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

i

APPENDIX TABLE OF CONTENTS

Page

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

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

App. 1

Michigan Supreme Court

Lansing, Michigan

OPINION Chief Justice:

Justices:

Elizabeth T. Clement Brian K. Zahra

David F. Viviano

Richard H. Bernstein

Megan K. Cavanagh

Elizabeth M. Welch

Kyra H. Bolden

FILED July 31, 2023

STATE OF MICHIGAN

SUPREME COURT

VECTREN INFRASTRUCTURE

SERVICES CORP., successor in interest to

MINNESOTA LIMITED, INC.,

Plaintiff-Appellee,

v

No. 163742

DEPARTMENT OF TREASURY,

Defendant-Appellant.

BEFORE THE ENTIRE BENCH

WELCH, J.

As Benjamin Franklin famously noted, nothing is

certain in life but death and taxes. The wisdom of this

statement is demonstrated through long-established

App. 2

caselaw affirming the government’s broad power of

taxation. In this matter involving highly unique circumstances, extensive United States Supreme Court

precedent mandates that we hold that the Michigan

Department of Treasury (Treasury) may assess Vectren Infrastructure Services Corporation (Vectren) the

disputed business tax amount.

This case requires us to examine the ability of the

state of Michigan to tax the income generated by the

sale of Minnesota Limited, Inc. (ML), a Minnesotaheadquartered company, to Vectren under the now-repealed Michigan Business Tax Act (the MBTA)1 given

ML’s extensive operations in Michigan at the time of

the sale. Specifically, this case involves a challenge to

the constitutionality of Michigan’s business tax apportionment formula under the MBTA and the resulting

$2,262,994 tax assessment, along with interest and

penalties after the company was sold.

Having considered the arguments and the record

presented, we hold that (1) the income from the asset

sale is properly attributable under the MBTA and (2)

the MBTA formula, as applied, did not impermissibly

tax income outside the scope of Michigan’s taxing

1

The MBTA, MCL 208.1101 et seq., was enacted by 2007 PA

36 and subsequently replaced by the Income Tax Act, MCL 206.1

et seq., as amended by 2011 PA 38 and 2011 PA 39. However, the

Income Tax Act was not signed into law until May 25, 2011, and

became effective as of that date. See 2011 PA 39. Although certain

companies who are not parties to this case were allowed to continue using the exemptions obtained under the MBTA after the

Income Tax Act’s passage, the last vestiges of the MBTA will

phase out by tax year 2031. See 2019 PA 90, enacting § 1.

App. 3

powers and thus did not violate the Due Process or

Commerce Clauses of the United States Constitution.

We therefore reverse the judgment of the Court of

Appeals and remand this case to the Court of Claims

for further proceedings that are consistent with this

opinion.

I.

INTRODUCTION

State business income tax laws vary widely across

the nation and are complex when multistate corporations are at issue. Michigan’s business income tax system has changed many times over the years in an

effort to balance ease of administration with fairness

for those conducting business in the state. The MBTA

was implemented as part of an effort to cut and simplify corporate taxation in Michigan.2 To understand

the MBTA, it is helpful to first understand the formula

used to calculate tax liability under the MBTA, so we

first explain that formula. We then discuss the history of this case and the history of apportionment tax

jurisprudence, including numerous decisions of the

2

See MCL 208.1101(2) (“It is the intent of the legislature

that the tax levied under this act . . . will serve to improve the

economic condition of this state, foster continued and diverse economic growth in this state, and enable this state to compete fairly

and effectively in the world marketplace for economic development opportunities that will provide for and protect the health,

safety, and welfare of the citizens of this state, now and in the

future.”); see also Grob, The Michigan Single Business Tax Is Going Away, But Slowly; First, Some Important Changes, 78 Mich B

J 1308, 1308 (1999) (“Almost continuously since its enactment in

1976, the [prior tax scheme, the Single Business Tax Act] has been

criticized as being confusing, complicated and unfair to businesses.”).

App. 4

United States Supreme Court. Finally, we set forth

how we are bound to apply that precedent and uphold

Treasury’s imposition of the MBTA tax.

A.

