On December 19, 2014, the Michigan Court of Claims upheld the retroactive repeal of the Multistate Tax Compact (“Compact”) in Yaskawa America Inc. v. Dep’t of Treasury, Case No. 11-000077-MT (Mich. Ct of Claims 2014), and Ingram Micro Inc. v. Dep’t of Treasury, Case No. 11-000035-MT (Mich. Ct of Claims 2014). To briefly recap the significance of this developing issue, the Michigan Supreme Court ruled in favor of the taxpayer in IBM v. Dep’t of Treasury, 852 NW2d 865 (Mich. 2014), holding that IBM was entitled to elect the Compact’s three-factor apportionment-formula under the Michigan Business Tax Act (“MBT”) instead of the single-sales factor formula provided by the MBT for tax year ending 2008. In response to IBM and anticipating the potential payment of over $1 billion in MBT refunds claimed pursuant to IBM, Michigan enacted Public Act 282 of 2014 to repeal the Compact in its entirety, retroactive to January 1, 2008. For previous updates on Public Act 282, please refer to prior Tax News and Developments articles Never a Dull Moment…Michigan Seeks to Re-Write History By Retroactive Repeal of the Multistate Tax Compact , October 2014 and Ready for Another Round? Michigan’s Second Retroactive Repeal of the Multistate Tax Compact Election, December 2014, available under publications at www.bakermckenzie.com.
Shortly following enactment of Public Act 282 in September 2014, Michigan courts addressing taxpayers’ ability to elect the Compact’s apportionment formula were faced with a number of questions associated with the Compact’s retroactive repeal, including questions of due process, separation of powers, and the nature of the Compact itself. In the first published decisions directly addressing these issues, the Michigan Court of Claims upheld Public Act 282 in Yaskawa and Ingram Micro, finding that the Compact is not a binding contract and that Public Act 282 is a valid, constitutional act that does not violate the principle of separation of powers under the Michigan constitution. It has been widely reported that, following Yaskawa and Ingram Micro, 54 cases involving MBT refund claims based on the Compact election were dismissed by the Court of Claims.
While the Court of Claims made its initial position clear, the Compact issues related to Public Act 282 seem far from final resolution. On February 4, 2015, IBM, in a related Compact election case involving its 2010 tax year (as distinguished from the Michigan Supreme Court case involving IBM’s 2008 tax year), filed a motion with the Michigan Court of Appeals to consolidate with 33 closely related cases also involving the Compact’s three-factor apportionment formula and Public Act 282 and remand to the Court of Claims for further development of the factual record. If the motion is granted, the taxpayers may have an opportunity to further develop the factual record regarding Michigan’s involvement with the Multistate Tax Commission since 2008 and other related issues.