News and Insights

Michigan Legislature Moves to Deny Taxpayer Rights to Refunds

Tax Development Sep 10, 2014

The Michigan Legislature has passed legislation aimed at extinguishing millions of dollars of pending refund claims under the state’s business tax. The Michigan House of Representatives added the retroactive tax law change to Senate Bill 156 (“SB 156”), which it passed on September 9, 2014. On September 10, 2014, the Senate also passed the bill, and sent it to Governor Rick Snyder, who has said he will sign it.

SB 156 seeks to repeal—retroactive to January 1, 2008—a Michigan law that permits taxpayers to elect to apportion their Michigan Business Tax using a three-factor apportionment formula contained in the Multistate Tax Compact (MTC). The Michigan Department of Treasury (“Department”) has maintained that the three-factor formula option was repealed by implication effective January 1, 2008, when the state adopted the Michigan Business Tax Act. This act required taxpayers to apportion using a single sales factor formula. The Court of Appeals agreed with the Department, but on July 14, 2014, the Michigan Supreme Court disagreed, upholding the taxpayer’s right to the three-factor apportionment option in International Business Machines (IBM) Corp. v. Dep’t of Treasury. The Department filed a motion for rehearing, which is still pending before the Court.

If signed into law, SB 156 will effectively overturn the IBM decision and deny all MTC election refund claims for tax years 2008 through 2010. This legislation is extremely detrimental for multistate taxpayers and will set a dangerous precedent for other states to follow suit.


Michael Martens