In International Business Machines Corp v Department of Treasury, No. 146440, the Michigan Supreme Court held that the Michigan Business Tax Act (the “BTA”), MCL 208.1101 et seq., did not repeal the Multistate Tax Compact (the “Compact”), MCL 205.581 et seq. The Compact, enacted in 1970, was designed to facilitate equitable taxation of multi-state tax payers. It provides a three-factor apportionment formula that taxpayers may use in place of Michigan’s other apportionment methods. IBM applied the Compact’s apportionment method and claimed a $5,955,218 tax refund for 2008. The Department of Treasury ruled that the BTA, enacted in 2008 (repealed in 2012), governed IBM’s income apportionment and allowed for only a $1,253,609 tax refund—a difference of $4.7 million. The Court of Claims granted summary disposition to the Department and the Court of Appeals affirmed.
The Supreme Court would agree with the Court of Appeals if the mandatory language of Section 301 of the BTA was read in isolation. To avoid disfavored repeals by implication, however, the court read the section harmoniously with the rest of the tax code. Though Section 301 provides that tax bases established under the act shall be apportioned in accordance with the BTA, the court held that the Compact is an exception to this requirement. Thus, taxpayers may elect to use the apportionment method provided in the Compact instead.
The dissent, signed by Justices McCormack, Young, and Kelly, argued that this “harmonious” reading in fact privileged the Compact over the BTA. The dissenting justices would have given effect instead to the BTA provision—the later-enacted legislation. Justice Zahra, concurring, would not have reached the question of repeal by implication, because the legislature, in 2011, reenacted the Compact but provided that apportionment must follow the BTA method from January 1, 2011 forward, thereby purposefully leaving a “window” of time during which both statutes were in effect and either apportionment method was valid.
