Gillette Commercial Operations N. Am. & Subsidiaries v. Dep't of Treasury, Docket Nos. 325258

• Decision Date: 29 September 2015
• Docket Number: 325528,326039,Docket Nos. 325258,325525,325541,325529,325523,326136.,326123,326110,325522,325515 through 325518,326080,325972,325974,326075,325526,325532 through 325535,325475 through 325492,325520,325505 through 325511
• Citation: 878 N.W.2d 891,312 Mich. App. 394
• Parties: GILLETTE COMMERCIAL OPERATIONS NORTH AMERICA & SUBSIDIARIES v. DEPARTMENT OF TREASURY.
• Court: Court of Appeal of Michigan — District of US

312 Mich.App. 394

878 N.W.2d 891

GILLETTE COMMERCIAL OPERATIONS NORTH AMERICA & SUBSIDIARIES

v.DEPARTMENT OF TREASURY.

Docket Nos. 325258

325475 through 325492

325505 through 325511

325515 through 325518

325520

325522

325523

325525

325526

325528

325529

325532 through 325535

325541

325972

325974

326039

326075

326080

326110

326123

326136.

Court of Appeals of Michigan.

Submitted Sept. 2, 2015, at Detroit.

Decided Sept. 29, 2015, at 9:00 a.m.

Honigman Miller Schwartz and Cohn LLP (by June Summers, Lansing Haas and Brian T. Quinn, East Lansing) and Silverstein & Pomerantz LLP (by Amy Silverstein and Edwin Antolin ) for Gillette Commercial Operations North America & Subsidiaries.

Miller, Canfield, Paddock and Stone, PLC (by Clifford W. Taylor, Lansing, Gregory A. Nowak, Michael P. Coakley, Detroit and David G. King, Ann Arbor), for Yaskawa America, Inc., Rainier Investment Management, Inc., and others.

Honigman Miller Schwartz and Cohn LLP (by Daniel L. Stanley, Lansing and Brian T. Quinn, East Lansing) for Sonoco Products Company.

Honigman Miller Schwartz and Cohn LLP (by Patrick R. Van Tiflin, Daniel L. Stanley, Lansing and Brian T. Quinn, East Lansing) for Anheuser–Busch, LLC, Ingram Micro, Inc., and others.

Michael Best & Friedrich LLP (by Brian R. Tumm ) and Sutherland Asbill & Brennan LLP (by Jonathan A. Feldman and Eric S. Tresh ) for Lubrizol Corporation.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Matthew Schneider, Chief Legal Counsel, and Eric M. Jamison, Zachary C. Larsen, Michael R. Bell, Scott L. Damich, Emily C. Zillgitt, and Randi M. Merchant, Assistant Attorneys General, for the Department of Treasury.

Richard D. Pomp in propria persona.

Before: MURRAY, P.J., and JANSEN and METER, JJ.

MURRAY, P.J.

I. INTRODUCTION

In these consolidated appeals, numerous foreign¹ corporations doing business in Michigan appeal as of right the trial court's orders granting summary disposition to defendant, the Michigan Department of Treasury, pursuant to MCR 2.116(I)(1), and dismissing their complaints.

These cases involve a significant number of state and federal constitutional challenges to 2014 PA 282, which the Legislature—taking the cue from the Supreme Court in Int'l Business Machines Corp. v. Dep't. of Treasury, 496 Mich. 642, 852 N.W.2d 865 (2014) (IBM )—enacted to retroactively rescind Michigan's membership in the Multistate Tax Compact (the Compact), precluding foreign corporations from utilizing a three-factor apportionment formula previously available under the Compact. See former MCL 205.581 et seq., as enacted by 1969 PA 343. In a well-written and well-reasoned opinion, the trial court rejected each of the constitutional challenges.² For the reasons expressed below, so do we. Consequently, we affirm the trial court's final orders of dismissal.

II. BACKGROUND FACTS AND PROCEDURAL HISTORY

Rather than re-creating the wheel, we adopt the trial court's recitation of the background facts leading to these lawsuits:

History of the Compact

The Compact is an interstate tax agreement that was originally enacted in 1967 by the legislatures of seven states. The Compact was initially drafted out of concerns of state sovereignty in reaction to the introduction of federal legislation that sought to regulate various areas of state taxation.³ The original purposes of the Compact included:

(1) facilitating proper determination of state and local tax liability of multistate taxpayers, including the equitable apportionment of tax bases and settlement of apportionment disputes; (2) promoting uniformity and compatibility in state tax systems; (3) facilitating taxpayer convenience and compliance in the filing of tax returns and in other phases of tax administration; and (4) avoiding duplicative taxation. [US Steel Corp. v. Multistate Tax Comm., 434 U.S. 452, 456, 98 S.Ct. 799, 54 L.Ed.2d 682 (1978).⁴]

Michigan adopted the Compact provisions, effective in 1970, through enactment of 1969 PA 343.

