Thiokol Corp. v. Roberts

• Decision Date: 22 July 1994
• Docket Number: No. 4:90-CV-12.,4:90-CV-12.
• Citation: 858 F. Supp. 674
• Parties: THIOKOL CORP., Morton International, Inc. (as successors through corporate reorganization to Morton Thiokol, Inc.) and Bee Chemical Company, Plaintiffs, v. Douglas B. ROBERTS, in his official capacity as Treasurer of the State of Michigan, and Thomas M. Hoatlin, in his official capacity as Commissioner of Revenue of the State of Michigan, Defendants.
• Court: U.S. District Court — Western District of Michigan

858 F. Supp. 674

THIOKOL CORP., Morton International, Inc. (as successors through corporate reorganization to Morton Thiokol, Inc.) and Bee Chemical Company, Plaintiffs, v. Douglas B. ROBERTS, in his official capacity as Treasurer of the State of Michigan, and Thomas M. Hoatlin, in his official capacity as Commissioner of Revenue of the State of Michigan, Defendants.

No. 4:90-CV-12.

United States District Court, W.D. Michigan, Southern Division.

July 22, 1994.

James H. Geary, Howard & Howard, P.C., Kalamazoo, MI, Patrick R. Van Tiflin, Howard & Howard, Lansing, MI, for plaintiffs.

Richard R. Roesch, Russell E. Prins, Asst. Atty. Gen., Frank J. Kelley, Atty. Gen., Revenue Div., Steven D. Hughey, Daniel Mark Greenberg, Asst. Attys. Gen., Lansing, MI, Dept. of Treasury, State of Mich., Revenue Div.

Russell E. Prins, Steven D. Hughey, Daniel Mark Greenberg, Asst. Attys. Gen., Lansing, MI, for Robert A. Bowman, Treasurer of the State of Mich. and Melvin Vanvorst.

OPINION RE CROSS MOTIONS FOR SUMMARY JUDGMENT

HILLMAN, Senior District Judge.

Plaintiffs, Thiokol Corporation, Morton International, Inc., and Bee Chemical Company are corporations engaged in business in Michigan. Each plaintiff is subject to the Michigan Single Business Tax (SBT), M.C.L. §§ 208.1-.145. Plaintiffs allege that the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, preempts Michigan's SBT. Defendants are Douglas B. Roberts (Treasurer of the State of Michigan) and Thomas M. Hoatlin (Commissioner of Revenue of the State of Michigan).

BACKGROUND

1. The Michigan Single Business Tax

The State of Michigan taxes business activity within the state through the Michigan Single Business Tax (SBT), M.C.L. §§ 208.1.145. The SBT is imposed on all businesses for the privilege of engaging in business within Michigan. This tax is levied at the rate of 2.35 percent of an adjusted tax base.

Most states tax either business income or sales. The SBT, however, taxes neither business income nor sales, but rather the value a business adds to a product ("value added"). The value added tax base is defined as, "the difference between the value of the product at sale and the cost of goods purchased from other businesses that went into the product." Taxation and Economic Policy Office, Michigan Department of Treasury, Analysis of the Michigan Single Business Tax, 20 (1985).

In Michigan the value added tax base is calculated by summing compensation, depreciation, interest and profits. Further, the compensation component of this calculation specifically includes, "payments to a pension, retirement, or profit sharing plan, and payments for insurance for which employees are the beneficiaries, including payments under health and welfare noninsured benefit plans and payments of fees for administration of health and welfare and noninsured benefit plans." M.C.L. § 208.4(3). All parties agree that these payments, which are included in the computation of the SBT, are payments to ERISA plans.

2. ERISA

ERISA provides that it shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1001(b) of this title." 29 U.S.C. § 1144(a). While Congress created certain exceptions to the preemption rule, Congress specifically stated that nothing in the exceptions, "shall be construed to exempt from subsection (a) of this section — (i) any State tax law relating to employee benefit plans." 29 U.S.C. § 1144(b)(5)(B). Thus, Congress has explicitly said that any "State tax law" which "relates to" an ERISA plan is superseded by ERISA.

Plaintiffs assert that the SBT taxes employer contributions to ERISA plans and thus relates to ERISA. Plaintiffs further argue that ERISA preempts the Michigan SBT or that portion of the SBT which taxes employer contributions to ERISA plans. Defendants argue that the SBT does not tax contributions to ERISA plans but instead taxes value added. As such, defendants argue, the SBT does not relate to ERISA plans and therefore is not preempted. The case now comes before the court on cross motions for summary judgment.

