan.  They also 
owned and operated Ardmore Foundry, Inc. (Ardmore), an iron foundry in Ardmore, 
Oklahoma.  Both were Michigan corporations.  Because of their S-corporation 
classification under the Internal Revenue Code,2 all profits and losses flowed through the 
corporation to the family members individually.  
For the tax years of 2001, 2002, and 2003, East Jordan operated at a profit and 
Ardmore operated at a loss.  In their initial returns, the Malpasses treated the companies 
as separate, non-unitary entities.  Accordingly, the Malpasses attributed East Jordan’s 
income to Michigan and Ardmore’s losses to Oklahoma.  The Malpasses then amended 
                                              
2 26 USC § 1361. 
 
 
 
5
their returns for the 2001, 2002, and 2003 tax years, treating East Jordan and Ardmore as 
a unitary business, and combining East Jordan’s profits with Ardmore’s losses.  The 
combined amount from the unitary business was then apportioned to Michigan on the 
basis of the Michigan apportionment factors, resulting in claims for refunds totaling over 
$1 million.  
After the Department rejected the Malpasses’ amended returns, the individual 
taxpayers brought actions in the Court of Claims.  The actions were consolidated, and on 
November 19, 2009, the Court of Claims granted summary disposition in favor of 
plaintiffs.  The Court of Claims determined that East Jordan and Ardmore were a unitary 
business on the basis of an undisputed affidavit.  It then concluded that the unitary 
business principle applied to the ITA and that the Malpasses could first combine the 
income and losses of East Jordan and Ardmore and then apportion the aggregate.   
In a published opinion, the Court of Appeals reversed, concluding that East Jordan 
and Ardmore were separate and legally distinct business entities and that the ITA did not 
allow for combined reporting of separate entities.3  The Court of Appeals concluded that 
the Malpasses had received income from two separate businesses and were required to 
apportion the income of each entity separately.4  
B.  WHEELER v DEPARTMENT OF TREASURY 
Members of the Wheeler family were shareholders of Electro-Wire Products, Inc. 
(Electro-Wire), a Michigan-based S-corporation that made electrical systems.  Electro-
                                              
3 Malpass v Dep’t of Treasury, 295 Mich App 263, 275; 815 NW2d 804 (2011).  
4 Id. 
 
 
 
6
Wire acquired the assets of Temic Telefunken Kabelsatz, GmbH, a German company.  
The asset purchase resulted in two general partnerships: Temic Telefunken Kabelsatz, 
GmbH (TKG), the operating partnership, and Electro-Wire Products, GmbH (EWG), the 
holding partnership.  The end result of the acquisition was one S-corporation (Electro-
Wire) and two general partnerships (TKG and EWG), with all the income and losses 
passing through to the owners as individual income.  
 
For the tax years 1994 and 1995, the Wheelers reported the pass-through Electro-
Wire income on their individual tax returns; the income included partnership income 
from TKG.  The Wheelers treated the businesses as unitary and then apportioned the 
income using the combined apportionment factors of both companies.  After an audit and 
a determination that the unitary business principle did not apply to individual taxpayers, 
the Department required the Wheelers to apportion the income stemming from Electro-
Wire on the basis of Electro-Wire’s apportionment factors and to disregard TKG’s 
factors, resulting in liabilities and interest totaling over $2 million.   
 
The Tax Tribunal granted summary disposition in favor of the Wheelers, finding 
that there was no language in the ITA that supported the Department’s assertion that the 
unitary business principle applied only on a separate-legal-entity level.  In a published 
opinion, the Court of Appeals affirmed, concluding that the Wheelers could use 
combined reporting under the ITA and that the apportionment could extend to foreign-
 
 
 
7
business activity that was unitary with its Michigan business.5  The Court of Appeals also 
concluded that Electro-Wire and TKG were a unitary business.6    
II.  STANDARD OF REVIEW  
In Malpass, we review de novo the trial court’s decision on a motion for summary 
disposition.7  Our review of the Tax Tribunal’s decision in Wheeler is limited.  In the 
absence of fraud, we review a Tax Tribunal decision for “misapplication of the law or 
adoption of a wrong principle.”8  We consider the Tax Tribunal’s factual findings 
conclusive if they are “supported by competent, material, and substantial evidence on the 
whole record.”9  However, we review issues of statutory interpretation de novo.10  
III.  ANALYSIS 
A.  FORMULARY APPORTIONMENT IN MICHIGAN 
The Due Process Clause of the Fourteenth Amendment imposes two requirements 
on a state’s taxation of a business operating in interstate commerce: “a ‘minimal 
connection’ between the interstate activities and the taxing State, and a rational 
                                              
