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On July 4, 2025, the One Big Beautiful Bill Act (OB3)—formally known as Public Law 119-21—was signed into law. Among its many provisions, OB3 introduced changes to the federal state and local tax (SALT) deduction rules. These adjustments have sparked new considerations for Michigan businesses that elected into the state’s Flow-Through Entity (FTE) tax.
In response, the Michigan Department of Treasury has issued a notice offering limited relief for certain taxpayers who may want to unwind their FTE election in light of the new law. Here’s what you need to know.
Background: Michigan’s Flow-Through Entity (FTE) Tax
Michigan allows flow-through entities—such as partnerships and S-corporations—to elect into the state’s FTE tax. Under this structure:
The entity pays tax at the entity level.
Owners can then claim a credit, which may reduce their overall tax burden.
Once made, the election is binding for three consecutive tax years.
To opt in, entities must make a payment of tax no later than the ninth month after the close of the tax year.
Limited Relief Available
Because OB3 reshaped the SALT deduction rules, some taxpayers who elected into the Michigan FTE tax earlier this year may now prefer not to participate. Recognizing this, Treasury is allowing certain taxpayers to request a refund of their election payments.
If a refund is granted, the taxpayer will be treated as though no election was made for that tax year. That means:
The entity will not be locked into the three-year FTE election.
The taxpayer will not be subject to FTE filing requirements for that year.
Who Qualifies for Relief?
This relief is narrowly targeted. To be eligible, all of the following must apply:
First-year election only: The taxpayer must be in the first year of the three-year FTE election period.
No FTE return filed yet: The taxpayer must not have filed the annual FTE return for the tax period.
Deadline awareness: Requests must be submitted before the end of the election window for the tax year. For calendar-year filers, that deadline is September 30th of the following year.
If approved, all payments made for the tax year—including estimated and extension payments—will be refunded. Importantly, Treasury will not transfer those payments to other tax periods; they must be refunded in full.
What This Means for Businesses
For taxpayers weighing the pros and cons of Michigan’s FTE election, OB3 has shifted the equation. If you’ve already made your first-year election payment but now think the FTE route no longer makes sense under the new SALT rules, you have a chance to reverse course.
But the window is narrow, and the conditions are strict. If you’re considering a refund request, it’s best to consult with your tax advisor promptly to ensure your submission is both timely and compliant.
✅ Key Takeaway:
If you think OB3 changes make the FTE election less attractive for your business, don’t wait until it’s too late. Deadlines are fast approaching, and missing them could lock you in for three years.
👉 Talk to your tax advisor today to determine whether requesting a refund is the right move for your situation.
📌 Need professional guidance? Reach out to a tax specialist before the September 30 deadline to review your eligibility and file your request.
