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A Better Partnership
June 30, 2016

MSC denies leave on challenge to 2014 PA 282

In International Business Machines Corp. v. Department of Treasury, No. 152650, the Michigan Supreme Court denied leave to appeal from a Court of Appeals decision upholding the constitutionality of 2014 PA 282, a statute the Legislature enacted to retroactively eliminate a taxpayer's ability to elect a three-factor apportionment formula in calculating tax liability.

Under the Michigan Business Tax Act, income is apportioned by applying a single factor apportionment formula based entirely on sales.  In 1970, however, Michigan adopted the Multistate Tax Compact, which included an election provision that allowed income to be apportioned using a three-factor formula based on sales, property, and payroll.  The Michigan Supreme Court in International Business Machines Corp. v. Department of Treasury, 494 Mich. 874 (2013), upheld a taxpayer's right to elect to use the three-factor formula under the Compact.  Because such an election can reduce tax liability by millions of dollars, the Legislature enacted 2014 PA 282 to retroactively take away the right of election by withdrawing from the Compact.

Numerous taxpayers challenged the constitutionality of 2014 PA 282, and the trial court granted summary disposition in favor of Treasury.  The Court of Appeals affirmed, holding that 2014 PA 282's repeal of the Compact did not violate the Contract Clause, the Due Process Clause, the right to petition the government, the Separation of Powers Clause of the Michigan Constitution, the Commerce Clause of the U.S. Constitution, or the Title-Object Clause, Five-Day Rule, or the Distinct-Statement Clause of the Michigan Constitution.  Our post summarizing the Court of Appeals decision can be found here.

Justice Markman dissented from the Michigan Supreme Court's order denying leave.  He noted that the challenge to 2014 PA 282 raised four important constitutional issues:  (1) the due proces protections of the U.S. Constitution, (2) the Michigan Due Process Clause, (3) federal and state prohibitions against impairment of contracts, and (2) the Separation of Powers Clause.  Justice Markman argued that these issues warranted further consideration, but his view did not prevail.


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