5 Wheeler v Dep’t of Treasury, 297 Mich App 411, 420, 422; 825 NW2d 588 (2012).  
6 Id. at 425. 
7 Debano-Griffin v Lake Co, 493 Mich 167, 175; 828 NW2d 644 (2013).  
8 Briggs Tax Serv, LLC v Detroit Pub Sch, 485 Mich 69, 75; 780 NW2d 753 (2010).  
9 Klooster v City of Charlevoix, 488 Mich 289, 295; 795 NW2d 578 (2011), quoting Mich 
Bell Tel Co v Dep’t of Treasury, 445 Mich 470, 476; 518 NW2d 808 (1994) (quotation 
marks omitted).  
10 Klooster, 488 Mich at 295. 
 
 
 
8
relationship between the income attributed to the State and the intrastate values of the 
enterprise.”11  A state is not required to isolate a business’s intrastate activities from its 
interstate activities; instead, “it may tax an apportioned sum of the corporation’s 
multistate business if the business is unitary.”12  This latter concept, known as the unitary 
business principle, has been referred to as the “linchpin of apportionability.”13  It allows a 
state to “tax multistate businesses ‘on an apportionable share of the multistate business 
carried on in part in the taxing state.’”14   
                                              
11 Mobil Oil Corp v Comm’r of Taxes of Vermont, 445 US 425, 436-437; 100 S Ct 1223; 
63 L Ed 2d 510 (1980), citing Moorman Mfg Co v Bair, 437 US 267, 272-273; 98 S Ct 
2340; 57 L Ed 2d 197 (1978).  
12 Allied-Signal, Inc v Director, Div of Taxation, 504 US 768, 772; 112 S Ct 2251; 119 L 
Ed 2d 533 (1992).   
13 Mobil Oil, 445 US at 438-439.  Typically, controversies involving the unitary business 
principle and formulary apportionment feature the taxpayer raising constitutional 
objections to the state’s taxation scheme.  See Mobil Oil Corp, 445 US at 439; Container 
Corp of America v Franchise Tax Board, 463 US 159, 165-175; 103 S Ct 2933; 77 L Ed 
2d 545 (1983); F W Woolworth Co v Taxation & Revenue Dep’t of New Mexico, 458 US 
354, 364-372; 102 S Ct 3128; 73 L Ed 2d 819 (1982); ASARCO Inc v Idaho State Tax 
Comm, 458 US 307, 322-330; 102 S Ct 3103; 73 L Ed 2d 787 (1982).  Although there are 
no constitutional claims in this case, that does not render the basic constitutional 
principles underlying Michigan’s formulary apportionment scheme irrelevant because the 
unitary business principle is the predicate for any formulary apportionment scheme.   
 
14 Preston v Dep’t of Treasury, 292 Mich App 728, 733; 815 NW2d 781 (2011), quoting 
Allied-Signal, Inc, 504 US at 778.  Until recently, the Department has taken the position 
that the unitary business principle does not apply to individual taxpayers, but now 
concedes that it does.  Michigan adopted the Uniform Division of Income for Tax 
Purposes Act (UDITPA) when it enacted the Michigan Income Tax Act in 1967; 
UDITPA embodies the application of the formulary apportionment method in 
conjunction with the unitary business principle.  See Container Corp, 463 US at 165, 
170. 
 
 
 
9
Our state has adopted formulary apportionment for individual taxpayers in the 
ITA.15  Recognizing that Michigan is a formulary apportionment state, however, does not 
resolve the issue in this case because there are at least two different methods of applying 
the apportionment formula.16  First, a state may use separate-entity reporting, which 
requires each entity with a nexus to the taxing state to be considered as a separate and 
distinct entity, regardless of whether it could comprise a unitary business with other 
entities.17  Alternatively, a state may use combined reporting, which requires “each 
member of a group carrying on a unitary business [to] compute[] its individual taxable 
income attributable to activities in [the state] by taking a portion of the combined net 
income of the group through the utilization of combined apportionment factors.”18  The 
question in this case is whether the ITA prohibits individual taxpayers from using 
combined reporting.  
                                              
