Petition for Writ of Certiorari — MMN Infrastructure Services, LLC, Successor in Interest to Vectren Infrastructure Services Corp., Petitioner v. Michigan Department of Treasury

Supreme Court briefOct 25, 2023

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In The

Supreme Court of the United States

---------------------------------♦--------------------------------MMN INFRASTRUCTURE SERVICES, LLC,

Petitioner,

MICHIGAN DEPARTMENT OF TREASURY,

Respondent.

---------------------------------♦--------------------------------On Petition For Writ Of Certiorari

To The Michigan Supreme Court

---------------------------------♦--------------------------------PETITION FOR A WRIT OF CERTIORARI

---------------------------------♦--------------------------------LYNN A. GANDHI

JEREMY ABRAMS

ELIZABETH NEVLE

FOLEY & LARDNER LLP

500 Woodward Ave.

Suite 2700

Detroit, MI 48226

(313) 234-2715

lgandhi@foley.com

jeremy.abrams@foley.com

enevle@foley.com

JOHN J. BURSCH

Counsel of Record

BURSCH LAW, PLLC

9339 Cherry Valley Ave., #78

Caledonia, MI 49316

(616) 450-4235

jbursch@burschlaw.com

Counsel for Petitioner

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COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

QUESTIONS PRESENTED

This case concerns a state’s attempt to tax a company’s value based on de minimis, temporary contacts

when that company is already subject to tax on such

value in another state, an issue of national importance

affecting interstate commerce, extraterritorial taxation, and a split among state courts of last resort.

Minnesota Limited, Inc., was a Minnesota company with a Minnesota headquarter and substantial

assets in Minnesota. The corporation had almost no

assets in Michigan. In 2011, Petitioner Vectren Infrastructure, n/k/a MMN Infrastructure Services, LLC,

purchased Minnesota Limited in an asset sale. The

gain on the sale of the enterprise made up $51 million

of the company’s $55 million income, about 93%, which

the company rightly attributed to out-of-state economic activity.

The enterprise sale occurred at the end of March,

resulting in a three-month “short tax year” filing. During those three months, its offseason, Minnesota Limited was engaged in the cleanup of an oil spill in

Michigan. The State of Michigan used those anomalies

to claim 70% of the taxable value of the entire company,

refusing to apportion the enterprise-sale income to

out-of-state activity. The Michigan Supreme Court’s

4–3 decision upholding that tax assessment raises two

questions for this Court’s review:

1. Whether, to comply with the requirements of

fair apportionment and the prohibition on extraterritorial taxation, a state must include in its state tax

QUESTIONS PRESENTED—Continued

apportionment formula the factors of a business giving

rise to income to be taxed.

2. Whether factor representation includes a temporal element.

iii

PARTIES TO THE PROCEEDING AND

CORPORATE DISCLOSURE STATEMENT

Petitioner MMN Infrastructure Services, LLC

(MMN), is the successor-in-interest to Vectren Infrastructure Services Corp. (Vectren), the plaintiff below,

which itself was the successor-in-interest to Minnesota

Limited, Inc.

Minnesota Limited, Inc., was converted to a limited liability company, Minnesota Limited, LLC, on

March 31, 2011, the date of the sale of the company.

Vectren, an Indiana corporation, was the sole shareholder, and transferred its interest to a wholly owned

subsidiary, Vectren Utility Service, Inc., an Indiana

corporation.

On February 3, 2020, PowerTeam Services, LLC, a

Delaware limited liability company, acquired all issued

and outstanding common stock of Vectren from Vectren

Utility Service, Inc. Vectren was converted (with a

name change) to a limited liability company, MMN, on

April 6, 2020. The current sole member of MMN is Artera Services, LLC f/k/a PowerTeam Services, LLC.

PowerTeam Services, LLC changed its name to Artera

Services, LLC, on July 27, 2020.

Respondent is the Michigan Department of Treasury.

LIST OF ALL PROCEEDINGS

Michigan Supreme Court, Case No. 163742, Vectren Infrastructure Services Corp. v. Department of Treasury,

Opinion issued July 31, 2023.

Michigan Supreme Court, Case No. 163742, Vectren

Infrastructure Services Corp., successor-in-interest to

Minnesota Limited, Inc. v. Department of Treasury,

Order issued March 23, 2022.

Michigan Court of Appeals, Case No. 35462, Vectren

Infrastructure Services Corp., successor-in-interest to

Minnesota Limited, Inc. v. Department of Treasury,

Opinion issued September 30, 2021.

Michigan Court of Claims, Case No. 17-000107-MT,

Vectren Infrastructure Services Corp., successor-ininterest to Minnesota Limited, Inc. v. Department of

Treasury, Opinion issued May 25, 2021.

Michigan Supreme Court Order, Case No. 161422, Vectren Infrastructure Services Corp., successor-in-interest

to Minnesota Limited, Inc. v. Department of Treasury,

Order issued November 25, 2020.

Michigan Court of Appeals, Case No. 35462, Vectren

Infrastructure Services Corp., successor-in-interest to

Minnesota Limited, Inc. v. Department of Treasury,

Opinion issued March 12, 2020.

Michigan Court of Claims, Case No. 17-000107-MT,

Vectren Infrastructure Services Corp., successor of Minnesota Limited, Inc. v. Department of Treasury, Opinion

issued August 14, 2018.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ................................

PARTIES TO THE PROCEEDING AND CORPORATE DISCLOSURE STATEMENT ...........

iii

LIST OF ALL PROCEEDINGS ...........................

APPENDIX TABLE OF CONTENTS ..................

TABLE OF AUTHORITIES ................................. viii

DECISIONS BELOW ..........................................

STATEMENT OF JURISDICTION .....................

PERTINENT CONSTITUTIONAL AND STATUTORY PROVISIONS .....................................

INTRODUCTION ................................................

STATEMENT OF THE CASE..............................

I. Court precedent limits state power to tax ....

II.

Taxpayer was Minnesota-based, with limited business in Michigan .......................... 11

III.

Proceedings below ..................................... 12

REASONS FOR GRANTING THE WRIT............ 18

The Michigan Supreme Court’s decision

exacerbates a substantial conflict among

the lower courts over the proper apportionment of a multi-state business’s income ........................................................... 18

TABLE OF CONTENTS—Continued

Page

A. The asymmetry of including gain in

the tax base, while excluding such

gain from the apportionment factor,

violates the constitutional requirement of fair apportionment ................. 20

B. Distortion is further enhanced when

gain is apportioned without reference

to the span of time in which the value

was created .......................................... 29

II.

The Michigan Supreme Court’s decision

also conflicts with numerous decisions of

this Court ................................................... 31

III.

