Recent Case: IBM v. Michigan Department of Treasury (Michigan Supreme Court)

ByJustin Hughes - JD, CPA, LLM

On Monday July 14th, the Michigan Supreme Court held in a split decision that IBM had the right to elect to use the evenly weighted three-factor formula from the Multistate Tax Compact (“MTC”) to apportion its income in calculating its 2008 Michigan taxes. The Michigan Department of Treasury argued that the Michigan legislature’s enactment of the Michigan Business Tax Act (“BTA”)(2008) had repealed, by implication, Michigan’s enactment of the MTC (1970). At the lower level, the Michigan Court of Appeals agreed with the Michigan Depart of Treasury. However, the Michigan Supreme Court did not.

In 2011, the Michigan legislature expressly repealed Michigan’s enacting statutory provision for the MTC. In overturning the Michigan Court of Appeals decision, the Michigan Supreme Court reasoned that the 2011 repeal of the enacting provision for the MTC was evidence that the MTC was still in place in 2008. As a result, the Michigan Supreme Court determined that the taxpayer had the ability to use either the MTC’s even three-factor formula or BTA’s sales-factor formula.

While the result is helpful for taxpayers, the majority opinion did not analyze in detail the issue that many observers are interested in: does a state that has enacted the MTC have unilateral authority to override portions of the MTC by statute (i.e., is the MTC a binding contract that cannot be superseded piecemeal by subsequent laws) or must the state repeal the entire compact (i.e., withdraw from the MTC)? Rather than finding that one provision overrode the other,the majority held that the seemingly conflicting statutory apportionment provisions in the MTC and BTA could be “harmonized” under the doctrine of  in pari materia.

For more whether the MTC is an overriding-binding contract, observers will have to wait until the California Supreme Court makes its decision in Gillette v. California Franchise Tax Board case.

For brief background on MTC, Gillette, and similar litigation, see the Forbes article When State Taxes And Interstate Compacts Collide by Cara Griffith.

 

Similar Posts

President Signs Executive Order Providing Limited Payroll Tax Deferral

ByJustin Hughes - JD, CPA, LLM

On August 8, 2020, President Trump signed four executive orders. One of the orders directs the Secretary of the Treasury to use the Secretary’s authority to defer certain payroll tax obligations for some employees (the “Executive Order”).  The Executive Order can be found here (link) at the Whitehouse website. The Executive Order provides that Secretary…

Tax Court: CalPERS Pension Plan Not an “Asset” for Section 108 Insolvency Calculation

Tax Court: CalPERS Pension Plan Not an “Asset” for Section 108 Insolvency Calculation

ByJustin Hughes - JD, CPA, LLM

Takeaway: When calculating insolvency for purposes of the insolvency exclusion of cancellation of indebtedness income, a pension plan may or may not be considered an “asset”.  The determination depends on whether the taxpayer has an ability to utilize the equity in the pension plan (e.g., through a lump-sum distribution, loan, sale, etc.) as a means…

DMA v. Brohl: US Supreme Court Holds In Favor of DMA
|

DMA v. Brohl: US Supreme Court Holds In Favor of DMA

ByJustin Hughes - JD, CPA, LLM

Overview On Tuesday March 3, 2015, the Supreme Court handed down a unanimous decision in favor of the Direct Marketing Association, (“DMA”) in DMA v. Brohl (575 U.S. ____ )(March 3, 2015) and remanded the case back to the Tenth Circuit for further consideration. Although the decision did not come as a surprise, dicta in…

Goldsmith v. Commissioner: Can An Owner of A Personal Service Based S Corporation Take Distributions Without Also Taking a Salary?
|

Goldsmith v. Commissioner: Can An Owner of A Personal Service Based S Corporation Take Distributions Without Also Taking a Salary?

ByJustin Hughes - JD, CPA, LLM

In Goldsmith v. Commissioner, T.C. Memo. 2017-20 (link) the Tax Court held that the payments from the shareholder’s S corporation were not wages. The Tax Court reasoned that the payments to the taxpayer constituted a non-taxable return of capital. The court reached this conclusion even though the taxpayer did not draw a salary for the…

Counting Travel Time for Real Estate Professional Test? Leyh v. Commissioner
|

Counting Travel Time for Real Estate Professional Test? Leyh v. Commissioner

ByJustin Hughes - JD, CPA, LLM

Overview In Leyh v. Commissioner[1], the Tax Court held that the taxpayer’s time incurred while traveling from her home to rental properties to perform a variety of tasks with respect to 12 rental activities counted towards the test of whether the taxpayer was a real estate professional.[2] As a result, the taxpayer was considered a…

John Doe Summons Extended SOL & Prevented Amended Returns From Fending Off IRS Penalties
| | |

John Doe Summons Extended SOL & Prevented Amended Returns From Fending Off IRS Penalties

ByJustin Hughes - JD, CPA, LLM

In Lamprecht v Commissioner, TC Memo 2022-91 (link to case), a John Doe summons tolled the statute of limitations and allowed the IRS to assess a 20% accuracy related penalty more than 6 years after the Taxpayers’ original income tax returns were filed. The IRS was able to assess the penalty even though the Taxpayer…