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BlogsPublications | February 28, 2016
2 minute read

Multi-state businesses may choose the Multistate Tax Compact’s more favorable apportionment formula for pre-2008 tax years, says COA

Until 2008, multi-state businesses could elect between the apportionment methods contained in the Multi State Compact and the Single Business Tax Act (“SBTA”) for purposes of apportioning their tax base, said the Court of Appeals in the consolidated appeal of AK Steel Holding Corporation, et al. v. Department of Treasury, Nos. 327175, 327251, 327313-31, 327333-34.  Treasury imposed on these 23 businesses the less favorable SBTA apportionment formula on the basis that the SBTA impliedly repealed the apportionment election provision of the Multistate Tax Compact (the “Compact”).  The Court of Appeals rejected that argument and held that the Compact’s election provision remained in effect for tax years before the Michigan Business Tax (“MBT”) took effect in January 1, 2008.

The 23 plaintiffs in this consolidated appeal were taxpayers who claimed single business tax refunds for at least one year between 2005 and 2007, under the equally weighted, three-factor apportionment formula provided by the Compact, rather than the three-factor formula provided by the SBTA.  The SBTA’s apportionment formula uses a sales factor that is weighted more heavily than the same factor in the Compact.  The Court of Claims held that the mandatory apportionment provision of the SBTA impliedly repealed the apportionment election provision of the Compact and granted summary disposition in favor of the Department of Treasury; the plaintiffs appealed.

On appeal, the Court of Appeals held that the SBTA did not impliedly repeal the Compact’s apportionment election provision.  The Court found that if the Legislature intended to repeal the apportionment provision in the Compact when it was amended on May 25, 2011, it would have done so explicitly; furthermore, the two statutes may be reasonably construed in harmony, thus “the presumption against implied repeals” was not rebutted in this case.  The Department of Treasury alternatively argued that the language of 2014 PA 282, which repealed the Compact, provided that no taxpayer could attempt to elect the Compact’s apportionment method following January 1, 2008.  The Court disagreed.  The plain language and intent of the Legislature was to treat the enactment of the MBT (effective January 1, 2008) as an implicit repeal of the Compact, and it gave no indication that it intended that repeal to be effective in tax years prior to January 1, 2008.  Because the Court of Claims erred in holding that the Compact’s provision was impliedly repealed by the SBTA, the Court of Appeals reversed and remanded for further proceedings.