If you have business income that must be apportioned between Michigan and another state, Michigan may require you to complete Form MI-1040H, Schedule of Apportionment. This form calculates the portion of your business income that is taxable by Michigan.
What Is Form MI-1040H?
Form MI-1040H, Schedule of Apportionment, is used when business income is taxable both within and outside Michigan. The form determines the percentage of business income that should be taxed by Michigan using an apportionment formula based primarily on sales activity.
You may need Form MI-1040H if you:
- Operate a business in more than one state.
- Receive income from a partnership, S corporation, or other flow-through entity doing business in multiple states.
- Have business income that is subject to tax both inside and outside Michigan.
- Need to apportion income rather than allocate it entirely to one state.
Michigan's definition of "state" includes foreign countries, so international business activity may also create an apportionment requirement.
Where Is MI-1040H Entered in the Program?
If the return requires Michigan apportionment, navigate to:
Subtractions from Income → Income Attributable to Another State → Schedule of Apportionment (MI-1040H)
What Information Does MI-1040H Report?
Form MI-1040H is used to calculate the Michigan apportionment percentage and generally includes:
- Business income subject to apportionment.
- Michigan sales.
- Total sales everywhere.
- Michigan apportionment percentage.
- Income attributable to Michigan.
Michigan generally computes the apportionment percentage by dividing Michigan sales by total sales everywhere.
What Is Combined Apportionment?
Michigan allows individual taxpayers to elect combined apportionment under the unitary business principle when multiple related entities operate as a single integrated business. This election is made annually.
A combined apportionment election may be available when the taxpayer controls the entities and the businesses demonstrate characteristics such as:
- Economic realities.
- Functional integration.
- Centralized management.
- Economies of scale.
- Substantial mutual interdependence.
When combined apportionment is elected, the taxpayer combines:
- Michigan sales of all entities in the unitary group.
- Total sales of all entities in the group.
- Business income and losses included in adjusted gross income.
Michigan requires taxpayers using this method to provide documentation supporting both the calculations and the unitary relationship.
What Should Be Attached as a Unitary Calculation PDF?
Taxpayers electing combined apportionment should attach a PDF that includes:
- The combined apportionment calculations.
- Supporting schedules and worksheets.
- Identification of all members of the unitary group.
- Calculations showing Michigan and everywhere sales.
- A description of the unitary relationship between the entities.
- Any supporting facts demonstrating control, integration, and interdependence of the businesses.
Michigan specifically instructs taxpayers using combined apportionment to include a statement identifying the members of the group and explaining the unitary relationship between them.
How Can MI-1040H Affect My Return?
Completing Form MI-1040H may affect:
- Michigan taxable income.
- Business income reported to Michigan.
- The amount of Michigan tax due.
- The allocation of income between Michigan and other states.
Because the form determines what portion of multi-state business income is taxable by Michigan, the calculations can significantly impact the final tax result.
Notes
- Most individual taxpayers do not need Form MI-1040H.
- The form is generally used when business income is taxable in Michigan and at least one other state or country.
- Separate MI-1040H forms may be required for separate business activities that require apportionment.
- If combined apportionment is elected, supporting schedules and a unitary relationship statement should be attached to the return.
- Keep copies of all calculations and supporting documentation with your tax records.