15 MCL 206.115.  During the tax years at issue in these cases, Michigan used three 
factors—payroll, property, and sales—to apportion in-state and out-of-state business 
income for individuals.  Michigan’s apportionment formula changed as of January 1, 
2012, with the enactment of Michigan’s corporate income tax act, MCL 206.601 et seq.  
Michigan now apportions solely on a sales factor.  See MCL 206.115(2), as amended by 
2011 PA 38 and 2011 PA 178.   
16 See, generally, 2 Pomp, State and Local Taxation (6th ed), pp 10:43-10:48. 
17 Media Gen Communications v SC Dep’t of Revenue, 388 SC 138, 142, 146; 694 SE 2d 
525 (2010); see also Pomp, pp 10:42, 10:43. 
18 Media Gen Communications, 388 SC at 142. The combined income is not used for 
taxing purposes, but it is used to determine the “portion of income from the entire unitary 
business attributable to sources within [the state] that is derived by members of the group 
subject to [the state’s] taxing jurisdiction.”  Id.  See also Pomp, pp 10:42-10:43. 
 
 
 
10
To answer this question, we turn first to the statutory language.19  Our goal in 
interpreting a statute “is to give effect to the Legislature’s intent, focusing first on the 
statute’s plain language.”20  In so doing, we examine the statute as a whole, reading 
individual words and phrases in the context of the entire legislative scheme.21   
Under the ITA, an individual taxpayer’s entire income is taxable in Michigan if it 
is derived solely from activity within the state.22  However, if the income is derived from 
business activity taxable both within and without this state, the ITA requires an individual 
taxpayer to “allocate and apportion his net income . . . .”23  The ITA further states that, 
“[f]or a resident individual, . . . all taxable income from any source whatsoever, except 
that attributable to another state under [MCL 206.111 to MCL 206.115] and subject to 
[MCL 206.255], is allocated to this state.”24  Section 115, the only one of these sections 
applicable here, provides: “All business income, other than income from transportation 
services shall be apportioned to this state by multiplying the income by a fraction, the 
numerator of which is the property factor plus the payroll factor plus the sales factor, and 
                                              
19 Casco Twp v Secretary of State, 472 Mich 566, 571; 701 NW2d 102 (2005). 
20 Klooster, 488 Mich at 296, citing Sun Valley Foods Co v Ward, 460 Mich 230, 236; 
596 NW2d 119 (1999).  
21 Sun Valley Foods Co, 460 Mich at 237; Herman v Berrien Co, 481 Mich 352, 366; 750 
NW2d 570 (2008).  
22 MCL 206.102. 
23 MCL 206.103. 
24 MCL 206.110(1). 
 
 
 
11
the denominator which is 3.”25  The ITA defines “business income” as “income arising 
from transactions, activities, and sources in the regular course of the taxpayer’s trade or 
business . . . .”26  
These provisions require an individual taxpayer with business income stemming 
from business activity both within and outside of the state to allocate and apportion “[a]ll 
business income” using the formula contained in MCL 206.115.  Section 115 is 
unambiguous—it plainly provides for the application of formulary apportionment.  
However, the statute does not require that any particular method of apportionment be 
used—it is silent on this question.  When, as here, “the language of the statute is 
unambiguous, the Legislature must have intended the meaning clearly expressed, and the 
statute must be enforced as written.  No further judicial construction is required or 
permitted.”27  Although section 115 does not require or prohibit any particular method of 
applying the statutory formula, the phrase, “[a]ll business income . . . shall be 
apportioned[,]” is certainly broad enough to encompass either of the approaches 
advocated by the parties.   
The Department argues that combined reporting is prohibited because it is not 
expressly authorized in the ITA for individual taxpayers, like it is for corporate 
taxpayers.28  However, the Department’s argument is flawed.  The argument is self-
                                              
25 Emphasis added. 
26 MCL 206.4(2). 
27 Sun Valley Foods, 460 Mich at 236. 
28 MCL 208.77.  During the tax years at issue, a combined return provision existed in the 
Single Business Tax Act, MCL 208.1 et seq., as replaced by 2006 PA 325, giving the 
 
 
 
