Judge Michael Talbot, Chief Judge of the Michigan Court of Claims, recently dismissed 22 cases involving Michigan single business tax (SBT) refund claims under the Multistate Tax Compact (MTC). EMCO Enterprises Inc. v. Dep’t of Treasury, Case No. 12-000152-MT. The plaintiffs sought to reduce their SBT liability by electing to apportion corporate income using the MTC’s equally weighted three factor apportionment formula.
The MTC is a multistate agreement meant to encourage uniformity in state corporate income tax laws. A state becomes a member of the MTC by enacting its provisions in their entirety. By becoming a member of the MTC, a state gives multi-state businesses the option of apportioning their corporate income according to the state’s own formula or electing to use the MTC apportionment formula. The MTC only applies to corporate income tax.
Michigan adopted the MTC effective 1970. In the mid-seventies, Michigan replaced its corporate income tax with the SBT, which was arguably a value-added tax and therefore did not necessarily fall under the ambit of the MTC. Starting in the 1990s, the Michigan legislature began amending its apportionment formula to more heavily weight the sales factor. In 2008, Michigan repealed the SBT and in September 2014 Michigan repealed the MTC effective January 1, 2008.
Every one of the refund claims involved at least one tax year prior to 2008. Judge Talbot ruled that the SBT was an income tax and therefore the MTC could theoretically apply to petitioners’ computation of SBT liability for the years at issue. However, the Michigan legislature’s retroactive repeal of the MTC precluded the petitioners from invoking MTC provisions to calculate SBT liability, especially considering the Michigan legislature’s implied repeal of the MTC through modifying the state apportionment formula to more heavily weight the sales factor. Attorneys for the main plaintiff, EMCO, are confident the firm will appeal at least one of the 22 refund cases.
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