Upholding retroactive legislation recently enacted by the Michigan Legislature, the Michigan Court of Claims today dismissed multiple cases where taxpayers had appealed the Department of Treasury's denial of their ability to elect three-factor apportionment under the Multistate Tax Compact. See, i.e., Taskawa America, Inc. v. Department of Treasury, Case No. 11-000077-MT (Mich. Ct. Cl. December 19, 2014).
In Int’l Bus. Machines Corp. v. Dep’t of Treasury, 496 Mich. 642 (July 14, 2014), the Michigan Supreme Court upheld a taxpayer’s right to elect to use the Compact’s equally-weighted three-factor apportionment formula for the 2008 tax year. The court’s decision in IBM was based solely on statutory grounds, finding that the Michigan Legislature did not explicitly repeal the availability of the Compact Election when it enacted the Michigan Business Tax in 2007. The Legislature quickly enacted legislation (2014 PA 282, September 11, 2014) purporting to repeal the state’s adoption of the Compact retroactively back to January 1, 2008, thus protecting the state from the possibility of more than $1 billion in refunds. In November, the Michigan Supreme Court denied the Department’s request for reconsideration of IBM in light of PA 282.
In today’s rulings, the Court of Claims upheld the validity of the retroactive legislation, concluding that:
- The Compact was not a binding contract under federal compact law or Michigan law but merely an advisory compact, an issue not previously addressed by the Michigan Supreme Court in IBM;
- The retroactive application of PA 282 did not violate state or federal due process clauses because taxpayers have no vested interests in tax legislation and that, under United States v. Carlton, 512 U.S. 26 (1994), the period of retroactivity of PA 282 is rationally related to the Legislature’s legitimate purpose of protecting state revenues; and
- PA 282 did not violate concerns regarding the separation of powers, the Commerce Clause, the First Amendment’s right to petition, or a variety of state procedural requirements.