A plethora of case law, state guidance, and practitioner musings are devoted to discussions of what income of a multistate taxpayer is subject to apportionment and the fairness of various apportionment methods. Much less discussion centers on whether a taxpayer with only one brick-and-mortar location has a right to apportion its income. A recent decision of the Michigan Tax Tribunal addresses this fundamental question. Vidon Plastics Inc v. City of Lapeer, MTT Docket No. 23-002017 (Apr. 17, 2025).

The Facts: Vidon Plastics Inc. (“Vidon”), a Michigan manufacturing corporation, operates its sole manufacturing plant in Lapeer, Michigan. On its Lapeer Corporation Income Tax returns, Vidon reported 100% of its property and payroll as being in Lapeer. However, Vidon reported 0% of its sales to Lapeer because all of its sales of tangible personal property were shipped to customers located outside of the City.

The City rejected Vidon’s apportionment of its sales because Vidon’s only physical location is within the City. Vidon appealed the City’s rejection to the Lapeer Income Tax Board of Review, which agreed with the City’s position. Vidon appealed to the Michigan Tax Tribunal.

The Law: Cities in Michigan are authorized to levy an income tax “on such part of the taxable net profits as is earned by [a] corporation as a result of work done, services rendered and other business activities conducted in the city[.]” A corporation is entitled to apportion net profit outside of a Michigan city where it is located when its entire net profit is “not derived from business activities exclusively within the city.” Though not defined in the law, the Tribunal determined that the term “business activity” warrants a “broad and liberal interpretation” and, thus, includes “the enterprise, profession, or undertaking of any nature conducted or ordinarily conducted for profit or gain by any person.” 

In 2018, the Lapeer City Commission approved Regulation 18.1, which provides that a corporation is not entitled to apportion its net profit if it “has no regularly maintained and established out-of-city location and engages in no out-of-city business activity,” even if it fills orders by shipment to out-of-city destinations.

The Decision: Vidon asserted its right to apportion was established by several aspects of its business. Finding the burden rested with Vidon to establish its right to apportion by a preponderance of the evidence, the Tribunal examined each of Vidon’s purported out-of-City activities.

First, the Tribunal concluded that Vidon failed to establish that it conducted business outside of Lapeer via ownership of inventory in Texas. For inventory shipped free-on-board by carrier to the Texas warehouse, the Tribunal found that title transferred from Vidon to its customer when the inventory was given to the carrier because Vidon presented no evidence that title transferred at any other point. For consignment stock, the Tribunal applied provisions of the Uniform Commercial Code to determine that although the parties contracted that title did not pass until the purchaser withdrew inventory from the warehouse, this retention of title by the seller to goods shipped to a buyer merely created a security interest in the property—not the reservation of title in the property by Vidon. 

Second, the Tribunal concluded that Vidon’s sale of goods destined outside of the City did not constitute business activity outside of the City. Though the Tribunal noted that such sales would not be counted in the numerator of the Lapeer sales factor for apportionment purposes, the Tribunal concluded that this does not mean that Vidon “conducted business activity outside the [C]ity[.]”

Next, finding that Vidon’s Lapeer-based employees and Vidon’s Illinois-based independent contractor do nothing outside of the City other than solicit orders of tangible personal property, the Tribunal found no evidence that their conduct constitutes business activity outside of the City.[1]

Finally, the Tribunal analyzed the conduct of a Vidon employee who primarily worked from his home in Ann Arbor. Reviewing the nature of the Ann Arbor employee’s activities, the Tribunal found that the employee’s activities included not just sales activities, but “things in addition to sales” including helping with strategic planning. Based on the location and type of work done by the Ann Arbor employee, the Tribunal found that Vidon established its “right to apportion its income.”

The Takeaway: Setting aside any discussions of constitutional law, this case serves as an important reminder that even a business with only one physical location may have a statutory right to apportion its income when the business engages in activities outside of its home jurisdiction. To substantiate its right to apportion, a business should think holistically about its activities—especially those of remote and/or travelling employees. Apportionment is a right—use it, don’t lose it!