On July 12, 2016, the Michigan Court of Appeals (COA) heard oral arguments in the case of IBM v. Department of Treasury, No. 146440. At issue is whether the Michigan Court of Claims (COC) had the authority to rule that legislation enacted in September 2014 to retroactively repeal the Multistate Tax Compact (Compact) to 2008 applies to the taxpayer (preventing the taxpayer from receiving refunds), rather than entering summary judgment in favor of the taxpayer's right to elect the Compact's equally weighted three-factor apportionment formula, as ordered by the Michigan Supreme Court.

Background

On November 14, 2014, the Michigan Supreme Court denied the Michigan Department of Treasury's (Department) motion for reconsideration in IBM v. Dep't of Treasury¹ (IBM), as well as the Department's motion to stay the effect of its July 2014 ruling in favor of the taxpayer allowing the use of the Compact election, which should have resulted in a refund (see Tax Alert 2014-1271). Accordingly, the Michigan Supreme Court decision stood and the matter was remanded to the COC for entry of an order granting summary disposition in favor of the taxpayer, IBM.

On remand, the COC initially entered summary disposition in favor of IBM, but the Department filed a motion for reconsideration of that order, arguing that the COC could not find in favor of IBM because of the subsequent enactment of PA 282 by the Michigan Legislature and approval by the Governor, which retroactively repealed the Compact to 2008.² The COC reconsidered, and, in an opinion and order dated April 28, 2015,³ held that the state's retroactive repeal of the Compact applied to IBM for the tax year 2008.

Arguments and statements

Some members of our Michigan indirect tax team attended the oral argument before the COA and report the following from the hearing:

To begin the oral arguments, Judge William Murphy asked, "Why isn't this case as simple as, the lower Court of Claims had no authority to fail to follow the directive from the Michigan Supreme Court?"

Gregory Nowak of Miller, Canfield, Paddock and Stone PLC, who is representing IBM, responded, "It is as simple as that, your honor."

Nowak did not bring forth any additional arguments.

The Department, represented by Assistant Attorney General Scott Damich, argued that the Legislature acted within its constitutional authority by passing the retroactive repeal of the Compact. Since the state had filed a motion for rehearing, and the motion was still pending when the Legislature retroactively repealed the Compact, the case was not closed and the Michigan Supreme Court's opinion was not a final judgment.

Implications

All three judges on the COA panel expressed skepticism that the COC had the authority to rule that PA 282 applied to IBM, rather than enter summary judgment in IBM's favor. We will continue to monitor any forthcoming judicial developments with this case.

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ENDNOTES

¹ International Business Machines Corp v Dep't of Treasury, No. 146440 (Mich. S. Ct July 14, 2014).

² 2014 PA 282.

³ International Business Machines Corp. v. Dep't of Treasury, No. 11-000033-MT (Mich. Ct. Cl. April 28, 2015).