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A Better Partnership
March 31, 2016

COA: A carryforward of a credit earned under the SBTA is refundable as a “credit” under the MBTA

In Hudsonville Creamery and Ice Cream Co v Department of Treasury, No. 322968, the Court of Appeals concluded that credits that were earned and carried forward from the Michigan Single Business Tax Act (“SBTA”) can be refunded up to 85% under the Michigan Business Tax Act (“MBTA”).
 
In 2005, Hudsonville Creamery and Ice Cream Company, LLC (“Hudsonville”) invested over $8 million in an approved brownfield redevelopment project.  The Department of Treasury (“Department”) issued a certificate of completion indicating that Hudsonville was eligible to claim a brownfield redevelopment credit, and Hudsonville received $800,000 in brownfield redevelopment credits.  However, Hudsonville did not have any tax liability on its 2005, 2006, or 2007 SBTA returns against which to apply its credits.  Thus, Hudsonville carried forward its credits.  Shortly thereafter, the Legislature repealed the SBTA and implemented the MBTA.  Under the MBTA, as originally enacted, a qualified taxpayer could carry forward brownfield credits earned under the SBTA, but could not receive a refund of those credits.  However, the Legislature subsequently amended the MBTA and allowed for a refund.  When Hudsonville filed its 2008 MBTA tax return, it sought a refund of $619,390 for its brownfield redevelopment credits pursuant to MCL 208.1437(18).  The Department denied this request, and the Michigan Tax Tribunal (“MTT”) granted the Department’s motion for summary disposition.
 
The Court of Appeals reversed the MTT’s holding.  MCL 208.1437(18) states that in the event “the credit allowed under this section for the tax year exceeds the qualified taxpayer’s tax liability for the tax year,” the qualified taxpayer “may elect to have the excess refunded” at a rate of 85%.  The Court concluded that based on the definition of “credit” in the Internal Revenue Code and as defined in the Court’s recent holding in Ashley Capital, LLC v Dep’t of Treasury, the term “credit” as used in the MBTA encompasses a carryforward of a credit earned under the SBTA.  Because the MBTA permits an 85% refund for “credits,” without limitation, Hudsonville was thus entitled to a refund of 85% of its brownfield credits in the 2008 tax year.
 
Judge Meter dissented, stating that the specific language of the statute demonstrates that the Legislature did not intend to provide a refund for credit carryforwards.  Specifically, he noted that the use of the phrase “for the tax year” indicates an intent to exclude credits carried over from other years.  In addition, the inclusion of the term “carryforward” in the first sentence, when compared to the omission of that term in the sixth sentence, indicates that the Legislature did not intend to include carryforward credits in the applicable refund.

Disclaimer:  Warner, Norcross & Judd LLP represented the Appellant in this matter.
 

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