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A Quick Look at Michigan’s Corporate Income Tax

In May of 2011, Michigan Governor Rick Snyder signed into law a bill that made numerous adjustments to Michigan’s tax laws.  These changes included replacing the Michigan Business Tax with a corporate income tax. The Michigan corporate income tax consists of a flat tax at a rate of 6%.1

At the time he signed this bill Governor Snyder said, “[t]his is a defining moment in Michigan’s turnaround . . . Working in conjunction with other reforms such as a balanced state budget and refocused economic development strategies, the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”2


As indicated by this quote, the purpose of this tax scheme was not to maximize tax revenue. The revised summary of the bill projected significant decreases in revenue in the year following the bill’s passage.3 And the way in which Michigan determines its corporate tax shows that additional revenue is likely being left on the table.


All states that have a corporate tax have a method of apportioning the amount of a company’s income that should be taxed in their state. A common way for states to tax the income of a corporation is to use some form of the three factor apportionment formula. This involves creating “three fractions representing the ratios of a company’s property, payroll, and sales within a taxing state to its total property, payroll, and sales.”4

These ratios are then multiplied together to determine the percentage of the corporations taxable income that will be allocated to the taxing state.5

Michigan’s corporate tax apportions income using only a sales factor.6 This means that companies that have large operations in Michigan, but make a majority of sales outside the state are not taxed to the same extent as they would be if Michigan used some form of the three factor formula.


Opinions likely differ on whether or not instituting this corporate tax was a good move. Between the fiscal years ended 2011 and 2014 tax revenues from businesses dropped significantly, but this was offset by a large increase in individual income tax revenues.7

Though all of the effects of the tax are not obvious, the tax change has not gone unnoticed. In Forbes 2015 Rankings of the best states for business Michigan moved up twelve spots to an all-time high of 30, and the repeal of the Michigan Business Tax was specifically mentioned.8

  1. Corporate Income Tax,,4676,7-238-43519_59553—,00.html (last visited Jan. 28, 2016). 

  2. Snyder signs tax reform bills to fuel state’s turnaround (May 25, 2011),,4668,7-277-57577_57657-256823–,00.html (last visited Jan. 28, 2016). 

  3. H.B. 4361, 4362, & 4479: Summary As Enacted, at 6 (2011), available at 

  4. Judith Lohman, Corporate Tax Income Apportionment Formulas, (Sep. 26, 2012), (last visited Jan. 28, 2016). 

  5. Id. 

  6. Nexus and Apportionment,,4676,7-238-43519_59553_69155-265029–,00.html (last visited Jan. 28, 2016). 

  7. Mich. Dep’t. of Treasury, 2013-14 Annual Report of the Michigan State Treasurer, available at,1607,7-121-44402_44404—,00.html. 

  8. Best States For Business, Forbes 

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Jeff Christensen