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A Better Partnership
September 30, 2015

COA upholds retroactive repeal of the Multistate Tax Compact

In Gillette Commercial Operations North America & Subsidiaries v. Department of Treasury, No. 325258, the Michigan Court of Appeals rejected a number of constitutional challenges to 2014 PA 282, which the Legislature enacted to retroactively rescind Michigan’s membership in the Multistate Tax Compact (the “Compact”).
 
Under the Michigan Business Tax (“MBT”) Act, income is apportioned by applying a single factor apportionment formula based entirely on sales. However, in 1970, Michigan adopted the Compact, which included an election provision that allowed income to be apportioned using a three-factor formula based on sales, property, and payroll. In 2014, in response to the Michigan Supreme Court’s decision in International Business Machines Corp v Department of Treasury, 494 Mich. 874 (2013), the Legislature enacted 2014 PA 282, which amended the MBT Act and retroactively eliminated a taxpayer’s ability to elect a three-factor apportionment formula in calculating tax liability. Numerous multi-state taxpayers filed suit, seeking refunds due under the Compact that had been refused by the Treasury on the grounds that the only apportionment method available was that established by the MBT. Specifically, these taxpayers challenged the constitutionality of 2014 PA 282. The trial court granted summary disposition in favor of the Michigan Department 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, or the right to petition the government under the First Amendment of either the state or federal constitutions. In addition, the court held that the retroactive repeal of the Compact did not violate the Separation of Powers Clause in the Michigan Constitution because it did not reverse or repeal the decision in IBM. Finally, the repeal did not violate the Commerce Clause of the U.S. Constitution, nor did it violate the Title-Object Clause, the Five-Day Rule, or the Distinct-Statement Clause of the Michigan Constitution.

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