How are accounts receivable factoring companies treated for purposes of the Michigan Business Tax Act (MBTA)?
Factoring is a financial transaction whereby a business sells some or all of its accounts receivable (i.e., its collectible invoices) to a factoring company at a discount. Factoring is to be distinguished from a lending transaction in that the emphasis is on the value of the receivables being sold, not the business’s credit worthiness, and the receivables are actually sold to the factoring company, not simply used as collateral. The factoring company assumes all risk on the receivables, and the amount of value assigned to each account typically depends on its age. Factoring can be a one-time transaction, or there can be an on-going relationship between the invoice seller and the factoring company. Under the MBTA, a taxpayer (other than a financial institution or an insurance company) is subject to both a business income tax and a modified gross receipts tax, which together comprise the taxpayer’s MBT liability. Proceeds collected by a factoring company from accounts receivable purchase