This case is an ideal vehicle to resolve confusion and provide critical clarity regarding the issues presented ............................ 35

CONCLUSION..................................................... 37

APPENDIX

Michigan Supreme Court,

Opinion in No. 163742,

Issued July 31, 2023......................................... App. 1

Michigan Supreme Court,

Order in No. 163742,

Issued March 23, 2022 ................................. App. 141

Michigan Court of Appeals,

Opinion in No. 345462,

Issued September 30, 2021 .......................... App. 143

vii

TABLE OF CONTENTS—Continued

Page

Michigan Court of Claims,

Opinion in No. 17-000107-MT,

Issued May 25, 2021 .................................... App. 149

Michigan Supreme Court,

Order in No. 161422,

Issued November 25, 2020 ........................... App. 162

Michigan Court of Appeals,

Opinion in No. 345462,

Issued March 12, 2020 ................................. App. 164

Michigan Court of Claims,

Opinion in No. 17-000107-MT,

Issued August 14, 2018 ................................ App. 183

viii

TABLE OF AUTHORITIES

Page

CASES

Allied-Signal, Inc. v. Director, Div. of Tax’n,

504 U.S. 768 (1992) .................................................21

Am. Tel. & Tel. Co. v. Wis. Dep’t of Revenue,

422 N.W.2d 629 (Wis. Ct. App. 1988) ................ 24, 25

ASARCO Inc. v. Idaho State Tax Comm’n,

458 U.S. 307 (1982) .................................................20

Caterpillar, Inc. v. N.H. Dep’t. of Revenue,

741 A.2d 56 (N.H. 1999) ..........................................25

Container Corp. of America v. Franchise Tax Bd.,

463 U.S. 159 (1983) ......................... 19, 21, 25, 35, 36

Goldberg v. Sweet,

488 U.S. 252 (1989) .................................................33

H.J. Heinz Co., L.P. v. Chumley,

No. M2010-00202-COA-R3CV,

2011 WL 2569755

(Tenn. Ct. App. June 28, 2011) ................................26

Hans Rees’ Sons, Inc. v. North Carolina

ex rel. Maxwell,

283 U.S. 123 (1931) ........................... 3, 25, 31, 32, 35

Healy v. Beer Inst., Inc.,

491 U.S. 324 (1989) .................................................34

Homart Dev. Co. v. Norberg,

529 A.2d 115 (R.I. 1987) ..........................................23

Hughes v. Okla.,

441 U.S. 322 (1979) .................................................36

TABLE OF AUTHORITIES—Continued

Page

J.D. Adams Mfg. Co. v. Storen,

304 U.S. 307 (1938) .................................................22

MeadWestvaco Corp. v. Ill. Dep’t of Revenue,

553 U.S. 16 (2008) ............................................. 10, 20

Miller Bros. Co. v. Md.,

347 U.S. 340 (1954) ........................................... 22, 34

Miss. Dep’t of Revenue v. Comcast of Georgia/

Virginia, Inc.,

300 So.3d 532 (Miss. 2020) .....................................24

Mobil Oil Corp. v. Comm’r of Taxes of Vermont,

445 U.S. 425 (1980) ..................................... 19, 26, 36

Nat’l Pork Producers Council v. Ross,

143 S. Ct. 1142 (2023) ....................................... 33, 34

NCR Corp. v. Comm’r of Revenue,

438 N.W.2d 86 (Minn. 1989) ...................................25

NCR Corp. v. Comptroller of Treasury,

Income Tax Div.,

544 A.2d 764 (Md. 1988) .........................................26

NCR Corp. v. S.C. Tax Comm’n,

439 S.E.2d 254 (S.C. 1993) ......................................27

NCR Corp. v. Tax’n & Revenue Dep’t,

856 P.2d 982 (N.M. Ct. App. 1993) ..........................25

Norfolk & Western Ry. Co. v. Missouri State

Tax Comm’n,

390 U.S. 317 (1968) ....................................... 3, 32, 33

Okla. Tax Comm’n v. Jefferson Lines, Inc.,

514 U.S. 175 (1995) .................................................21

TABLE OF AUTHORITIES—Continued

Page

Pike v. Bruce Church, Inc.,

397 U.S. 137 (1970) .................................................34

Shaffer v. Heitner,

433 U.S. 186 (1977) .................................................34

State Tax Assessor v. Kraft Foods Grp., Inc.,

235 A.3d 837 (Me. 2020)..........................................30

Tambrands, Inc. v. State Tax Assessor,

595 A.2d 1039 (Me. 1991).................................. 22, 23

Trinova Corp. v. Mich. Dep’t of Treasury,

498 U.S. 358 (1991) .................................................35

Underwood Typewriter Co. v. Chamberlain,

254 U.S. 113 (1920) ....................................... 3, 31, 32

Unisys Corp. v. Commonwealth, Bd. of

Finance and Revenue,

812 A.2d 448 (Pa. 2002) .................................... 27, 35

CONSTITUTIONAL PROVISIONS

U.S. Const., art. I, § 8, cl.3 ...................................... 1, 20

U.S. Const., amend. XIV, § 1 ................................... 2, 20

STATUTES

28 U.S.C. § 1257(a) ........................................................1

Mich. Comp. Laws § 208.1309 ......................................2

Mich. Comp. Laws § 208.1309(2)................................16

TABLE OF AUTHORITIES—Continued

Page

OTHER AUTHORITIES

Jerome R. Hellerstein & Walter Hellerstein,

State Taxation, ¶9.15[2] (3d ed. 1998) ....................28

Professor Richard Pomp, Report of the Hearing

Officer, Multistate Tax Compact Article IV

[UDITPA] Proposed Amendments (Oct. 25,

2013) ........................................................................28

DECISIONS BELOW

The opinion of the Michigan Supreme Court is not

yet reported but is available at 2023 WL 4874684 and

reprinted at App. 1. The first opinion of the Michigan

Court of Appeals is reported at 331 Mich. App. 568 and

reprinted at App. 164, and the second opinion of the

Michigan Court of Appeals is reported at 339 Mich.

App. 117 and reprinted at App. 143. The first opinion

of the Michigan Court of Claims is not reported but is

available at 2018 WL 10563275 and is reprinted at

App. 183, and the second opinion of the Michigan Court

of Claims is not reported but is available at 2021 WL

3923834 and reprinted at App. 149.

---------------------------------♦---------------------------------

STATEMENT OF JURISDICTION

Petitioner timely files this petition from the Michigan Supreme Court’s July 31, 2023 decision. This

Court has jurisdiction under 28 U.S.C. § 1257(a).

---------------------------------♦---------------------------------

PERTINENT CONSTITUTIONAL AND

STATUTORY PROVISIONS

The Commerce Clause of the United States Constitution, U.S. Const., art. I, § 8, cl.3 provides: “The

Congress shall have Power to regulate Commerce with

foreign Nations, and among the several States, and

with the Indian Tribes[.]”

The Due Process Clause of the Fourteenth Amendment to the United States Constitution, U.S. Const.,

amend. XIV, § 1, provides: “[N]or shall any State deprive any person of life, liberty, or property, without

due process of law. . . .”

Michigan Compiled Law § 208.1309 states:

(1) If the apportionment provisions of this act do

not fairly represent the extent of the taxpayer’s business activity in this state, the taxpayer may petition

for or the treasurer may require the following, with respect to all or a portion of the taxpayer’s business activity, if reasonable:

(a)

Separate accounting.

(b) The inclusion of 1 or more additional

or alternative factors that will fairly represent the taxpayer’s business activity in this

state.

(2) An alternate method may be used only if it is

approved by the department.

(3) The apportionment provisions of this act

shall be rebuttably presumed to fairly represent the

business activity attributed to the taxpayer in this

state, taken as a whole and without a separate examination of the specific elements of either tax base unless

it can be demonstrated that the business activity attributed to the taxpayer in this state is out of all

appropriate proportion to the actual business activity

transacted in this state and leads to a grossly distorted

result or would operate unconstitutionally to tax the

extraterritorial activity of the taxpayer.

(4) The filing of a return or an amended return is

not considered a petition for the purposes of subsection

(1).

