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Businesses may be able to claim gross receipts tax refunds under IBM


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The Multistate Tax Compact (MTC) apportionment election has driven substantial state tax activity. The debate over whether the election exists has spawned substantial state income tax refund claims and high-profile litigation and legislation in multiple states. Michigan has recently taken the spotlight in this conversation with the Michigan Supreme Court's decision in IBM v. Department of Treasury, the state's subsequent retroactive withdrawal from the MTC, and ongoing litigation in the state's courts.

Brian Kirkell, Craig Ridenour and Mike Williams reach the following conclusion in their analysis of the IBM decision, first published in Tax Analyst's State Tax Notes:


Although the Michigan Supreme Court noted repeatedly that its modified gross receipts tax holding was intended to be limited solely to its interpretation of the compact and that it did not reach "the issue whether the MGRT, generally, is an income tax," the language the court used calls into question the effectiveness of those stated limitations. By calling the MGRT a tax based on a variation of net income, the court arguably set a precedent that the MGRT is measured by net income for purposes of P.L. 86-272.

Our tax professionals have analyzed the findings of the Michigan Supreme Court as they apply to the modified gross receipts tax and determined that it is arguable that an unintended consequence of the Michigan Supreme Court's ruling in IBM is that the MGRT is a net income tax for the purpose of applying P.L. 86-272. Accordingly, businesses that did not pay the business income tax because of P.L. 86-272 yet paid the MGRT because they believed it was not a net income tax may be able to claim refunds for the full amount of MGRT paid.

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