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2022 MI-1040H, Page 2
Instructions for Form MI-1040H, Schedule of Apportionment
of tangible personal property that originate in Michigan made to
General Information
a purchaser in another state or country, and are “thrown back”
Michigan defines business income as all income (loss) arising to the numerator as Michigan sales because they are not taxable
from transactions, activities, and sources in the regular course by the other state. Throwback sales follow federal P.L. 86-272
of the taxpayer’s trade or business. Michigan business income standards; the business must have physical presence in the other
(loss) includes the distributive share of income (loss) from state or activity beyond solicitation of sales in order to exclude
a flow-through entity, including portfolio income. Portfolio sales into another state or country from the numerator. There is
income includes interest income, dividend income, royalty no “water’s edge” for individual income tax purposes.
income, and net short-term and long-term capital gain (loss) Sales of other than tangible personal property (e.g., services) are
reported on the federal Schedule D. For more information see in Michigan if:
the MI-1040 booklet.
1. The business activity is performed in Michigan, or
Business income from business activity that is taxable both
2. The business activity is performed both in Michigan and in
within and outside Michigan is apportioned to Michigan for
another state(s), but based on cost of performance, a greater
individual income tax (IIT) purposes using this form. This
proportion of the business activity is performed in Michigan.
form is also used to apportion business income for fiduciary and
composite filers. There are special apportionment formulas for transportation
companies and other authorized taxpayers. Those formulas are
In order to determine if apportionment is required rather than
identified in Chapter 3 of the Michigan Income Tax Act.
allocation, a taxpayer must determine if the business activity
causes the taxpayer’s income to be subject to tax in both Part 2: Computation of Income Attributable to
Michigan and another state. The Michigan Income Tax Act Another State(s)
definition of “state” includes a foreign country. If you filed a U.S. Form 461 with a current year federal
A taxpayer’s business income is taxable in another state if: limitation on business losses, complete Michigan Excess
1. In that state the taxpayer is subject to a net income tax, a Business Loss (Form MI-461) before completing Part 2.
franchise tax measured by net income, a franchise tax for the Michigan’s definition of business income differs from the federal
privilege of doing business, a corporate stock tax, or definition of business income. Due to the differences in the
2. That state has jurisdiction to subject the taxpayer to a net business income reported for federal purposes, the federal business
income tax regardless of whether the state does or does not. income and loss reported on Form MI-461 may not include all
business income or loss for Michigan purposes (e.g., interest
For IIT purposes, Michigan uses the standards prescribed by
and dividends). Therefore, line 10 of this form should exclude
federal Public Law (P.L.) 86-272 to determine whether another
amounts reported and apportioned on Form MI-461. However,
state has jurisdiction to subject the taxpayer to a net income tax.
apportionable interest, dividends and other business income not
Identification reported on Form MI-461 must be reported on line 10.
For individual income tax filers, enter the owner’s name and If apportioned business capital gains (losses) are reported on line 3
full nine-digit Social Security number on lines 1 and 2. For and/or line 8 of Form MI-1040D or Form MI-461, do not include
fiduciary and composite filers, enter the name of the estate or those amounts on line 10 of this form.
trust, or the name of the company and the full Federal Employer Guaranteed payments to partners are not considered business
Identification Number (FEIN). income for Michigan purposes and should not be included on line
Part 1: Computation of Sales Factor for 10 of this form.
Apportionment Percentage A separate Form MI-1040H should be used for each business
Business income subject to apportionment is sourced to activity that requires apportionment. If you have more than one
Michigan by applying a sales factor. To compute the sales MI-1040H and are a Michigan resident, do not net income and
factor, divide the total sales in Michigan during the tax year by losses from multiple forms together. Instead, combine losses on
the total sales everywhere during the tax year. line 12 with other losses on line 12 and enter the total losses from
“Sales” includes gross receipts from sales of tangible property, other states on Schedule 1, line 4; combine income on line 12
rental of property, proceeds from the sale of property used in with other income on line 12 and enter total income from other
the business and providing of services that constitute business states on Schedule 1, line 13. Nonresidents with more than one
activity. Exclude all receipts of nonbusiness income. Form MI-1040H should net income and losses from line 12 of all
Sales of tangible personal property are in Michigan if: MI-1040H forms before entering the total on Schedule NR,
1. The property is shipped or delivered to a purchaser (other column C.
than the United States government) within Michigan regardless Part 3: Combined Apportionment Under the
of the free on board (F.O.B.) point or other conditions of the Unitary Business Principle
sale, or Michigan Supreme Court held that combined apportionment under
2. The property is shipped from an office, store, warehouse, the unitary business principle may be used to calculate IIT taxable
factory or other place of storage in Michigan and the purchaser income at the election of the taxpayer, Malpass v. Department
is the United States government or the taxpayer is not taxable in of Treasury, 494 Mich 237 (2013) . A taxpayer has the option to
the state of the purchaser. apportion each discrete legal entity’s income (loss) separately or to
NOTE: The numerator of the sales factor for individual income combine apportionment when entities are unitary with one another.
tax may include “throwback sales.” Throwback sales are sales When a taxpayer elects to combine apportionment factors of the
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