---------------------------------♦---------------------------------

INTRODUCTION

The Michigan Supreme Court’s 4–3 decision

shatters this Court’s judicial teachings regarding fair

apportionment and extraterritorial taxation, see Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113

(1920); Hans Rees’ Sons, Inc. v. North Carolina ex rel.

Maxwell, 283 U.S. 123 (1931); Norfolk & Western Ry.

Co. v. Missouri State Tax Comm’n, 390 U.S. 317 (1968),

while exacerbating existing conflicts with state courts

of last resort over how to tax the income of companies

that do business in multiple states. Certiorari is warranted.

When a unitary business does business in multiple states, a taxing state may calculate the taxes owed

to it by “apportioning” income to that state. To do this,

the state uses an apportionment formula. Historically,

states used an equally weighted, three-factor formula,

consisting of a property factor, a payroll factor, and a

sales factor. First, the state calculates a ratio for the

company’s property, payroll, and sales based on instate versus total business activity. Next, the state

calculates the average of the ratios. Finally, the average is multiplied by the entity’s income subject to apportionment. The result is the amount of business

income to be taxed by the state.

Take a simple example based on a hypothetical

company based in State Y that does business in State

Z, which uses all three apportionment factors. If 10%

of the company’s sales are to State Z customers, 3% of

the company’s real and personal property is in State Z,

and 2% of the company’s payroll is paid to State Z residents, then 5% of the company’s apportionable base

income [(10 + 3 + 2) / 3] may be attributed to State Z

and is subject to State Z’s business tax.

As this Court has recognized, the Commerce and

Due Process Clauses place limits on how much a state

can tax that hypothetical company. For example, if

Michigan was State Z and tried to tax 70% of the company’s income rather than 5%, the rational relationship between the tax and Michigan business activity

would be destroyed, and a court must invalidate it.

Yet that is exactly what happened here. Minnesota

Limited built a large business with substantial assets,

employees, and contracts in Minnesota. While the company sporadically performed work in Michigan, that

activity constituted a small fraction of its business.

In spring 2011, the two shareholders of Minnesota

Limited sold the company to Petitioner in an asset sale,

with Vectren becoming Minnesota Limited’s successorin-interest, responsible for business taxes owed from

January 1 to March 31, 2011. Minnesota Limited

reported a $51 million gain on the sale, roughly 93% of

the company’s $55 million taxable income for that

short-year period. The remaining $4 million of income

earned that year was from its daily operations. Michigan, like many states, uses an apportionment formula

that has only one factor—the sales ratio. Because most

of Minnesota Limited’s assets were located outside of

Michigan, the company computed its sales factor by

putting the $51 million as well as sales revenue from

daily operations in the denominator, and including

only the enterprise value from assets located in Michigan at the time of the sale as well as sales revenue

from Michigan daily operations in the numerator, like

this:

Value of Michigan assets + revenue

from Michigan operations

Sales ratio =

–––––––––––

Total value of assets + revenue

from operations everywhere

The result was that 14.986% of the company’s

sales for the 2011 short tax year was attributable to

Michigan. And even that number was artificially inflated by an oil-spill cleanup that Minnesota Limited

was contracted to undertake in Michigan in late 2010

to early 2011, the company’s normal offseason, resulting in a sales ratio that was “over four times the company’s attribution of sales to Michigan prior to” that

contract. App. 86 (Zahra, J., dissenting).

Respondent Michigan Department of Treasury,

in an approach which defied this Court’s binding

precedence, determined that it could tax the entirety

of Minnesota Limited’s enterprise value from the sale

while at the same time excluding the enterprise value

from the apportionment formula. It computed the sales

ratio like this:

Sales ratio =

Revenue from Michigan operations

–––––––––––

Revenue from operations everywhere

By ignoring the sale of the company and taking

advantage of the one-time bump in the company’s

Michigan activity due to the oil spill cleanup, the Department’s calculated sales ratio attributed 69.9571%

of the company’s total income to Michigan. In other

words, even though Minnesota Limited was built,

maintained, and located almost entirely in Minnesota,

and even though Michigan had virtually nothing to do

with Minnesota Limited’s enterprise value, Michigan

claimed the right to tax 70% of the company’s enterprise sale proceeds. App. 10 (“Treasury determined

that the sales factor should have been 69.9571%

[and] the apportioned tax base should have been

$38,316,659.”).

The dissenting Michigan Supreme Court Justices

understood that the majority’s ruling raised constitutional concerns, stating “[i]f the United States Constitution’s prohibition on disproportionate taxation of

out-of-state activity is to retain viable force, this tax

cannot withstand constitutional scrutiny.” App. 71

(Zahra, J., dissenting). Indeed, “[i]f the Department’s

tax apportionment is permitted, this state and others

will continue to extend their reach further and further

into out-of-state activities.” Ibid. “States will compete

for more and more dollars flowing outside their borders. This will come at the cost of state sovereignty and

the consistent and predictable administration of interstate commerce.” Ibid.

The glaring inequity is unprecedented and unworkable; if every state where a company had some

sporadic activity tried to tax 70% of the enterprise

value, interstate commerce itself would be jeopardized.

Moreover, Michigan is the only state on record to refuse to consider where enterprise value was generated.

And while several other states properly recognize that

this Court’s precedent requires what Michigan did not

do, even among these states, there are different approaches which would merit clarification by this Court.

The first question presented is whether factors of

a business giving rise to income to be taxed must be

represented in a state’s apportionment formula. Here,

Michigan taxed Minnesota Limited’s enterprise value

but failed to consider the state to which most that income was attributable: Minnesota. Instead, Michigan

excluded the enterprise value amount entirely from

the sales factor computation. Conversely, Wisconsin,

Maine, Mississippi, and Rhode Island unequivocally

require factor representation and have struck down

formulas that lack it. Minnesota and New Mexico question whether factor representation is constitutionally

required. And Maryland and Tennessee refuse to extend factor representation beyond subsidiary dividends. Michigan is the only state to refuse to even

consider an alternative apportionment formula with

factor representation to avoid distortion.

The second question presented is whether factor

representation must include a temporal element. Here,

Minnesota Limited’s sales ratio was distorted by the

fact that it was only reporting income from January 1

to March 31 in the applicable tax year, the company’s

offseason. Had Michigan accounted for the fact that

the company generates most of its sales over the summer months in states outside of Michigan, Michigan’s

calculation of the sales ratio would have looked very

different. In contrast, Maine has held in similar circumstances that the taxing authority should look at

recent full-year apportionment ratios to ensure the

short-year ratio is not out of whack.

This case is an ideal vehicle to resolve those conflicts. The material facts are not in dispute, and the

Michigan Supreme Court’s majority and dissenting

opinions clearly frame the constitutional issues at

stake. Moreover, this Court has long recognized the

Constitution’s limitations on a state’s power to tax—a

necessary bulwark against economic Balkanization

among the states. The decision below is not only wrong,

but dangerous, opening the door to “increasing taxation by the States well beyond their territorial borders”

to the disfavor of a “sound and consistent system of interstate commerce.” App. 131 (Zahra, J., dissenting).

