Michigan Court of Appeals Rejects IBM’s MTC Election

The Michigan Court of Appeals has ruled that the Multistate Tax Compact (MTC) election is not available for Michigan taxpayers. The appellate tribunal affirmed the trial court’s decision that IBM could not elect to apportion its income according to the three-factor MTC formula. The Court of Appeals held that apportionment under the Michigan Business Tax (MBT) is mandatory and “the possibility of electing a different apportionment formula as a matter of right is simply not permitted.” The court held that the mandatory language of the later enacted MBT repealed the MTC election by implication.

This decision further muddies the water around the viability of this popular state tax planning strategy for large multi-state corporations. The California Court of Appeal recently allowed an MTC Election in a case that is almost certainly headed to the California Supreme Court. Savoy taxpayers can, and should, expect that each state will view this election differently.

The Michigan opinion contained a couple of interesting litigation notes too. First, the opinion was issued as an unpublished, per curiam decision. Under Michigan law unpublished opinions do not have the force of stare decisis – that is, no binding precedential value. For a case that prompted two amici curiae briefs, one might have expected a decision that would have firmly established the law for other taxpayers. This one, however, was not it.

The per curiam (“by the court”) designation is also interesting in that it is often reserved for opinions of lesser importance. Per curiam decisions often imply a collective view of the prevailing law by the reviewing court.

However, that wasn’t exactly the case here. The per curiam decision was accompanied by a concurring opinion. The author of the concurrence, Judge Riordan, agreed with the court’s determination that IBM was required to use the MBT apportionment method, but wrote to note his disagreement with idea that the MTC election had been impliedly repealed by the passage of the MBT. The concurrence is interesting in that its reluctance to embrace the idea of “repeal by implication” was similar to the reasoning applied by the California court in the Gilette case, mentioned above, that upheld that the MTC election. Corporate taxpayers who have taken the MTC election in some states, or are considering it, would be well advised to track these cases closely.

Read the Court of Appeals per curiam decision here:
IBM v. Dept. of Treasury, No. 306618 (Nov. 20, 2012) per curiam

Read judge Riordan’s concurring opinion here:
IBM v. Dept. of Treasury, No. 306618 (Nov. 20, 2012) concurrence

California Court of Appeal Decision on MTC Election Vacated for Rehearing

On August 9, 2012, the California Court of Appeal (1st Appellate District) “on its own motion and for good cause” vacated its decision and opinion issued on July 24, 2012 in Gillette v. Franchise Tax Board, and ordered a rehearing.

The vacated opinion held that, absent a complete or specific repeal, the Multistate Tax Compact (“MTC”) was binding on member states and a member state could not prevent taxpayers from electing into the MTC’s three-factor apportionment method. The appellants and other practitioners welcomed the decision but, alas, it is no more. Taxpayers and advisors anxious to take action based on the decision will have to wait.

Though the Court of Appeal’s order indicates that the decision to rehear the case was on its own motion, the Franchise Tax Board had filed a Motion for Rehearing the day before which was met by a request to modify the opinion by one of the appellants’ counsel (the case had been consolidated on appeal). It seems that the court did not recognize either motion in its order, but it did make it clear that “additional briefing from any party or any amicus curiae is not requested.”

A date for rehearing has not yet been scheduled.