 
12
defeating because the ITA does not expressly authorize either method of reporting.  
Moreover, the provision of the corporate tax law applicable at the time of these returns, 
MCL 208.77(1), allowed for combined or consolidated returns by multiple corporate 
entities engaged in affiliated business that would otherwise be required to file separate 
returns.  This is because Michigan imposes corporate taxes at the entity level; thus, absent 
a combined filing provision, unitary corporations would lack a means to file a single 
combined return.  By contrast, income for individuals is already disbursed from the 
income-producing entities, aggregated by the taxpayer at the time of filing, and included 
on a single return.  Thus, while the Legislature has included a combined return provision 
in the corporate tax code, such a provision is unnecessary for individual taxpayers, 
because they are already required to aggregate all their income on a single return.29 
The Department also argues that it has always required the use of separate-entity 
reporting and has never approved combined reporting.  Although the Department has 
certain rule-making authority, in this case, the Department has not promulgated a rule 
requiring separate-entity reporting for individual taxpayers.30  To the extent that the 
                                              
Department discretion to allow a corporation to file a consolidated or combined return. 
29 See MCL 206.315. 
30 The Department is free to promulgate administrative rules consistent with the ITA in 
accordance with procedures set forth in the Administrative Procedure Act, MCL 24.201 
et seq. and MCL 205.3(b); see also MCL 206.471(1)(b) (providing that the Department 
may promulgate rules for “[t]he computation of the [income] tax”); MCL 206.471(1)(d) 
(providing that the Department may promulgate rules regarding the “ascertainment, 
assessment, and collection of the tax”).  We do not address whether, or the extent to 
which, the Department may promulgate a rule requiring that an individual taxpayer use a 
particular method of reporting in the taxpayer’s initial filing.  We note, however, that any 
such rule would be subject to the current MCL 206.195, which gives the taxpayer the 
 
 
 
 
13
Department has interpreted the statute to prohibit combined reporting, that interpretation 
is inconsistent with the broad scope of section 115; therefore, it “‘conflict[s] with the 
indicated spirit and purpose of the legislature.’”31 
Faced with a statutory provision that is broad enough to encompass both reporting 
options—but does not choose between them—the Department asks this Court to adopt its 
preferred methodology.  However, we decline this invitation to engage in interstitial rule 
making because “[t]o supply omissions transcends the judicial function.”32  Instead, in the 
absence of a policy choice by the Legislature, we conclude that the ITA permits either 
reporting method.33   
In sum, we reject the Department’s position that the ITA requires separate-entity 
reporting.  Instead, we hold that combined reporting is permitted by the ITA because it 
                                              
right to petition for an alternative method if the initial filing required by the Department 
“do[es] not fairly represent the extent of the taxpayer’s business activity in this state.”  
MCL 206.195(1)(c). 
31 In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 103; 754 NW2d 259 
(2008), quoting Boyer-Campbell Co v Fry, 271 Mich 282, 296-297; 260 NW 165 (1935).   
32 Iselin v United States, 270 US 245, 251; 46 S Ct 248; 70 L Ed 566 (1926).  
33 Although not significant to the Court’s analysis, we note that combined reporting 
ensures that “the substance of the business activities in the state [] control tax 
consequences, not the organizational structure of the business or the entities conducting 
those activities,” Pomp, p 10-48; is “wholly consistent with, and a natural extension of, 
the apportionment method[,]” Coca Cola Co v Dep’t of Revenue, 271 Or 517, 528; 533 
P2d 788 (1975); and, perhaps for these reasons, is a “growing trend[.]”  Pomp, p 10-44.  
However, the separate-entity approach is also consistent with formulary apportionment.  
See W. Hellerstein, Income Allocation, 12 Int’l Transfer Pricing J. 103, 105 (2005).  
 
 
 
14
satisfies the clear statutory mandate that “[a]ll business income . . . shall be apportioned 
to this state . . . .”34 
B.  THE ITA’S APPLICATION TO FOREIGN ENTITIES  
 
Beyond our determination that an individual taxpayer can use combined reporting 
for flow-through business income, we also must consider whether this method could 
extend geographically outside the United States during the tax years of 1994 and 1995.  
In Wheeler, the Department argues that even if combined reporting is permitted under the 
ITA, it does not apply to a foreign entity that is unitary with a domestic business taxable 
in Michigan.35  Again, our analysis of this issue begins with the statute’s text.36 
The statutory basis for taxing out-of-state income is § 103, which states: 
Any taxpayer having income from business activity which is taxable 
both within and without this state, other than the rendering of purely 
personal services by an individual, shall allocate and apportion his net 
income as provided in this act.[37] 
MCL 206.105 specifies when a taxpayer’s income is taxable in another state and, thus, 
required to be allocated and apportioned under § 103.  It provides: 
For purposes of allocation and apportionment of income from 
business activity under this act, a taxpayer is taxable in another state if (a) 
                                              