There is an essential need for the Court’s guidance. If every state, based on the tiniest contact, sought

to tax enterprise value, such action would impede

interstate commerce. A tax system is unsustainable

where there is no rational connection between a company’s tax burden and its activity within a taxing state

and where, instead, a state uses a small subset of instate activities to tax a company’s enterprise value

achieved nearly wholly from out-of-state activities. The

Michigan Supreme Court majority justified its unprecedented approach based on a speculative projection of

how company assets might possibly be used in Michigan in the future, which is wholly arbitrary. App. 125

(Zahra, J., dissenting). If Michigan is permitted to do

this, other states also seeking greater tax revenue will

follow. Such speculation will incentivize other states to

create and impose apportionment formulae that “completely fail to consider whether the profits from the

sale were in any ‘just sense attributable to transactions

within’ ” the state. App. 136 (Viviano, J., dissenting).

Accordingly, the Court should grant the petition,

resolve the conflicts, and reverse the Michigan Supreme Court. Alternatively, and at a bare minimum,

the Court should summarily reverse because Michigan’s tax assessment does not comport with any reasonable construction of the Commerce and Due

Process Clauses.

---------------------------------♦---------------------------------

STATEMENT OF THE CASE

Court precedent limits state power to tax

Recognizing the difficulty that interstate businesses present for state tax authorities, this Court has

“developed the unitary business principle.” MeadWestvaco Corp. v. Ill. Dep’t of Revenue, 553 U.S. 16, 25

(2008). Under that principle, “a State need not isolate

the intrastate income-producing activities from the

rest of the business but may tax an apportioned sum

of the corporation’s multistate business if the business

is unitary.” Id. (cleaned up).

But the unitary business principle has clear constitutional limits. “The Commerce Clause and the Due

Process Clause impose distinct but parallel limitations

on a State’s power to tax out-of-state activities.”

MeadWestvaco, 553 U.S. at 24. Specifically, “[t]he Due

Process Clause demands that there exist some definite

link, some minimum connection, between a state and

the person, property or transaction it seeks to tax, as

well as a rational relationship between the tax and the

values connected with the taxing State.” Id. (emphasis

added) (cleaned up). Separately, the Commerce Clause,

“forbids the States to levy taxes that discriminate

against interstate commerce or that burden it by subjecting activities to multiple or unfairly apportioned

taxation.” Id. (emphasis added) (citations omitted).

“The broad inquiry subsumed in both constitutional requirements is whether the taxing power exerted by the state bears fiscal relation to protection,

opportunities and benefits given by the state. . . .”

MeadWestvaco, 553 U.S. at 24–25 (cleaned up).

II.

Taxpayer was Minnesota-based, with limited business in Michigan

Minnesota Limited, an S-corporation, was a family-owned business in Big Lake, Minnesota, where

most of its facilities were located. Reuben Leines, father of Christopher Leines and Paulette Britzius,

started the business in 1966. App. 72. Minnesota Limited constructed oil and gas pipelines to transport natural gas, crude oil, and petroleum products, and

primarily performed its services in Minnesota and the

upper Midwest, i.e., Wisconsin, Iowa, and North and

South Dakota. App. 73. The company rarely performed

work in Michigan and had no facilities there. App. 79;

110. For the decade preceding the sale of the Company

in 2011, its average sales to Michigan were 6.9% of total company sales, and Michigan sales never exceeded

18.3% in any year. App. 47.

Chris and Paulette succeeded Reuben as owners

in the late 90’s. App. 7. By the time Chris and Paulette

sold their shares of the business in 2011 due to Paulette’s health, the company had 700 employees. App.

165. Vectren allocated the purchase price as follows:

approximately $34.4 million to tangible assets (construction, transportation, and office equipment and

certain buildings), approximately $22.8 million to intangible assets, and approximately $16.6 million to

goodwill. App. 83.

In 2010, the year before the sale, a new customer,

Enbridge, selected Minnesota Limited to perform a

hazardous material clean-up project. This was Minnesota Limited’s largest ever project in Michigan which

took place during the company’s 2010 to 2011 off-season. App. 45.

Minnesota Limited sent ten employees and five

pieces of equipment to Michigan to perform the

Enbridge project; all other equipment was rented, and

local laborers hired. App. 79. When the business was

sold, the only Michigan work Minnesota Limited had

outstanding was the tail end of the Enbridge project.

App. 82.

III. Proceedings below

As S-corporation shareholders, Chris and Paulette

reported their gain on federal and state returns prepared by a tax professional and paid their taxes due.

App. 187. For the Michigan Business Tax filing, Petitioner sought to use an alternative apportionment formula, as the standard formula resulted in an

unreasonable 70% of the enterprise value sourced to

Michigan. App. 87–88. Michigan denied the request

and excluded all the gain from the sales factor calculation. As a result, the ratio apportioning income to

Michigan soared from 14.99% to 70%. App. 55. This

was due to not only the removal of the gain from the

sales factor, but also use of the short year during which

Minnesota Limited was engaged in the Michigan

cleanup while its other operations were idle. Yet Michigan did not remove the enterprise value from the tax

base. App. 151.

Michigan issued a Final Assessment, asserting

that Petitioner must use the standard apportionment

formula rather than an alternative method. Petitioner

filed an action in the Michigan Court of Claims, asserting that application of the standard apportionment formula resulted in extraterritorial taxation, was unfair

apportionment, and failed to recognize how the gain

was earned—predominantly in states other than Michigan. App. 11–12.

On cross-motions for summary disposition, the

Court of Claims disagreed with Petitioner’s apportionment argument. The Court of Claims noted that the

“sale was expressly reported to the shareholders as a

sale of the S-Corp’s assets,” and that “the §338(h)(1)

election controls the outcome of this case.” App. 191.

Yet, the Court of Claims failed to apply this finding to

source the enterprise value based on the location of Petitioner’s assets at the time of the sale. App. 194. The

Court of Claims inaccurately stated “while plaintiff

generally frames its argument in this manner [that the

apportionment formula as applied to the sale was out

of all appropriate proportion to the business and activities conducted in Michigan], the crux of plaintiff ’s contention is really with the computation of its tax base.

App. 192. This misconstruction of the pleadings was

further emphasized by the Court of Claims when it

summarized, “this type of argument is not concerned

with the result or constitutionality of the apportionment formula, but it is simply a disagreement with

the computation of [Plaintiff ’s] tax base.” Ibid.

Petitioner’s request for alternative apportionment was

dismissed.

The Michigan Court of Appeals reversed, holding

that application of the statutory formula “would result

in the imposition of a tax in violation of the Commerce

Clause,” and that the use of an alternative formula

“would be necessary to avoid the constitutional violation.” App. 171. In doing so, the Court of Appeals affirmed these well-established principles of when

alternative apportionment is required:

1. An apportionment formula must determine

the portion of income “fairly attributed to in-state activities”;

2. Fairness “must actually reflect a reasonable

sense of how the income is generated”;

3. A state may not tax more than its fair share of

interstate commerce; and

4. A taxpayer may rebut the presumption that

the statutory apportionment is fair by showing by

“clear and cogent evidence” that the business activity

transacted in this state leads to a grossly distorted result, or alternatively, the apportionment formula

would operate unconstitutionally to tax the extraterritorial activity of the taxpayer. App. 172–175.

The Court of Appeals concluded that Petitioner

had “presented clear and cogent evidence that the statutory formula, as applied, attributed business activity

to Michigan “out of all appropriate proportion to the

actual business actively transacted in the state” and

led to a grossly distorted result and operated to unconstitutionally tax extraterritorial activity. App. 178. The

court recognized that “the value of the business and its

assets was built up over many years and attributable

to activity in many states.” App. 173. And the court observed that “much of the activity and assets involved

in the Sale never had any connection to Michigan.”

Ibid. In sum, the “majority of the activities making up

[Minnesota Limited’s] fair market value at the time of

the Sale had occurred outside Michigan’s borders.”

App. 179.

Michigan filed an Application for Leave to the

Michigan Supreme Court. App. 144. Instead of reviewing, the Court issued an November 25, 2020 order vacating the Court of Appeals’ decision and remanding to

the Court of Appeals to address the issue of the lack of

factor representation, as well as issues not the subject

of this Petition. App. 162. The Court of Appeals remanded to the Court of Claims.

The Court of Claims, without a hearing, issued

its opinion on remand on May 25, 2021, adopting

Michigan’s position without analyzing whether such

interpretation would have an unconstitutional effect.

App. 149. Having retained jurisdiction, on September

30, 2021, the Court of Appeals issued its published

opinion after remand, reaffirming its earlier decision

that held Michigan’s application of the standard apportionment formula was unconstitutional and that,

“[a]n alternate method of apportionment must be

adopted.” App. 148. The court remanded to the Court

of Claims “with directions to determine an appropriate

apportionment method if the parties are unable to

agree upon one.” Ibid.

Michigan filed a second Application for Leave to

the Michigan Supreme Court, which granted oral argument on the application and requested briefing as to

(1) whether the taxpayer established that “the business activity attributed to it in this state ‘is out of all

appropriate proportion to the actual business activity

transacted in this state and leads to a grossly distorted

result’ ”; (2) whether application of the statutory formula runs afoul of the Due Process and Commerce

Clauses; and (3) whether remand to determine an alternate method of apportionment conflicts with MCL

208.1309(2). App. 141–142.

The Michigan Supreme Court issued its Opinion

on July 31, 2023, and reversed in a 4–3 decision. The

court held that (1) the income from the sale was

properly attributable to Michigan under the MBTA,

and (2) the MBTA formula, as applied, did not impermissibly tax income outside the scope of Michigan’s

taxing powers. App. 2–3. The majority agreed with the

State’s position that the proceeds from the sale of the

business should not be included in the sales factor, and

that no constitutional distortion was evident. App. 59.

The majority justified this result by speculating that

the company’s assets could be used in Michigan in the

future. App 64. Having conclusively and finally resolved the federal question presented, the court remanded to the Court of Claims for further proceedings.

App. 68.

Justice Zahra issued a blistering dissent joined

by Chief Justice Clement and supported by Justice

Viviano, emphasizing why the Majority validated

an unconstitutional apportionment scheme. App. 71

(Zahra, J., dissenting); App. 132 (Viviano, J., dissenting). He explained, “Constitutional principles drawn

from Due Process and the Commerce Clause support

the notion that states cannot regulate, control, or otherwise make illegal actions or behavior that occur

wholly outside of the state. This rule protects individuals from shifting and competing laws, provides consistency and predictability in out-of-state activities,

and preempts reprisals and capricious government behavior.” App. 93.

Justice Zahra concluded the tax ran afoul of these

principles as Michigan claimed 70% of MLI’s value is

subject to tax even though MLI “had no real property,

physical assets, permanent labor, or intangible property permanently located in Michigan.” App. 79; 100.

The company “had no physical structures, it had no facilities, and it had no warehouses in the state.” App.

101. “The infrastructure and physical structures by

which the corporation was run, i.e., the company’s

base of operations, was located entirely outside of

Michigan. Yet no apportionment was given to account

for these dispersed, out-of-state physical properties.”

App. 102.

Justice Zahra highlighted that “[w]hile Michigan

could tax a reasonable apportionment of value provided within the state by the equipment, such as

through property taxes or other consumption taxes,

Michigan cannot apply a 70% allocation of equipment

sales occurring wholly outside of its jurisdiction,” App.

103, “when the company owned 1,195 pieces of equipment and only five pieces were in Michigan.” App. 102.

In addition, Michigan cannot tax labor that occurs outside of its boundaries. Only 10 out of 600 employees

entered the state during the tax measurement period.

App. 105.

Judge Zahra also criticized the majority for ignoring the available record and relying heavily on presumptions on how the purchased equipment could be

used in the future. App. 117–118; 121. “This is confounding given that almost none of ML’s historical activities

occurred in Michigan, including in the immediate

years leading up to the sale.” App. 122. He emphasized

Michigan’s tax calculation resulted in a 400% increase

in the calculated sales ratio—a more than 900% increase over the company’s recent sales history in Michigan. App. 115. And he concluded that the application

of Michigan’s formula was unconstitutional. Ibid.

---------------------------------♦---------------------------------

REASONS FOR GRANTING THE WRIT

The Michigan Supreme Court’s decision

exacerbates a substantial conflict among

the lower courts over the proper apportionment of a multi-state business’s income.

This Court has expressly left open questions concerning the necessity of factor representation in state

tax apportionment. While Justice Stevens would have

decided the issue in Mobil Oil Corp. v. Commissioner

of Taxes of Vermont, 445 U.S. 425 (1980), see id. at 461

(Stevens, J., dissenting) (“Unless the sales, payroll, and

property values connected with the production of income by the payor corporations are added to the denominator of the apportionment formula, the inclusion

of earnings attributable to those corporations in the

apportionable tax base will inevitably cause [the corporation’s] income to be overstated.”), the majority declined. And in Container Corp. of America v. Franchise

Tax Board, 463 U.S. 159, 169–70 (1983), while the

Court explained that the factors used must reflect a

reasonable sense of how income is generated, it

stopped short of requiring factor representation in

apportionment.

Since those decisions, the Court has denied certiorari in several cases that have sought guidance on factor representation. The resulting vacuum has led to

inconsistent application of this Court’s fair apportionment tests under the Due Process and Commerce

Clauses of the Constitution.

The 4–3 decision below exacerbates the conflict

among the states over the proper apportionment of a

multistate business’s income. Michigan is the only

state on record to refuse to even consider an alternative apportionment formula with factor representation

to avoid distortion. Wisconsin, Maine, Mississippi,

and Rhode Island unequivocally require factor representation and have struck down formulas that lack

it. Minnesota and New Mexico question whether factor representation is constitutionally required. And

Maryland and Tennessee refuse to extend the concept

beyond subsidiary dividends. Other states have recognized the inherent rationality of factor representation

but have not ruled on the extent to which it is required.

The Court should grant the petition and resolve the

conflict.

A. The asymmetry of including gain in the

tax base, while excluding such gain from

the apportionment factor, violates the

constitutional requirement of fair apportionment.

The Due Process Clause of the Fourteenth Amendment and the Commerce Clause of the U.S. Constitution, U.S. Const., art. I, § 8, cl.3, impose distinct but

parallel limitations on a state’s power to tax out-ofstate activities. As noted above, in MeadWestvaco, this

Court summarized these limitations as requiring “a

rational relationship between the tax and the values

connected with the taxing State” and prohibiting “unfairly apportioned taxation.” 553 U.S. at 24 (citations

omitted).

These limitations mandate that a state may not,

when imposing an income tax, “tax value earned outside of its borders.” ASARCO Inc. v. Idaho State Tax

Comm’n, 458 U.S. 307, 315 (1982). The fundamental

requirement is there must be “a ‘minimal connection

between the interstate activities and the taxing State,’

and there must be a rational relation between the income attributed to the taxing State and the intrastate

value of the corporate business.” Allied-Signal, Inc. v.

Director, Div. of Tax’n, 504 U.S. 768, 772 (1992) (citations omitted).

In apportioning the income of a multistate business, a state must apply an apportionment formula

that “under both the Due Process and Commerce

Clauses [is] fair.” Container Corp., 463 U.S. at 169. A

component of fairness in an apportionment formula is

a requirement of external consistency, that requires

that “the factor or factors used in the . . . formula must

actually reflect a reasonable sense of how income is

generated.” Id. Accord, e.g., Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 185 (1995).1 External consistency looks to the economic justification of whether

“a State’s tax reaches beyond that portion of value that

is fairly attributable to economic activity within the

taxing State.” Id.

None of the enterprise gain which Michigan seeks

to tax is included in the statutory apportionment formula, resulting in both a lack of any rational sense of

how the income was generated and extraterritorial

taxation. As Michigan includes only income from direct-to-consumer sales (i.e., income from daily operations) in its formula and excludes all the gain from

the sale of the business enterprise (whether real, tangible, or intangible), there is no factor representation

to link Michigan’s purported “apportioned share” of the

Petitioner does not contest the component of internal consistency, which looks to determine if the formula, if applied by

all jurisdictions, would result in no more than all a business’s

income being tax. Container Corp., 463 U.S. at 169.

income to the activities which gave rise to the income.

While recognizing that inclusion of the enterprise

value may not produce a precise value attributable to

Michigan, the absence of any representation cannot

comport with this Court’s established notions of fairness since it results in an unapportioned tax on interstate commerce. See J.D. Adams Mfg. Co. v. Storen, 304

U.S. 307, 310–11 (1938) (tax on income without proper

consideration of the location of the property sold was

unconstitutional); Miller Bros. Co. v. Md., 347 U.S. 340,

343 (1954) (where no jurisdiction to property exists,

the imposition of a tax on such property would be ultra

vires and void).

It is patently unfair for Michigan to tax greater

than 95% of tangible assets, 100% of real property and

facilities, and 100% of intangibles—all of which were

located out of state and lacked any meaningful connection with the State. None of the enterprise value attributed to these assets was due to economic value

created from Michigan activities, making Michigan’s

apportionment formula contrary to Due Process. While

the dissent made this clear, the majority cannot show

why its result is fair.

The state courts that have considered this asymmetry are in conflict. In Tambrands, Inc. v. State Tax

Assessor, 595 A.2d 1039 (Me. 1991), Maine sought to

tax dividends received by the taxpayer from foreign

subsidiaries without including any part of the subsidiaries’ activity in that state’s apportionment factors. On

review, the Maine Supreme Court struck down the tax

and held that excluding the business activity of the

foreign affiliates created an impermissible distortion:

“The ineluctable result is that more of the business activity of the unitary business is attributed to Maine

than is the actual case. Thus, the income taxable by

Maine under the Assessor’s formula does not truly reflect Tambrands’ connection with Maine and fails to

meet the test of fairness required by the due process

clause.” Id. at 1044. The court made clear that the

state could not constitutionally include the subsidiary

income in the taxpayer’s tax base yet apportion the

company’s Maine tax liability by ignoring the subsidiary-income factors when calculating the apportionment ratio. Id. at 1044–45.

The Rhode Island Supreme has reached the same

conclusion. In Homart Development Co. v. Norberg, 529

A.2d 115 (R.I. 1987), the taxpayer received income

from several partnerships in addition to earning income from its own operations within and without

Rhode Island. Like Maine, Rhode Island included the

partnership income in the company’s tax base but excluded the partnership-income factors when calculating the apportionment ratio.

The Rhode Island Supreme Court held that this

created “a manifestly inherent distortion of the

amount of business activity conducted in this state,”

considering that the partnerships did no business in

Rhode Island. Id. at 120. The court recognized that the

distributive share income arose from the partnerships’

business activities outside Rhode Island and excluding

that activity from the apportionment formula is therefore manifestly inequitable. Id. at 121 (“[t]he inclusion

of this income in Homart’s net income calculation for

apportionment purposes necessarily requires that the

payroll, property, and receipt factors that gave rise to

it be included in the apportionment equation also”).

The Mississippi Supreme Court has held similarly.

In Mississippi Department of Revenue v. Comcast of

Georgia/Virginia, Inc., 300 So.3d 532 (Miss. 2020), the

tax agency’s assessment failed to account for the apportionment factors of the taxpayer’s unitary subsidiaries in apportioning its capital tax base. As a result,

Mississippi sought to tax about 340% more out-of-state

value than the alternative apportionment method offered by the taxpayer. The court ruled the lack of factor

representation resulted in a distortion in favor of the

state by overattributing income. Id. at 541. “Such a

mismatch does not reflect a rational relationship between the values being taxed and the activities giving

rise to the values.” Ibid.

The same is true in Wisconsin. Consider American

Telephone & Telegraph Co. v. Wisconsin Department of

Revenue, 422 N.W.2d 629 (Wis. Ct. App. 1988), review

denied, 428 N.W.2d 554 (Wis. 1988). Observing that the

taxpayer’s apportionable income included $500 million

from Wisconsin operations and $3 billion of intangible

income from subsidiaries—most of which did no business in the state—the Wisconsin Court of Appeals

held that the state’s decision to exclude the intangibleincome factors from the apportionment formula “does

not reflect a reasonable sense of how AT&T’s income is

generated and taxes value earned outside the borders

of Wisconsin, contrary to . . . the due process and

commerce clauses of the United States Constitution.”

Id. at 636. The State was required to include the intangible income in the apportionment formula if it wanted

to tax it.

In contrast, the Supreme Court in Minnesota

(where Minnesota Limited had its commercial domicile) has questioned whether symmetry between a tax

base and the factors used to apportion is constitutionally required. In NCR Corp. v. Commissioner of Revenue,

438 N.W.2d 86 (Minn. 1989), the Minnesota Supreme

Court upheld a tax on foreign dividends despite the

State’s decision to exclude the foreign-dividends factor

from the apportionment formula. The court held that

the 23% disparity between the state’s apportionment

formula and the taxpayer’s formula was within the acceptable constitutional margin of error and “certainly

does not approach the disparity the Supreme Court of

the United States found constitutionally unacceptable

in Hans Rees.” Id. at 93.

Similarly, in NCR Corp. v. Taxation & Revenue

Department, 856 P.2d 982 (N.M. Ct. App. 1993), which

involved identical facts, the New Mexico Court of Appeals—without any discussion or analysis of whether

the factors used to apportion the taxpayer’s income

accurately represented its activity in the state—ruled

that the taxpayer had not met its burden of proving

that the tax was unfairly apportioned under the test

specified in Container Corp. Id. Accord, e.g., Caterpillar, Inc. v. N.H. Dep’t. of Revenue, 741 A.2d 56 (N.H.

1999).

