On February 16, 2016, the Michigan Department of Treasury announced its new acquiescence policy with respect to certain court decisions affecting state tax policy. The Treasury’s acquiescence policy is similar to the Internal Revenue Service’s (IRS) policy of announcing whether it will follow the holdings in certain adverse, non-precedential cases.
In Michigan, while published decisions of the Michigan Court of Appeals and all decisions of the Michigan Supreme Court are binding on both the Treasury and taxpayers, unpublished decisions of the Court of Appeals and decisions of the Court of Claims and the Michigan Tax Tribunal are binding only on the parties to the case and only with respect to the years and issues in litigation. Nonetheless, the Treasury has determined that a particular decision, while not binding, may constitute “persuasive authority in similar cases.” The Treasury may therefore decide to follow a non-precedential decision that is adverse to the Treasury in other cases, a policy known as acquiescence. Beginning with its May 2016 quarterly newsletter, the Treasury will publish a list of final (i.e., unappealed), non-binding, adverse decisions, and announce its acquiescence or non-acquiescence with respect to each. The Treasury points out that an indication of acquiescence does not necessarily mean that the Treasury approves of the reasoning used by the court in its decision.
The IRS follows a similar acquiescence policy at the federal level. When the IRS receives a non-binding adverse decision from the Tax Court, US District Court, Claims Court or Circuit Courts of Appeal, it issues an “Action on Decision” announcing whether it will follow the holding in future matters. See Internal Revenue Bulletin No. 2012-46 (Nov. 13, 2012). The IRS may indicate that it will acquiesce, meaning that the Service will follow the holding in disposing of cases with the same controlling facts, and that it neither approves nor disapproves of the reasons assigned by the court for its conclusions. The IRS may also indicate that it is acquiescing “in result only,” meaning that it will follow the holding in future cases but that it has disagreement or concerns with some or all of the court’s reasoning. An indication of non-acquiescence by the IRS signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers.
Few states have adopted formal acquiescence/non-acquiescence policies. Aside from Michigan, the only states whose formal tax or revenue department acquiescence policies we have been able to locate are Louisiana [La. Admin. Code 61:III.101(C)(2)(c)], Washington (Washington Dep’t of Revenue Non-acquiescence Statements), West Virginia (W. Va. Code § 11-10-10a) and Wisconsin [Wis. Stat. § 73.01(4)(e)]. However, many states have tax tribunal bodies, the decisions of which are not binding on anyone other than the parties actually involved in the litigation. For example, decisions at the Administrative Law Judge (ALJ) level of the New York State Division of Tax Appeals are not precedential [N.Y. Tax Law § 2010(5)]. However, the New York State Department of Taxation and Finance may nevertheless decide to abide by certain ALJ decisions—or it may not. Without a formal acquiescence policy in place, taxpayers may not know whether the Department plans to fight or concede the issues in a matter that is similar to one that has already been decided at the ALJ level, and both sides may end up spending unnecessary resources in litigation.
In general, both taxpayers and state tax departments would benefit from states following Michigan’s lead and establishing a formal acquiescence policy, wherein tax departments could publicly indicate whether they plan to abide by certain non-precedential state decisions. The published notices would provide a level of certainty to taxpayers and state personnel regarding which issues can be put to rest and which issues are still in dispute following a non-binding tax tribunal decision.