On November 20, 2012, a Michigan Court of Appeals ruled that the Multistate Tax Compact (MTC) election is not available for Michigan taxpayers. The Court of Appeals affirmed the lower court’s decision that IBM could not elect to apportion its income according to the three-factor MTC formula. The Court held that under apportionment, 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 The court held that the mandatory language of the later enacted MBT repealed the MTC election by implication.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. In Gillette v. Franchise Tax Board, the California Court of Appeal recently allowed an MTC election. That case is almost certainly headed to the California Supreme Court and possible. For the time, multistate taxpayers should, expect that each state will view the MTC election differently.
Curiously, the opinion was issued as an unpublished, per curiam decision. Unpublished opinions do not have the force of stare decisis, meaning that the decision carries no binding precedential value.
Unlike the California court, which rejected the argument that the MTC election had been “repealed by implication,” the Michigan Court found that the MTC election was repealed because it was irreconcilable with the subsequent statute:
Repeals by implication are disfavored and will not be found unless there is a clear legislative intent to repeal and there is no other reasonable construction of the statutes at issue. People v Koon, 296 Mich App 223, 228; 818 NW2d 473 (2012). Nevertheless, we reluctantly conclude that there is no way to harmonize MCL 205.581 and MCL 208.1301. A statute enacted later in time will generally not impliedly repeal a more-specific earlier statute, Wozniak v General Motors Corp, 198 Mich App 172, 181-182; 497 NW2d 562 (1993), and the first duty of the courts is to find any possible way of avoiding finding an irreconcilable conflict. Nowell v Titan Ins Co, 466 Mich 478, 482; 648 NW2d 157 (2002). However, if two statutes are genuinely in irreconcilable conflict, the later-enacted statute controls.
The concurring opinion by Judge Riordan echoed the California Court’s reasoning, even though Judge Riordan ultimately agreed that IBM was required to use the MBT apportionment method. Judge Riordan disagreed with idea that the MTC election had been impliedly repealed by the passage of the MBT.
The Michigan Court’s decision should put multistate corporate taxpayers on notice that they face an ever increasing patchwork of judicial decisions regarding the MTC election.
To read the Michigan Court’s opinion, click here.
