Perspectives

Michigan seeks rehearing in IBM & retroactive disallowance of Compact elect

Multistate tax alert | August 15, 2014

In response to the IBM decision, the Michigan Department of Treasury (“Treasury”) filed two motions with the court: a Motion for Rehearing, requesting that the court reconsider its decision; and a Motion to Stay, asking that the court suspend the effects of the case pending the outcome of the Motion for Rehearing. Also, some Michigan legislators have apparently begun to consider a legislative response aimed at retroactively disallowing the Compact election.

Michigan's Department of Treasury's two motions

On July 14, 2014, the Michigan Supreme Court in International Business Machines v. Michigan Department of Treasury (“IBM”) held that the taxpayer could elect to compute both the Modified Gross Receipts Tax and the Business Income Tax components of its 2008 Michigan Business Tax (“MBT”) liability using the Multistate Tax Compact (“Compact”) election in lieu of the 100% sales-weighted apportionment formula under the MBT Act.1 By application of the election (Compact Article III), the taxpayer was allowed to use an equally-weighted, three-factor apportionment formula (property, payroll and sales).2

In response to the IBM decision, the Michigan Department of Treasury (“Treasury”) filed two motions with the court: a Motion for Rehearing, requesting that the court reconsider its decision; and a Motion to Stay, asking that the court suspend the effects of the case pending the outcome of the Motion for Rehearing. Also, some Michigan legislators have apparently begun to consider a legislative response aimed at retroactively disallowing the Compact election.

In this tax alert we summarize Treasury’s two motions and the potential legislative response to the court’s decision. We also provide some taxpayer considerations in light of the potential for retroactive legislation.

  1. International Business Machines v. Michigan Department of Treasury, Mich. Supreme Court Docket No. 146440 (July 14, 2014).
  2. The background, judicial history and implications of the IBM decision were discussed in detail in the Deloitte Tax Alert dated July 16, 2014. 

 

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Multistate Tax alert archive

The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

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