THE MBTA FORMULA

The MBTA imposed “a business income tax on

every taxpayer with business activity within this

state. . . .” MCL 208.1201(1). Specifically, “[t]he business income tax is imposed on the business income tax

base, after allocation or apportionment to this state, at

the rate of 4.95%.” Id. For companies operating in multiple jurisdictions, the MBTA included a formula to

“apportion” the income based on the estimated percentage of business done in Michigan as compared to

other states. MCL 208.1201(2). A company’s total taxable income—or the amount examined to determine

tax liability—was calculated by multiplying the “tax

base” by a “sales factor.” The “sales factor” compares

Michigan sales to all company sales to determine the

proper proportionality of the overall tax.3 The basic

formula was as follows:

Apportioned Tax Base = (Tax Base) x

3

(

Michigan Sales

Total Sales

)

Of note, while Michigan adopted a single-factor “sales factor” as a multiplier in the MBTA, each state is free to choose how

many factors go into its apportionment modifier. See, e.g., Moorman Mfg Co v Bair, 437 US 267; 98 S Ct 2340; 57 L Ed 2d 197

(1978) (discussing the differences between a single-factor multiplier

in Iowa and a three-factor multiplier in Illinois); see also Trinova

Corp v Dep’t of Treasury, 433 Mich 141, 151-152; 445 NW2d 428

(1989) (Trinova I) (describing Michigan’s three-factor formula under its previous tax regime—the Single Business Tax Act).

App. 5

The MBTA defined the “tax base” as “a taxpayer’s

business income” subject to certain adjustments that

are not relevant here. MCL 208.1201(2) (emphasis

added). In turn, “business income” was defined as “that

part of federal taxable income derived from business

activity.” MCL 208.1105(2). Additionally, “[f ]or a partnership or S corporation, business income include[d]

payments and items of income and expense that are attributable to business activity of the partnership or S

corporation and separately reported to the partners or

shareholders.” Id. (emphasis added). “Business activity” was also a statutorily defined term that included

transfer of legal or equitable title to . . . property, whether real, personal, or mixed, tangible or intangible, . . . with the object of gain,

benefit, or advantage, whether direct or indirect, to the taxpayer or to others. . . . Although

an activity of a taxpayer may be incidental to

another or to other of his or her business activities, each activity shall be considered to be

business engaged in within the meaning of

this act. [MCL 208.1105(1).]

The “sales factor” in the MBTA apportionment

formula was “a fraction, the numerator of which is

the total sales of the taxpayer in this state during

the tax year and the denominator of which is the total

sales of the taxpayer everywhere during the tax

year.” MCL 208.1303(1). “Sales” were defined as “the

amounts received by the taxpayer as consideration

from . . . [t]he transfer of title to, or possession of, property that is stock in trade or other property of a kind

that would properly be included in the inventory of

App. 6

the taxpayer. . . .” MCL 208.1115(1)(a) (emphasis

added). For service-based companies, like ML, “sales”

also included the “performance of services that constitute business activities.” MCL 208.1115(1)(b). In short,

to determine the sales factor for a unitary business,

sales of goods and services in Michigan were compared

to total companywide sales of goods and services for

the tax year. MCL 208.1301(1); MCL 208.1303(1).

The formula was “rebuttably presumed to fairly

represent the business activity attributed to the taxpayer in this state. . . .” MCL 208.1309(3). However, if

a taxpayer could demonstrate “that the business activity attributed to the taxpayer in this state [was] out of

all appropriate proportion to the actual business activity transacted in this state and [led] to a grossly

distorted result or would operate unconstitutionally

to tax the extraterritorial activity of the taxpayer,”

an alternative apportionment was mandated. MCL

208.1309(3). An alternative method could only be

used “if it [was] approved by the department.” MCL

208.1309(2).

The dispute in this case concerns whether the

MBTA’s statutory tax liability formula controlled or

whether the taxpayer has shown by clear and cogent

evidence that an alternative apportionment formula,

as allowed by MCL 208.1309, should have been used.

Vectren asserts that the statutory tax apportionment

formula resulted in a tax liability that was disproportionate to the business done in Michigan, leading to a

grossly distorted result.

App. 7

B.

