TEI Files Amicus Brief in Michigan Retroactivity and Compact Cases
TEI's State and Local Tax Committee

On December 22, 2016, TEI filed an amicus brief with the U.S. Supreme Court in support of the taxpayers’ Petitions for a Writ of Certiorari in International Business Machines Corporation v. Michigan Department of Treasury, No. 16-698, Sonoco Products Company, et al. v. Michigan Department of Treasury, No. 16-687, Skadden, Arps, Slate, Meagher & Flom, LLP, v. Michigan Department of Treasury, No. 16-688, Gillette Commercial Operations North America and Subsidiaries, et al. v. Michigan Department of Treasury, No. 16-697, Goodyear Tire & Rubber Company, et al. v. Michigan Department of Treasury, No. 16-699, and DIRECTV Group Holdings, LLC v. Michigan Department of Treasury, No. 16-736. The petition seeks review of the Michigan Court of Appeals’ decision in Gillette Commercial Operations North America and Subsidiaries v. Department of Treasury, 878 N.W.2d 891 (Mich. Ct. App. 2015) (“Gillette”).

Gillette upheld a six-year retroactive tax amendment that retroactively withdrew Michigan as a party to the Multistate Tax Compact (“Compact”) following the Michigan Supreme Court’s decision in International Business Machines. Corp. v. Dep’t of Treasury, 852 N.W.2d 865, 874 (Mich. App. 2014) (“IBM”), which held IBM was entitled to use the Compact’s three-factor apportionment formula when calculating its 2008 tax liability. Gillette thus had the effect of repealing the Compact for over six years, retroactively eliminating taxpayers’ right to apportion their income using the Compact’s three-factor apportionment formula, eliminating refund claims that would have been due, and reviving assessments that would have been invalidated under the IBM decision.

Gillette is the latest in a series of state court decisions that have used an extraordinarily permissive standard to evaluate the validity of retroactive tax legislation. In October 2016, TEI also filed an amicus brief in support of the taxpayer in Dot Foods, Inc. v. Department of Revenue of the State of Washington, No. 16-308, which challenges a Washington Supreme Court decision upholding a 27-year retroactive tax amendment using a similarly lenient standard.

TEI's brief maintains that the standard employed by the Washington and Michigan courts to assess the constitutionality of retroactive tax amendments imposes virtually no limit on retroactive tax legislation. As a result, several state legislatures have chosen to use retroactive tax legislation to overrule specific court decisions rather than prospectively amending their tax codes at the earliest reasonable opportunity. Moreover, the U.S. Supreme Court's intervention is necessary to resolve a conflict among state courts interpreting the Court's decision in United States v. Carlton, 512 U.S. 26 (1994), the seminal case addressing the constitutionality of retroactive tax legislation.

TEI's brief was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Jamie Fenwick. TEI Tax Counsel Pilar Mata coordinated the preparation of the brief and was its principal author.

 

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