Adding to this chaos and inconsistency are the

rulings of the state court of last resort in Maryland

and the intermediate appellate court in Tennessee,

which have refused to require factor representation

outside the subsidiary dividend context. In NCR Corp.

v. Comptroller of Treasury, Income Tax Division, 544

A.2d 764 (Md. 1988), the Maryland Comptroller sought

to include dividends and royalties from foreign affiliates in the tax base without those factors’ representation in the apportionment formula. The Court of

Appeals (now the Maryland Supreme Court), rejected

the taxpayer’s due-process challenge with respect to

royalties, ruling that licensing trademarks to affiliates

is no different from licensing trademarks to unrelated

parties. Thus, there is no more basis for factor representation than there would be for the sale of machinery to an unrelated party. Id. at 781 (remanding for the

Comptroller to consider whether gross distortion existed with respect to the dividends).

Likewise, in H.J. Heinz Co., L.P. v. Chumley, No.

M2010-00202-COA-R3CV, 2011 WL 2569755, at *1

(Tenn. Ct. App. June 28, 2011), the intermediate appellate court in Tennessee declined to require factor

representation for investment partnership income.

Although the court was “not insensitive to the logic of

Justice Stevens’ dissent in Mobil Oil,” it held that “the

nature of the income addressed in Mobil Oil is distinguishable from the disputed income in this case.” Id. at

*12.

In providing still a different, and inconsistent approach, Pennsylvania’s and South Carolina’s Supreme

Courts recognize the inherent value of factor representation but do not require it unless the asymmetry produces a gross distortion in comparison to the statutory

formula. In Unisys Corp. v. Commonwealth, Board of

Finance and Revenue, 812 A.2d 448 (Pa. 2002), the

Pennsylvania Supreme Court noted that this Court’s

focus in applying the external consistency test has

been the degree of disparity between taxation under

the state’s formula and some more neutral baseline

measure. Id. at 461. Because the taxpayer failed to

establish such distortion, the taxpayer had not met

its burden of proving an unfair apportionment. Id. at

465–66.

And in NCR Corp. v. South Carolina Tax Commission, 439 S.E.2d 254 (S.C. 1993), the taxpayer challenged the lack of factor representation for royalty and

interest income. After first ruling that fair apportionment does not require full inclusion of the subsidiaries’

factors and remanding to determine what proportion

of the subsidiaries’ activity was used to generate royalty and interest income, the South Carolina Supreme

Court held that a 28% disparity between the statutory

formula and a baseline comparison was not an unconstitutional distortion. Id. at 257.

In sum, the state courts that have addressed the

issue of factor representation have been wildly inconsistent when requiring that factors giving rise to the

taxable base income be fairly represented in that

state’s apportionment formula so that the formula is

related to how the income was earned or related to the

activities conducted in the state. This alone shows the

essential importance of clarification by this Court at

this time.

Moreover, irrespective of the conflict among other

state high courts, it is essential for this Court to reject

the unprecedented overreach by Michigan here. No

state has gone as far as Michigan and ignored out-ofstate value entirely in determining what is a fair apportionment on the sale of a business. Instead, Michigan, by excluding the enterprise value from the

apportionment formula, failed to consider at all the

historical activities giving rise to the income as well as

the activities conducted outside of the state which were

predominantly responsible for the creation of the value

that Michigan seeks to tax.

Leading academic commentators have recognized

that asymmetry between the tax base and the apportionment formula may establish that a tax assessment

is unconstitutional. E.g., Jerome R. Hellerstein & Walter Hellerstein, State Taxation, ¶9.15[2] (3d ed. 1998);

Professor Richard Pomp, Report of the Hearing Officer,

Multistate Tax Compact Article IV [UDITPA] Proposed

Amendments, p. 104 (Oct. 25, 2013) (“[i]t would be

sheer serendipity if apportioning the gain in the year

of sale without including the gross receipts [in the factor] would reach the correct answer”). And that makes

sense. Whether it be subsidiary earnings, dividends,

intangible income, or proceeds from an asset sale, if a

state includes that income in a company’s taxable base,

then the state’s apportionment formula must also account for that value so that out-of-state income can be

appropriately apportioned.

This Court should grant the petition, reverse the

Michigan Supreme Court’s decision, and hold that

symmetry is required to satisfy the Commerce and

Due Process Clauses. Such a holding means that when

a state includes a category of income in a company’s

taxable base—such as enterprise value—then that

value must also be represented in the state’s apportionment formula to account for income generated by

out-of-state activity.

B. Distortion is further enhanced when

gain is apportioned without reference to

the span of time in which the value was

created.

This Court’s guidance is separately needed to determine if factor representation includes a temporal

element. As Justice Zahra explained in his dissent,

“The horizon of time [ ] matters. . . . Here, the Department calculates the tax by taking a short, three-month

period, calculating the direct to consumers sales for

only that period, and attributing that percentage of

sales to the sale of all assets in the company. . . . That

is not only grossly disproportionate in value, but severely temporally skewed.” App. 110.

“[T]hrough the development of ML’s company history, its brand name, experience in the field, and consumer value were derived almost entirely from outside

Michigan,” Justice Zahra continued. App. 109. “Yet

the [Treasury] Department did not consider . . . the

broader scope of time that would adequately capture

ML’s economic activity in the state.” App. 110. That is

distortive.

A comparison of the record below to a decision of

Maine’s highest court illustrates the differing approaches and the need for this Court to hold definitively that the Constitution requires states to take

temporal representation into account. In State Tax

Assessor v. Kraft Foods Group, Inc., 235 A.3d 837 (Me.

2020), the taxpayer challenged the use of a single sales

factor to apportion gain from the sale of an entire line

of business. In rejecting the taxpayer’s argument for

alternative apportionment, the court noted that the

sales factor in the year of the sale was consistent with

the percentages computed in years past and that the

state only sought to tax a small percentage (approximately 0.7%) of the profit realized. Id. at 846.

In stark contrast here, the Michigan Department

of Treasury used an aberrational year to apportion

70% of Minnesota Limited’s income, then applied that

formula to all enterprise value, even though most of

the company’s value had nothing at all to do with

Michigan. That’s the only way Michigan could arrive

at a 70% sales ratio for a company that does very little

work in Michigan. The resulting gross distortion could

be corrected by representing in the sales factor the

average of the Michigan sales for all the years in which

Minnesota Limited did business. Indeed, any apportionment that looks only to the year of sale is inherently arbitrary.

II.

The Michigan Supreme Court’s decision

also conflicts with numerous decisions of

this Court.

In Hans Rees’ Sons, Inc. v. North Carolina ex rel.

Maxwell and Norfolk & Western Railway v. Missouri

State Tax Commission, this Court struck down taxes

that were “out of all appropriate proportion to the business transacted . . . in that state” and that have “led to

a grossly distorted result.” Hans Rees’ Sons, 283 U.S.

at 135; Norfolk, 390 U.S. at 326. The principle that a

tax is unconstitutional if it results in gross distortion

was first stated by this Court in Underwood Typewriter

Co. v. Chamberlain, 254 U.S. 113 (1920).

The taxpayer in Underwood Typewriter earned

income through a series of transactions beginning

with the manufacture of products in Connecticut and

ending with sale of these products in other states. In

rejecting the taxpayer’s due process challenge to application of Connecticut’s formulary apportionment, the

Court held that the taxpayer failed to meet its burden

of showing the apportionment of its income was inherently arbitrary or produced an un-reasonable result.

254 U.S. at 121. The taxpayer “has not even attempted

to show this; and for aught that appears the percentage of net profits earned in Connecticut may have been

much larger.” Ibid.