FACTS AND PROCEEDINGS

The facts leading to this case are complex and unlikely to repeat. Justice ZAHRA’s dissent decries our decision today as opening the door to the state engaging

in highway robbery against taxpayers as soon as their

toe crosses our borders. A more reasonable view is that

our decision today deals with a complex asset sale of a

unitary business operation, a tax return filed by that

business using a self-created formula directly contrary

to the relevant statute, an audit which caught the use

of the self-created formula, and the one-off ramifications when that asset sale coincided with large Michigan sales under a now-replaced business tax.

Vectren is the successor in interest to ML. ML

was an S corporation headquartered in Big Lake, Minnesota. It engaged in the business of constructing,

maintaining, and repairing gas pipelines and providing hazardous material cleanup response to leaks.

Founded in 1966, ML grew to employ more than 600

employees and engaged in work in 24 states, including

Michigan. By the mid-1990s, ML was wholly owned by

two of the founder’s children. In 2010, ML’s owners decided to sell the business.

In July 2010, a break in Enbridge Inc.’s Line 6B

pipeline resulted in a catastrophic spill of more than

1.1 million gallons of oil into the Kalamazoo River,

Talmadge Creek, and surrounding wetlands.4 ML was

4

Matheny, Enbridge Hit with a $177M Bill for Michigan,

Illinois Oil Spills, Detroit Free Press (July 20, 2016), <https://www.

freep.com/story/news/local/michigan/2016/07/20/enbridge-reaches177m-settlement-oil-spills/87336380/> [https://perma.cc/MH9F-7KFP].

App. 8

hired to do the environmental cleanup work, which

was massive in scope and still ongoing when ML sold

all its tangible and intangible assets to Vectren for

roughly $89 million in 2011.5 The sale price included

$83.4 million in cash and $5.2 million in assumption of

debt. The assets purchased included $14.8 million of

working capital; $34.4 million of property, plant, and

equipment; $19.1 million of identifiable intangibles;6

and $20.3 million of implied goodwill.

Given its operations in Michigan, ML filed a Michigan tax return for the period between January 1, 2011

and March 31, 2011, which is known as a “short-year”

return. In its tax return, ML included the sale of business assets in the “tax base.” It also included the asset

sale in the denominator of the sales-factor apportionment formula. As a result, ML claimed a sales factor

of 14.99%, which resulted in a Michigan-apportioned

tax base of $8,186,266 and a tax assessment of a

$405,220.17.

5

The sale from ML to Vectren on March 31, 2011, was structured as an asset sale – including capital assets and intangible

assets of receivables, retainages, cash, prepaid expenses, inventory, stock, and goodwill – under the Internal Revenue Code, 26

USC 338(h)(10). ML was the operative taxpayer during the relevant proceedings, but Vectren, as the purchasing entity, was responsible for the tax bill. As a result, both ML and Vectren are

discussed in this opinion, but ultimately Vectren is the responsible party and the plaintiff who filed this lawsuit.

6

Vectren hired an accounting firm, KPMG International

Limited, to prepare a valuation of the company during sale negotiations. Per that report, this included $4,241,000 in trade name

value, $14,588,000 in customer relationships, and a project backlog valued at $287,000.

App. 9

In December 2014, Treasury initiated an audit for

ML’s 2010 calendar year and the 2011 short-year tax

returns. Treasury determined that ML’s 2011 shortyear return was calculated incorrectly. Specifically,

Treasury found that ML’s inclusion of the ML-toVectren asset-sale value in the sales-factor denominator was improper under MCL 208.1115 because the

assets were not sold as part of the “stock in trade” of

the company nor were the sold assets “property held

by the taxpayer primarily for sale to customers in the

ordinary course of the taxpayer’s trade or business.”7

In other words, the sale of ML to Vectren was not

the same thing as selling a product or service (such as

oil spill cleanup or pipeline maintenance services).

Treasury determined that while the tax base should

include the amount of the ML sale to Vectren, it was

improper to include the sale of business assets in the

7

Inexplicably, Justice ZAHRA’s dissent repeatedly characterizes ML’s initial filing as “offering” a 15% apportionment as if

taxes were gifts and not obligations. ML did not “offer” to calculate its apportionment at 15% as a compromise or out of some

sense of goodwill. