AK Steel Holding Corp. v. Dep't of Treasury

314 Mich.App. 453

887 N.W.2d 209

AK STEEL HOLDING CORPORATION

v.DEPARTMENT OF TREASURY.

Docket Nos. 327175

327251

327313

327314

327315

327316

327317

327318

327319

327320

327321

327322

327323

327324

327325

327326

327327

327328

327329

327330

327331

327333

327334.

Court of Appeals of Michigan.

Submitted Jan. 13, 2016, at Detroit.

Decided Feb. 25, 2016, at 9:00 a.m.

Honigman Miller Schwartz and Cohn LLP, Grand Rapids (by Patrick R. Van Tiflin and Daniel L. Stanley ), for AK Steel Holding Corporation and Johnson Matthey Inc.

Miller, Canfield, Paddock and Stone, PLC, Detroit (by Gregory A. Nowak, Colin Battersby, and Maria Baldysz ), for EMCO Enterprises, Inc., Cargill Meat Solutions Corporation, Watts Regulator Company, SLBP Holdings Corporation, Renewal by Andersen Corporation, Andersen Windows, Inc., Sid Tool Co., Inc., Martin Sprocket & Gear, Inc., United Stationers Supply Company, Rodale Inc., Goodyear Tire & Rubber Company, Leslie Controls, Inc., Hoke, Inc., Spence Engineering, Inc., Circor Energy Products, Inc., Circor Aerospace, Inc., GTECH Corporation, Cambrex Charles City, Inc., and EMC Corporation.

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

Before: RIORDAN, P.J., and JANSEN and HOOD, JJ.

PER CURIAM.

I. INTRODUCTION

In these 23 consolidated appeals,¹ the plaintiffs are taxpayers that, respectively, appeal as of right orders granting summary disposition in each case to defendant, the Michigan Department of Treasury. Each appeal raises common issues challenging the Court of Claims' holding that the mandatory apportionment provision of the Single Business Tax Act (SBTA), former MCL 208.1 et seq.,² impliedly repealed a provision of Michigan's enactment of the Multistate Tax Compact (the Compact), former MCL 205.581 et seq.³ That provision of the Compact had allowed multistate taxpayers to apportion their tax base using an equally weighted three-factor formula set forth in the Compact. Plaintiffs further contend that an implied repeal of the Compact's election provision violates the terms of the Compact—which, according to plaintiffs, was binding on subsequent legislatures—and violates state and federal constitutional provisions. Additionally, in Docket No. 327251, plaintiff Johnson Matthey Inc. also argues that it was entitled to apportion its Michigan business tax (MBT)⁴ base pursuant to the Compact apportionment formula, and that the retroactive repeal of the Compact by 2014 PA 282 violated the terms of the Compact and various constitutional provisions.

In cross-appeals in all of the cases except for Cambrex Charles City, Inc. v. Dep't of Treasury (Docket No. 327330), and as alternative grounds for affirmance in all of the cases, defendant argues that the single business tax (SBT) is not an income tax under the apportionment-election provision of the Compact and that the retroactive repeal of the Compact by 2014 PA 282 barred plaintiffs from asserting their respective SBT refund claims.

Because we conclude that the SBTA did not impliedly repeal the Compact's apportionment-election provision, we reverse in part and remand for further proceedings consistent with this opinion.

II. HISTORICAL BACKGROUND AND PROCEDURAL POSTURE⁵

Plaintiffs in the present cases are claiming SBT refunds for at least one tax year between 2005 and 2007. In particular, plaintiffs seek to reduce their SBT liability for the tax years at issue by apportioning their income through the equally weighted three-factor apportionment formula provided in the Compact rather than the three-factor formula provided in the SBTA, which weighted the sales factor of the formula more heavily. As the Court of Claims stated, the principal issue in these cases is “whether the SBT apportionment formula for the tax years in question is mandatory or whether an SBT taxpayer may elect to apportion its tax base to Michigan using the Compact's equally weighted, three-factor apportionment formula.”