Fifteen years later, in Hans Rees’ Sons, the Court

reiterated that “evidence may always be received

which tends to show that a State has applied a method,

which, albeit fair on its face, operates so as to reach

profits which are in no just sense attributable to transactions within its jurisdiction,” and found that the evidence lacking in Underwood was present. 283 U.S. at

134. The state assigned 80% of the taxpayer’s income

to North Carolina using the statutory apportionment

method, while the taxpayer offered evidence proving

that the average income from North Carolina operations was 17%. Based on this showing, the Court held

that “the statutory method, as applied to the appellant’s business for the years in question operated unreasonably and arbitrarily, in attributing to North

Carolina a percentage of income out of all appropriate

proportion to the business transacted by the appellant

in that State.” 283 U.S. at 135.

In Norfolk, the Court considered application of an

apportionment that resulted in more than twice the

assessment of tax compared to the previous year.

“[O]ur cases certainly forbid an unexplained discrepancy as gross as that in this case. Such discrepancy

certainly means that the impact of the state tax is not

confined to intrastate property even within the broad

tolerance permitted. The facts of life do not neatly

lend themselves to the niceties of constitutionalism;

but neither does the Constitution tolerate any result,

however distorted, just because it is the product of a

convenient mathematical formula which, in most situations, may produce a tolerable product.” 390 U.S. at

327. The Court held that the State made no effort to

offset the distortion and voided the tax.

In those cases, the question presented was

whether the result of the statutory formula

represented a gross distortion of the taxpayer’s actual

business in the taxing State. Here, the challenged regime is even more distortive due to the asymmetrical

relationship between the tax base and the apportionment formula, the lack of a rational relationship “both

on its face and in its application” to the “values connected with the taxing State,” id. at 325, and the limited temporal measurement period. No numerical

comparisons are necessary, though they are in abundance in Judge Zahra’s dissent: where there is a substantive divergence between the elements of the tax

base and the elements of the apportionment formula,

the result is distortive. App. 114–115 (Zahra, J., dissenting). This occurs when the income sought to be taxed was

earned over decades of hard work in other states, yet

Michigan seeks to apportion 70% of that income based

on a measurement period of three months of direct-toconsumer activities. App. 121–122 (Zahra, J., dissenting).

In Goldberg v. Sweet, 488 U.S. 252 (1989), this

Court noted that “the central purpose behind the apportionment requirement is to ensure that each State

taxes only its fair share of an interstate transaction.”

Id. at 260–61. While no specific apportionment formula

is mandated, any formula that is used must guarantee

that “the State has taxed only that portion of revenues

from the interstate activity which reasonable reflects

the in-state component of the activity being taxed.” Id.

at 262.

Indeed, this Court has long made clear that states

cannot regulate or control actions that occur wholly

outside the state. Nat’l Pork Producers Council v. Ross,

143 S. Ct. 1142, 1156 (2023). This rule protects against

shifting and competing laws, provides consistency and

predictability in out-of-state activities, and preempts

capricious government behavior.

State actions controlling taxation are treated similarly, and states are precluded from applying “a state

statute to commerce that takes place wholly outside of

the State’s borders.” Healy v. Beer Inst., Inc. 491 U.S.

324, 336 (1989) (citation omitted). When reviewing a

state statute affecting interstate commerce, the burden imposed cannot be excessive in relation to the benefits received from the state. Pike v. Bruce Church, Inc.,

397 U.S. 137, 142 (1970).

By imposing tax on income received for 95% of tangible property located outside of Michigan, 100% of the

real property and facilities located outside Michigan,

and 100% of the intangibles located outside of Michigan, Michigan has asserted extraterritorial jurisdiction over property located and used elsewhere to an

excessive level no court has ever seen: a 2,100% increase from post-2000 sales history and a 900% increase from recent sales activity. As a result, Michigan

far exceeded the inherent limits of its state power. App.

131 (Zahra, J., dissenting). Accord Shaffer v. Heitner,

433 U.S. 186, 197 (1977).

To allow such exercise of extraterritorial taxation

violates the long-standing constitutional principles

this Court has recognized. E.g., Miller Bros., 347 U.S.

at 342 (“No principle is better settled than the power

of a State, even its power of taxation, in respect to

property, is limited to such as is within its jurisdiction.”) (citation omitted); Container Corp., 463 U.S. at

164 (a state cannot “tax value earned outside its borders”) (citation omitted); Trinova Corp. v. Mich. Dep’t of

Treasury, 498 U.S. 358, 374–84 (1991) (states may not

constitutionally “tax burdens and import tax revenues”

when analyzing the economic value of sales and assets

within a jurisdiction).

III. This case is an ideal vehicle to resolve confusion and provide critical clarity regarding the issues presented.

Inherent in the Michigan Supreme Court’s majority opinion is that where a company accrues its corporate value is essentially irrelevant when taxing the

income when the company is sold. This is in direct

conflict with the jurisprudential underpinnings of this

Court’s decisions in Hans Rees’ Sons, Inc., 283 U.S. at

135, Container Corp., 463 U.S. at 169, and Trinova

Corp., 498 U.S. at 374–84. State courts of last resort

have also addressed this issue and adopted disparate

approaches inconsistent with each other. This has led

to a lack of uniformity, administrative difficulties, increasing uncertainty, and continued protests, appeals,

and litigation. The Court last declined to address this

issue in Unisys Corp. v. Commonwealth, Board of Finance & Revenue, 812 A.2d 448 (2002), and uncertainty

and chaos has continued. This issue is ripe for consideration.

Unlike the taxpayer in Mobil Oil, Petitioner has

squarely disputed the fairness of Michigan’s taxing

regime due to the lack of factor representation. While

this Court referenced such symmetry in Container

Corp., where the use of a three-factor formula allowed

representation of the activities from which the income

sought to be tax arose, the state courts have not consistently adhered to the Court’s view and further guidance is needed to address this recurring question.

If Michigan’s asymmetry is allowed to stand, it

will have a major effect not only in Michigan but in

every state. “Without federal court intervention to

limit such behavior, more consistent and aggressive

tax assessments in this state and other are likely to be

issued.” Zahra, J., dissenting, App. 71. States will continue to extend their tax collection efforts beyond their

boundaries in violation of the principles of interstate

commerce. Zahra, J., dissenting, Ibid. Businesses large

and small will be caught in a lopsided world of disproportionate and extraterritorial taxation, resulting in

the recognized “economic Balkanization” which the

Constitution works to prevent. Hughes v. Okla., 441

U.S. 322, 325 (1979).

Moreover, this is an ideal vehicle for the Court to

decide the questions presented. There are no meaningful facts disputed. The record is sufficient. And the

Michigan Supreme Court’s majority and dissenting

opinions clearly frame the conflict that should be resolved.

At a bare minimum, the Court should grant the

petition and summarily reverse. In no event should

the Court allow a decision to stand that taxes company

income based upon activity that bears almost no relation whatsoever to the taxing state.

---------------------------------♦---------------------------------

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

LYNN A. GANDHI

JEREMY ABRAMS

ELIZABETH NEVLE

FOLEY & LARDNER LLP

500 Woodward Ave.

Suite 2700

Detroit, MI 48226

(313) 234-2715

lgandhi@foley.com

jeremy.abrams@foley.com

enevle@foley.com

OCTOBER 2023

JOHN J. BURSCH

Counsel of Record

BURSCH LAW, PLLC

9339 Cherry Valley Ave., #78

Caledonia, MI 49316

(616) 450-4235

jbursch@burschlaw.com

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.