34 MCL 206.115. 
35 We note that the United States Supreme Court has upheld the apportionment of 
business income of unitary foreign entities.  See, e.g., Barclays Bank PLC v Franchise 
Tax Bd of Cal, 512 US 298; 114 S Ct 2268; 129 L Ed 2d 244 (1994); Container Corp of 
America, 463 US 159 (1983). 
36 Casco Twp, 472 Mich at 571. 
37 MCL 206.103 (emphasis added). 
 
 
 
15
in that state he is subject to a net income tax, a franchise tax measured by 
net income, a franchise tax for the privilege of doing business or a 
corporate stock tax, or (b) that state has jurisdiction to subject the taxpayer 
to a net income tax regardless of whether, in fact, the state does or does 
not.[38] 
Finally, MCL 206.20 defines “state” as “any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United 
States, and any foreign country, or political subdivision, thereof.”39  Taken together, 
these provisions require a taxpayer to allocate and apportion his income if “in [a foreign 
country] he is subject to a net income tax . . . or [a foreign country] has jurisdiction to 
subject the taxpayer to a net income tax . . . .”40  Thus, unitary businesses that include 
foreign entities must allocate and apportion their income as provided by the ITA.41 
We turn now to the ITA provisions dealing with business income to determine if 
the act otherwise excludes the income of a foreign entity for purposes of allocation and 
apportionment.  Section 115, which deals with the apportionment of business income, 
states in pertinent part, “All business income . . . shall be apportioned to this state by 
multiplying the income by a fraction, the numerator of which is the property factor plus 
the payroll factor plus the sales factor, and the denominator of which is 3.”42  Moreover, 
the apportionment factors themselves employ universal language when explaining the 
                                              
38 MCL 206.105. 
39 MCL 206.20 (emphasis added). 
40 MCL 206.105. 
41 MCL 206.103. 
42 Emphasis added. 
 
 
 
16
scope of relevant business activity.  MCL 206.119 states that “[t]he payroll factor is a 
fraction, . . . the denominator of which is the total compensation paid everywhere during 
the tax period.”43  Likewise, MCL 206.121 states that “[t]he sales factor is a fraction, . . . 
the denominator of which is the total sales of the taxpayer everywhere during the tax 
period.”44   
Nowhere in the ITA did the Legislature limit formulary apportionment to the 
domestic entities of a unitary business.  In fact, to the extent that the Legislature 
discussed geographic limitations, it expressly required taxpayers with income taxable in a 
foreign country to allocate and apportion their income as provided in the act, which 
includes § 115’s directive that all business income be apportioned using the 
apportionment factors.45  Therefore, we reject the Department’s argument that the ITA 
prohibits application of formulary apportionment to income from a foreign entity that is 
unitary with a domestic business. 
Accordingly, we conclude that a unitary business with income from a business in a 
foreign country could be apportioned under the version of the ITA in effect during the tax 
years of 1994 and 1995.46  
                                              
43 Emphasis added. 
44 Emphasis added. 
45 See MCL 206.20, 206.103, and 206.105. 
46 The Legislature has limited the scope of the corporate income tax to domestic 
corporations in recent amendments.  2011 PA 38.  The ITA now defines “unitary 
business group” as a “group of United States persons that are corporations, insurance 
companies, or financial institutions, other than a foreign operating entity . . . .”  MCL 
206.611(6).  The Department argues that this shows that the Legislature only intended to 
include businesses within the United States.  However, we are not persuaded that the 
 
 
 