DISCUSSION

1. Standard of Review

Summary judgment is appropriate when there is no genuine issue as to any material fact. In such cases, the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The crux of summary judgment is determining "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986). In making this determination, the court must draw all justifiable inferences in favor of the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

2. ERISA

ERISA is a comprehensive federal statute designed to promote the interests of employees and their beneficiaries in employee pension and benefit plans. Shaw v. Delta Air Lines, 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). Congress enacted ERISA to subject employee benefit plans to a uniform system of federal laws governing disclosure, reporting, standard of conduct, remedies, sanctions, and access to federal courts. Since uniformity could not be achieved if ERISA plans were subject to varying state regulations, Congress included safeguards to preclude abuse and frustration of the comprehensive federal regulation it established. Ingersoll-Rand v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990). Prominent among these safeguards is an expansive preemption provision, found at section 514(a) of ERISA, 29 U.S.C. § 1144(a).

Section 514(a) is deliberately expansive and "conspicuous for its breadth." FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990). The preemption provision has been described as being virtually unique among preemption statutes, Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 24, n. 26, 103 S.Ct. 2841, 2854, n. 26, 77 L.Ed.2d 420 (1983), and as "one of the broadest preemption clauses ever enacted by Congress." Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1439 (9th Cir.1990). Under this provision, ERISA supersedes, "any and all State laws insofar as they ... relate to any employee benefit plan." ERISA § 514(a), 29 U.S.C. § 1144(a).

In Shaw v. Delta Air Lines, 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983), the Court determined that "relate to" should be given a broad common-sense meaning. The Shaw Court held that a state law need not be specifically designed to affect ERISA plans in order to be preempted. 463 U.S. at 97, 103 S.Ct. at 2900. Further, "relate to" did not require that a state law must directly relate to the subjects covered by ERISA; any connection may trigger preemption. 463 U.S. at 97, 103 S.Ct. at 2900. Finally, a state law is preempted if it relates to ERISA even if the state law is "consistent with ERISA's substantive requirements" or was enacted to effectuate ERISA's underlying purpose. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985).

While ERISA preemption is expansive, it is not all encompassing. Many, if not all, state laws could be held to "relate to" an ERISA plan in some form. Indeed, ERISA could become "a legal black hole with an attractive force no state law could resist." United Wire and Machine Health and Welfare Fund v. Morristown Memorial Hosp., 995 F.2d 1179, 1197 (3rd Cir.1993) (Nygaard, J. dissenting).

Thus, the Shaw Court found that, "some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan." 463 U.S. at 100, n. 21, 103 S.Ct. at 2901, n. 21. The Supreme Court has consistently applied this standard since its pronouncement some ten years ago. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139, 111 S.Ct. 478, 483, 112 L.Ed.2d 474 (1990); FMC Corp. v. Holliday, 498 U.S. 52, 56, 111 S.Ct. 403, 406, 112 L.Ed.2d 356 (1990); Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 829, 108 S.Ct. 2182, 2185, 100 L.Ed.2d 836 (1988); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985). The task then is to determine the precise relationship between a state law and an ERISA plan, specifically answering the question of whether the state law affects an ERISA plan in too tenuous, remote or peripheral a manner to "relate to" the plan. Keystone Charter, Assoc. Builders v. Foley, 837 F.Supp. 654 (M.D.Pa.1993).

3. The Value Added Tax

Michigan's SBT is a value added tax. The value added tax (VAT) is a method of taxing business activity commonly used in Europe and Latin America. The VAT, however, has rarely been implemented within the United States. See Congressional Budget Office, Effects of Adopting a Value-Added Tax (February 1992). Because the VAT is not commonly understood, I begin with a discussion of the value added tax in general and then turn to the relationship between Michigan's value added tax and ERISA.

A. Defining Value Added

Value added is a measure of the entire economic activity of a business or firm. Specifically, value added can be defined as the increase in the value of goods and services brought about by whatever a business does to them between the time of purchase and the time of sale. James W. Haughey, The Economic Logic of the Single Business Tax, 22 Wayne Law Review 1017, 1018 (1976) ("Haughey"). Like a sales tax, a tax on value added is a tax on actual consumption. Harvey S. Rosen, Public Finance, Second Edition 459-478 (1988) ("Rosen"). In contrast, an income...