This Letter Ruling explains the Single Business Tax treatment of officer compensation in the context of leased employees serving as managers of a limited liability company (LLC) or officers of a corporation.

The Single Business Tax Act requires that compensation be included in the taxpayer’s Single Business Tax base. MCL 208.9 (5). The Act defines "compensation" to include "all wages, salaries, fees, bonuses, commissions, or other payments made in the taxable year on behalf of or for the benefit of employees, officers, or directors of the taxpayers." MCL 208.4 (3). The Department requires that all compensation paid to a corporation’s corporate officers or an LLC's managers must be included in the corporation’s or LLC’s Single Business Tax base whether or not the employees are leased from an employee leasing company (ELC). This requirement applies without regard to whether the corporation or LLC distinguishes between "officer duties" and "non-officer duties" performed by the officer or "manager duties" and "non-manager" duties of an LLC manager. The total compensation of the officer or LLC manager must be included in the tax base of the corporation or LLC. The compensation cannot be split between "officer" and "non-officer duties" or "manager" and "non-manager duties."

If an ELC leases an officer or LLC manager to another entity and receives a fee for the leasing services, the lessor must include the entire amount received from the lessee in its gross receipts. The fact that the ELC subsequently pays compensation to an officer or an LLC manager of the lessee entity which the ELC asserts is paid out of funds received from the lessee entity does not establish any basis for the ELC to reduce its gross receipts by such amounts. As noted above, the compensation of the corporate officer or LLC manager is not included in or added back to the ELC’s tax base.

March 5, 2002                            June Summers Haas
LR 2002-4                                  Commissioner of Revenue