 
17
C.  APPLICATION TO MALPASS 
On appeal, the parties in Malpass do not dispute whether East Jordan and Ardmore 
were a unitary business.  The Court of Appeals, despite determining that the businesses 
had unitary characteristics, wrongly concluded that the ITA does not allow individual 
taxpayers with flow-through business income from separate legal entities to use 
combined reporting.47  For the reasons already stated, we hold that the ITA did not 
prohibit the Malpasses from first combining the income from their unitary flow-through 
entities and then apportioning it on the basis of the combined apportionment factors of 
East Jordan and Ardmore.  Therefore, we reverse the Court of Appeals’ judgment in 
Malpass and reinstate the order entered by the Court of Claims granting summary 
disposition in favor of the Malpasses.  
D.  APPLICATION TO WHEELER  
Unlike in Malpass, the parties in Wheeler dispute whether the Michigan and 
German entities were a unitary business.  The Tax Tribunal found that they were, and the 
Court of Appeals affirmed.  To consider business operations unitary, the United States 
                                              
recent amendment limiting the scope of corporate income tax should affect our 
interpretation of the ITA for the tax years 1994 and 1995.   
47 Malpass, 295 Mich App at 270.  In its opinion, the Court of Appeals erroneously 
concluded that the ITA does not allow combined reporting.  Id. (“[N]othing in the ITA 
allows for combined-entity reporting.”); id. at 272 (“There is no provision in the ITA that 
allows individuals to combine their business income from separate businesses and then 
use a combined apportionment formula on the total.”).  However, the Court of Appeals 
reached this conclusion in cursory fashion without analyzing the relevant provisions of 
the ITA.  Instead, the Court of Appeals fixated on the corporate form of the business 
entities, even though the ITA makes no distinctions based on corporate formalities.  
 
 
 
 
18
Supreme Court has held, “[T]here [must] be some sharing or exchange of value not 
capable of precise identification or measurement—beyond the flow of funds arising out 
of a passive investment or a distinct business operation—which renders formula 
apportionment a reasonable method of taxation.”48  Accordingly, a unitary business exists 
when the income-producing companies have “functional integration, centralization of 
management, and economies of scale.”49  Other United States Supreme Court decisions 
have added to these guideposts.50  The Court of Appeals relied on the following five 
factors in determining whether the Michigan and German entities were a unitary 
business: “(1) economic realities; (2) functional integration; (3) centralized management; 
(4) economies of scale, and (5) substantial mutual interdependence.”51  We agree that 
these factors are appropriate guides for determining whether businesses are unitary.  
Moreover, as the United States Supreme Court held in Container Corp, “We need not 
decide whether any one of these factors would be sufficient as a constitutional matter to 
prove the existence of a unitary business.”52  These factors are not exhaustive or 
                                              
48 Container Corp, 463 US at 166.  
49 Mobil Oil, 445 US at 438.  
50 See F W Woolworth Co, 458 US at 364-372; ASARCO Inc, 458 US at 319, 322-329; 
Container Corp, 463 US 159.  
51 Wheeler Estate, 297 Mich App at 422-423, citing Holloway Sand & Gravel, Co, Inc v 
Dep’t of Treasury, 152 Mich App 823, 831; 393 NW2d 921 (1986). 
52 Container Corp, 463 US at 179-180.  
 
 
 
19
exclusive.  Nor is any one factor dispositive.  Instead, a court should consider the totality 
of the circumstances when determining if businesses are unitary.53 
Turning to the evidence offered by the parties, and aware of our limited review of 
the factual determinations made by the Tax Tribunal, we agree with that body’s 
conclusion that the businesses here were unitary.  The Court of Appeals affirmed the 
findings of the Tribunal.  Because we agree with the thorough analysis of the Court of 
Appeals, we adopt its conclusions and holding in full:   
The first factor, economic realities, addresses whether the regularly 
conducted activities of the businesses in question are related.  Holloway, 
152 Mich App at 832.  The record shows that the underlying businesses of 
Electro-Wire and TKG were identical because both were engaged in the 
manufacturing and assembling of electrical distribution systems.  
Respondent claims that this is immaterial because the two businesses were 
engaged in the same underlying business before Electro-Wire purchased 
TKG.  However, there is no requirement under Holloway or related cases 
that potentially unitary businesses develop the same underlying activities 
collaboratively; the only requirement is that the underlying businesses be 
related to each other.  
The second factor, functional integration, concerns the extent to 
which business functions are blended to promote a unitary relationship.  
Petitioners presented evidence that, before it was acquired by Electro-Wire, 
TKG was part of the Daimler Group.  Once Electro-Wire purchased TKG, 
however, this relationship was severed, leaving TKG without critical 
support services, which were assumed by Electro-Wire.  These services 
included direct management of TKG’s business activities and support for 
component engineering, manufacturing and industrial engineering, cost 
estimating, business development, finance, and executive administration.  
                                              
53 See, generally, Holloway Sand, 152 Mich App at 835 (mentioning a “sixth factor” 
resulting from the taxpayer’s treatment of capital gains from one of the businesses); see 
also Container Corp, 463 US at 179 (approving a California Court of Appeals reliance on 
“a large number of factors” to conclude that a domestic corporation and its foreign 
subsidiaries were unitary). 
 