A. THE SBTA

From January 1, 1976, until its repeal effective December 31, 2007, the SBTA governed the taxation of business activity in Michigan. See 1975 PA 228, 2006 PA 325. Under the SBTA, a tax base was calculated by beginning with a business's federal taxable income and then adding back compensation, depreciation, and other factors, as well as making other adjustments. See Trinova Corp. v. Mich. Dep't of Treasury, 498 U.S. 358, 366–367, 111 S.Ct. 818, 112 L.Ed.2d 884 (1991) (Trinova II ). Throughout its history, the SBT was apportioned using a three-factor formula consisting of payroll, property, and sales. As the Court of Claims explained in its opinion, this formula originally weighted the three factors equally, in accordance with previous business taxes in Michigan and the nearly universal practice of other states at the time. However, in later years, many states moved away from an equally weighted three-factor formula by more heavily weighting the sales factor. Following this trend, the Michigan Legislature abandoned uniform apportionment and began to more heavily weight the sales factor in 1991. See 1991 PA 77. Subsequent amendments continued to weigh the sales factor even more heavily. For tax years 1999 through 2005, the sales factor was weighted at 90%, and for 2006 and 2007, the sales factor was weighted at 92.5%. See 1995 PA 282, 1995 PA 283, 2005 PA 295; MCL 208.45a(1)(c) and (2)(c), repealed by 2006 PA 325.

B. THE COMPACT

The Compact originally was adopted by seven states in 1967. The Michigan Legislature adopted the Compact provisions effective in 1970. See 1969 PA 343. While Congress never approved the Compact, it was upheld against constitutional challenges. See US Steel Corp. v. Multistate Tax Comm., 434 U.S. 452, 98 S.Ct. 799, 54 L.Ed.2d 682 (1978). The Compact established the Multistate Tax Commission (the Commission), but each state remained free to adopt or reject the Commission's rules and regulations and remained free to withdraw from the Compact at any time. See id. at 473, 98 S.Ct. 799. Most relevant to this appeal, Article IV of the Compact set forth a three-factor apportionment formula that equally weighted property, payroll, and sales factors. MCL 205.581, art. IV(9). Article III of the Compact provided that a taxpayer subject to an income tax “in 2 or more party states may elect to apportion and allocate his income in the manner provided ... by the laws of such states ... without reference to this compact, or may elect to apportion and allocate in accordance with article IV.” MCL 205.581, art. III(1).

On May 25, 2011, 2011 PA 40 became effective. The act amended the Compact so that a multistate taxpayer subject to the Michigan Business Tax Act (MBTA), MCL 208.1101 et seq., or the Income Tax Act of 1967, MCL 206.1 et seq., could not elect the Compact apportionment formula beginning January 1, 2011. Then, on September 12, 2014, 2014 PA 282 became effective, retroactively repealing the Compact provisions effective January 1, 2008, and mandating the use of a single sales-factor apportionment formula for the purpose of calculating the MBT and the corporate income tax, MCL 206.601 et seq. As the Court of Claims explained:

[2014] PA 282 thus amended the MBT to express the “original intent” of the Legislature with regard to (1) the repeal of the Compact provisions, (2) application of the MBT's apportionment provision under MCL 208.1301, and (3) the intended effect of the Compact's election provision under MCL 205.581. 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 and the [corporate income tax].

C. THE COURT OF CLAIMS' DECISION

In one of the present appeals, EMCO Enterprises, Inc. v. Dep't of Treasury (Docket No. 327313), the Court of Claims issued a 29–page opinion addressing the plaintiff's claims and granting summary disposition in favor of defendant pursuant to MCR 2.116(I)(2). In summarizing its decision, the Court of Claims stated:

The Court, in fulfilling its duty to ascertain and apply the intent of the Legislature, finds that the taxpayer is required to use the apportionment formulas mandated under the SBTA for the tax years in question, and is not entitled to elect a different apportionment formula under the Compact. Though the SBT is an income tax within the meaning of the Compact, future legislatures were not bound by the policies of the legislature that enacted 1969 PA 343. The purpose of state tax uniformity as embedded in both the Compact's apportionment elective provision by the 1969 legislature, and the SBTA's equally weighted, three-factor apportionment formula as originally enacted by the 1975 legislature, is not consistent with the purpose of later amendments made to apportionment formulas by the Legislature. Under traditional rules of statutory construction, the apportionment formula under the SBTA for the tax years in question must control.

More specifically, in its EMCO opinion, the Court of Claims concluded that the Compact was advisory and did not bind future legislatures, that the Compact was not a binding contract under Michigan law, and that the Legislature was therefore free to mandate the use of apportionment formulas that deviated from the formula set forth in the Compact. The court further determined that the SBTA in effect during the tax years at issue conflicted with the Compact's apportionment-election provision by requiring the use of a different apportionment formula from that provided in the Compact and that these provisions could not be harmonized. The Court of Claims concluded that the SBTA apportionment provision was controlling and had impliedly repealed the Compact's apportionment-election provision. Further, the court rejected arguments that denying plaintiffs...