Apportionment Formulas under the Compact and the MBT Act

The present case, and others like it, concern two alternative methods of apportioning income for purposes of calculating [Michigan business tax (MBT) ]. Under the MBT Act, created by 2007 PA 36,⁵ income is apportioned by applying a single factor apportionment formula based solely on sales. MCL 208.1301(2). In contrast, under the Compact's election provision, income may be apportioned using an equally-weighted, three-factor apportionment formula based on sales, property and payroll. The potential effect of electing "out" of the MBT Act's single-factor apportionment methodology is a reduction of the overall apportionment percentage for companies that do not have significant property and payroll located in Michigan.

Decision in IBM

In IBM, 496 Mich. 642 [852 N.W.2d 865], the Supreme Court considered the issue of whether MBT taxpayers must use a single-factor apportionment formula as mandated by the MBT Act or whether MBT taxpayers may elect to apply a three-factor apportionment formula under the Compact. The parties were asked by the Court to brief four issues:

(1) whether the plaintiff could elect to use the apportionment formula provided in the Multistate Tax Compact, MCL 205.581, in calculating its 2008 tax liability to the State of Michigan, or whether it was required to use the apportionment formula provided in the Michigan Business Tax Act, MCL 208.1101 et seq.; (2) whether § 301 of the Michigan Business Tax Act, MCL 208.1301, repealed by implication Article III(1) of the Multistate Tax Compact; (3) whether the Multistate Tax Compact constitutes a contract that cannot be unilaterally altered or amended by a member state; and (4) whether the modified gross receipts tax component of the Michigan Business Tax Act constitutes an income tax under the Multistate Tax Compact. [Int'l Business Machines v. Dep't. of Treasury, 494 Mich. 874, 832 N.W.2d 388 (2013).]

In its decision, the Court determined that for tax years 2008 through 2010,⁶ the Legislature did not repeal by implication the three-factor apportionment formula as set forth in MCL 205.581 et seq., and concluded that the taxpayer was entitled to use the Compact's three-factor apportionment formula in calculating its 2008 taxes. The Court also concluded that both the business income tax base and the modified gross receipts tax base of the MBT are "income taxes" within the meaning of the Compact. The Court did not reach the third issue of whether the Compact constitutes a contract. On November 14, 2014, the Michigan Supreme Court denied reconsideration. Int'l Business Machines v. Dep't. of Treasury, , 855 N.W.2d 512 (2014).

Retroactive Repeal of the Compact Provisions by [2014] PA 282

On September 11, 2014, 2013 SB 156 (SB 156) was enacted into law as [2014] PA 282, amending the MBT Act and expressly repealing the Compact provisions, as codified under MCL 205.581 to MCL 205.589. The Legislature gave the Act retroactive effect by providing as follows:

Enacting section 1.1969 PA 343, MCL 205.581 to 205.589, is repealed retroactively and effective beginning January 1, 2008. It is the intent of the legislature that the repeal of 1969 PA 343, MCL 205.581 to 205.589, is to express the original intent of the legislature regarding the application of section 301 of the Michigan business tax act, 2007 PA 36, MCL 208.1301, and the intended effect of that section to eliminate the election provision included within section 1 of 1969 PA 343, MCL 205.581, and that the 2011 amendatory act that amended section 1 of 1969 PA 343, MCL 205.581, was to further express the original intent of the legislature regarding the application of section 301 of the Michigan business tax act, 2007 PA 36, MCL 208.1301, and to clarify that the election provision included within section 1 of 1969 PA 343, MCL 205.581, is not available under the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713.

[2014] PA 282 thus amended the MBT Act to express the "original intent" of the Legislature with regard to (1) the repeal of the Compact provisions, (2) application of the MBT Act's apportionment provision under MCL 208.1301, and (3) the intended effect of the Compact's election provision under MCL 205.581.⁸ The effect of the amendments, as written, retroactively eliminates a taxpayer's ability to elect a three-factor apportionment formula in calculating tax liability under both the MBT Act and income tax act.

^3. The legislation, which was never enacted, was introduced in the wake of Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959), which held that there is no Commerce Clause barrier to the imposition of a direct income tax on a foreign corporation carrying on interstate business within a taxing state.

^4. The Compact was never approved by Congress, but it was upheld against constitutional challenges in US Steel, 434 U.S. 452 [98 S.Ct. 799].

^5. For a history of business taxation in Michigan, see IBM, 496 Mich. at 648–650 [852 N.W.2d 865].

^6. The Legislature explicitly repealed the Compact apportionment provisions effective January 1, 2011, through enactment of 2011 PA 40.

^8.[2014] PA 282 also clarified that the Compact's election provision is not available under the income tax act of 1967, 1967 PA 281.

Between 2011 and 2015 these multistate taxpayers all filed suit in the Court of Claims seeking refunds due under the Compact that had been refused by Treasury on the ground that the only apportionment method available was that established by the MBT. Most of the cases were filed prior to the Supreme Court's resolution of IBM, so the trial court prudently held the cases in abeyance pending that decision. Ultimately, however, the case was resolved not by the IBM decision, but by passage of 2014 PA 282, at least once the trial court upheld the statute against plaintiffs' constitutional challenges. We now turn our attention to those same constitutional arguments.

III. ANALYSIS

A. STANDARDS OF REVIEW

The trial court entered summary disposition in...