On February 25, 2016, the Michigan Court of Appeals (COA) ruled that for tax years 2005-2007 the mandatory apportionment provisions of the former Michigan Single Business Tax Act (SBTA) did not impliedly repeal provisions of Michigan's enactment of the Multistate Tax Compact (MTC) that allowed multistate taxpayers to make an election to apportion their tax base using the MTC's equally weighted, three-factor formula (Compact election).¹ Accordingly, for the tax years at issue, the legislature provided the taxpayers with the option of using either the Compact election or the SBTA apportionment formula. The COA also confirmed the Michigan Court of Claims (COC) ruling that the Single Business Tax (SBT) was an income tax, as defined by the MTC, but it rejected arguments by the Michigan Department of Treasury that the retroactive repeal of the MTC to 2008 by 2014 Public Act 282 extended to tax years at issue under the SBT.

This taxpayer favorable decision overturns the earlier decision by the COC in EMCO Enterprises Inc. v. Dep't of Treasury.² In this decision, the COC found that although the SBT was an income tax, as defined by the MTC, and the Compact election could be considered for SBT purposes, the MTC election was implicitly repealed, meaning the MTC election should not be permitted.

Implications

The SBT was repealed as of December 31, 2007. Michigan has a four-year statute of limitations on refund claims; therefore, amended returns making this election would have been due on or before December 31, 2012 for taxpayers that had extended their return. However, if a taxpayer was under federal or state audit for SBT periods and the statute of limitations was extended, such a taxpayer could possibly file amended returns claiming the benefits of a Compact election.

We will continue to monitor any forthcoming judicial developments with respect to the application of the MTC election under the SBTA.

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ENDNOTES

¹AK Steel Holding Corp., et al. v. Department of Treasury, Mich. Ct. App., Dkt. No. 327175 (Feb. 25, 2016).

² EMCO Enterprises Inc. v. Dep't of Treasury, Mich. Ct. Cl., No. 12-000152-MT (April 21, 2015).