 
 
20
Respondents presented no rebuttal evidence, but set forth on appeal a list 
identifying ways in which Electro-Wire and TKG were not integrated.  
However, this belated argument is not persuasive because there is no 
requirement that businesses be 100 percent integrated in order to classify 
them as unitary.  
The third factor examines the extent to which management was 
centralized across the potentially unitary business.  Petitioners submitted 
unrebutted evidence that TKG’s overall management decisions were 
centralized and directed by Electro-Wire managers in North America and 
that Electro-Wire hired and fired all TKG officers and managers.  Again, 
respondent presented no rebuttal evidence, but alleges that Electro-Wire did 
not engage in day-to-day management of TKG.  Again, however, the only 
requirement under Holloway is centralized management, not complete 
management.  
The fourth factor looks for the presence of economies of scale.  
Petitioners presented unrebutted evidence of economic benefits generated 
by the combination of Electro-Wire and TKG, such as an expanded 
customer base, sharing of unique and proprietary processes, and improved 
financing terms.  Respondent presented no evidence to challenge this, but 
argues that petitioners failed to show profits through bulk purchasing or 
improved allocation of resources.  These are typically considered to be 
common economies of scale, but respondent does not explain how cheaper 
component parts, an expanded customer base, increasing economic 
diversification, and improved financing conditions are not also benefits 
derived from economies of scale.  
The fifth and final factor considers whether substantial mutual 
interdependence exists.  Petitioners submitted unrebutted evidence that 
acquiring TKG was essential for Electro-Wire to remain a supplier for Ford 
and that remaining a supplier for Ford was essential to Electro-Wire’s 
survival.  The Tax Tribunal found that Electro-Wire was dependent on 
TKG, but was unable to conclude whether or not TKG was similarly 
dependent on Electro-Wire, and thus resolved this factor partially in favor 
of petitioners.[54] 
Based on the foregoing, we hold that the Tax Tribunal’s factual finding that 
Electro-Wire and TKG were a unitary business was “supported by competent, material, 
                                              
54 Wheeler Estate, 297 Mich App at 423-425.  
 
 
 
21
and substantial evidence on the whole record.”55  Because there was evidentiary support 
for all of the unitary factors, the Court of Appeals properly affirmed the Tax Tribunal’s 
conclusion that Electro-Wire and TKG constituted a unitary business.  Because we 
discern no limitations on the geographical boundaries to which the combined reporting 
could extend, the Wheelers could combine the profits and losses from Electro-Wire and 
TKG and then apportion, using the companies’ combined apportionment factors. 
IV.  CONCLUSION 
In Malpass, we hold that the ITA permitted the individual taxpayers to combine 
the flow-through business income from the unitary business of East Jordan and Ardmore 
and then apportion, using the combined apportionment factors of the unitary business.  
Accordingly, we reverse the Court of Appeals and remand to the Court of Claims for 
reinstatement of the order granting summary disposition in favor of plaintiffs.   
In Wheeler, we hold that the Court of Appeals properly determined that the 
Wheelers could combine their flow-through income from the unitary business of Electro-
Wire and TKG.  In so doing, we hold that the ITA contained no geographical limitations 
for the tax years of 1994 and 1995 and that combined reporting was proper even though 
the unitary business included an entity located in a foreign country.  We affirm the  
 
                                              
55 Klooster, 488 Mich at 295.  
 
 
 
22
judgment of the Court of Appeals, but we vacate Section III(A) of the Court of Appeals’ 
opinion because that analysis is inconsistent with our analysis herein and relied on the 
Court of Appeals’ erroneous decision in Malpass, which we reverse today.   
 
 
David F. Viviano 
 
Robert P. Young, Jr. 
 
Michael F. Cavanagh 
 
Stephen J. Markman 
 
Mary Beth Kelly 
 
Brian K. Zahra 
 
Bridget M. McCormack