Skip to main content
A Better Partnership
July 17, 2014

MSC finds that the Michigan Business Tax Act did not repeal the Multistate Tax Compact

In International Business Machines Corp v Department of Treasury, No. 146440, the Michigan Supreme Court held that the Michigan Business Tax Act (the “BTA”), MCL 208.1101 et seq., did not repeal the Multistate Tax Compact (the “Compact”), MCL 205.581 et seq.  The Compact, enacted in 1970, was designed to facilitate equitable taxation of multi-state tax payers.  It provides a three-factor apportionment formula that taxpayers may use in place of Michigan’s other apportionment methods.  IBM applied the Compact’s apportionment method and claimed a $5,955,218 tax refund for 2008.  The Department of Treasury ruled that the BTA, enacted in 2008 (repealed in 2012), governed IBM’s income apportionment and allowed for only a $1,253,609 tax refund—a difference of $4.7 million.  The Court of Claims granted summary disposition to the Department and the Court of Appeals affirmed.  
 
The Supreme Court would agree with the Court of Appeals if the mandatory language of Section 301 of the BTA was read in isolation. To avoid disfavored repeals by implication, however, the court read the section harmoniously with the rest of the tax code.  Though Section 301 provides that tax bases established under the act shall be apportioned in accordance with the BTA, the court held that the Compact is an exception to this requirement.  Thus, taxpayers may elect to use the apportionment method provided in the Compact instead.
 
The dissent, signed by Justices McCormack, Young, and Kelly, argued that this “harmonious” reading in fact privileged the Compact over the BTA.  The dissenting justices would have given effect instead to the BTA provision—the later-enacted legislation.  Justice Zahra, concurring, would not have reached the question of repeal by implication, because the legislature, in 2011, reenacted the Compact but provided that apportionment must follow the BTA method from January 1, 2011 forward, thereby purposefully leaving a “window” of time during which both statutes were in effect and either apportionment method was valid. 

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.

ACCEPTCANCEL

Text

+ -

Reset