The Court of Appeals Wednesday batted down the pleas of dozens of out-of-state companies that claimed the state’s response to IBM’s successful bid for millions of dollars in additional tax refunds was unconstitutional.
In a unanimous decision, Court of Appeals Judges Christopher Murray, Patrick Meter and Kathleen Jansen affirmed a Court of Claims decision rejecting a laundry list of state and federal Constitutional challenges to the state’s PA 282 of 2014.
That law was fast-tracked through the Legislature last year after the Michigan Supreme Court found in International Business Machines (IBM) v. Treasury that the creation of the 2008 Michigan Business Tax (MBT) did not wipe out the Multistate Tax Compact, a three-factor apportionment formula Michigan joined in 1970 that differentiates from the sales-factor apportionment formula outlined in the MBT.
After the Department of Treasury determined the state could lose $1.1 billion if it allowed other out-of-state companies to do the same thing, the Legislature amended state law to specifically remove the three-factor apportionment formula and clarify the intent of the MBT.
During the oral argument for the case, attorneys representing the companies involved argued before the court that PA 282 violates both the due process clause and separation of powers, claiming that a different standard in determining business taxes was devised after companies already filed returns in compliance with another standard for the years in question.
They also claimed the retroactive elimination of the multistate compact was impossible, considering members of the compact paid dues, attended meetings, took votes and exchanged confidential information.
The court sided with the state and trial court on every point argued and determined the out-of-state companies currently fighting the state in court are not due the same refunds awarded to IBM.
“Plaintiffs proclaim that they are entitled to the benefit of the IBM Court’s ruling as to the effect of 2007 PA 40. They are wrong,” the court found. “Instead, it is well-settled that our duty as an appellate court is to apply the most recent legislative pronouncement on an issue pending before this Court when the legislature makes the new law or amendment retroactive.”
The judges found the out-of-state companies’ retroactivity argument invalid based on several state and federal court decisions outlining it as a legitimate legislative power.
“A taxpayer’s reliance on a view of the law — even a correct view of the law — does not prevent the legislature from retroactively amending a statute,” the opinion read.
On the subject of whether Michigan wrongfully exited the compact, the court found that the compact was merely an advisory agreement and that PA 282 falls within acceptable bounds for withdrawing from that agreement.
“Because the Compact specifically allows member states to unilaterally withdraw . . . by merely passing legislation doing so, which is precisely what Michigan did through 2014 PA 282, we hold that the Compact was not a binding agreement on this state,” the opinion read. “Instead, it was an advisory agreement that was agreed to by participating states as a means of addressing interstate business taxation and threatened federal intervention into that area.”
In terms of whether the law violated the separation of powers clause, the court found that claim invalid based on several reasons, most prominently because the law did not reverse a judicial opinion, but instead reacted to one.
The Court of Appeals affirmed the trial court’s final order of dismissal.