Michigan Court of Appeals upholds retroactive repeal of MTC
TAX ALERT |
On Sept. 30, 2015, the Michigan Court of Appeals issued its decision in Gillette Commercial Operations North America & Subsidiaries v. Department of Treasury and 49 consolidated appeals, ruling that the state's retroactive repeal of the Multistate Tax Compact (MTC) pursuant to 2014 PA 282 did not violate the United States or Michigan constitutions.
In its decision, the court made the following determinations regarding the repeal:
- The retroactivity provision did not violate the Contract Clauses of the United States or Michigan constitutions because the MTC was not a binding interstate compact that contractually bound the state from exercising its legislative power.
- The retroactivity provision did not violate the due process clauses of the United States or Michigan constitutions because the legislature had a legitimate purpose in providing for a retroactive effective date in 2014 PA 282, the six-and-one-half year retroactivity period was not unreasonable and taxpayers had no vested right in the validity of the state's enactment of the MTC.
- The retroactivity provision did not violate the Commerce Clause of the United States constitution because enforcement of the repeal and the retroactivity provision, and the resulting application of a single sales factor apportionment formula, did not discriminate against interstate commerce.
- The retroactivity provision did not violate the First Amendment of the United States constitution or the analogous provisions of the Michigan constitution because the enforcement of the repeal did not impinge upon the taxpayer's right to petition the government.
- The retroactivity provision did not violate the principle of the separation of powers because the Michigan legislature's actions were limited to the clarification of a statute that the legislature believed had been misconstrued by the judiciary, and did not operate to reverse a decision of the judiciary or repeal a final judgment.
The Michigan Court of Appeals' decision in favor of the state does not come as a surprise, and it will likely be appealed, particularly in relation to the court's interpretation and application of the United States Supreme Court's 1994 decision in United States v. Carlton in its due process analysis. Taxpayers with pending refund claims should continue to hold those claims in abeyance until a final decision has been rendered in this matter. Taxpayers with claims that have not yet filed should consider filing those claims, as this decision is unlikely to be the judiciary's final word on this matter. For more information regarding the history of this case and the enactment of Michigan's repeal of the MTC, please read our article, Michigan retroactively repeals Multistate Tax Compact.