Oftentimes companies are on the defense in establishing that they are not operating a unitary business to avoid excessive taxation by a State. Yet, there are occasions when companies take the offense—and are successful. In the recent decision in Nationwide Agribusiness Insurance Company v. Dep’t of Treasury, No. 364790 (Mich. Ct. App. June 20, 2024), the company played offense better than Barry Sanders in the 1990s.

In Nationwide, the Company originally filed its Michigan insurance premiums tax returns on a separate return basis but subsequently filed amended returns on a combined basis. There was no form available to file on a combined basis, so the Company’s only option was to create a combined reporting schedule. Although the Department of Treasury (the “Department”) initially granted the refund requests, the Department reversed course and ordered the return of the refunds with interest (and assessed penalties!).

Michigan imposes numerous types of taxes on taxpayers—including the premiums tax. For those taxes, a “taxpayer” is defined as “a corporation, insurance company, financial institution, or unitary business group.” Thus, the Company argued that it was a unitary business group and allowed to file as such.

The Michigan Court of Appeals correctly noted that whether a company is part of a unitary group “is not a matter of choice.” Instead, it is a factual conclusion. In Nationwide, such factual conclusion was undisputed by the Department. However, the Department argued that unitary returns were not allowed because there was no explicit statutory authority for the filing of such returns under the premiums tax.

The Court quickly eschewed that argument based on the statutory definition of taxpayer. The Court went on to hold that when companies are a unitary business, the individual entities have “no meaningful existence.” The individual entities that make up the unitary group cease to be separate taxpayers and only one taxpayer remains—the unitary business group.

Ultimately, the Company prevailed. The Court held that the Company was part of a unitary business group that was permitted to file the premiums tax on a combined basis. The takeaway? While many companies are focused on defending against audit adjustments, taking a proactive approach to your state tax filings can lead to definite benefits and more accurate filings. Remember that just because the Department does not provide a form for a filing method does not mean that the preferred filing method does not exist.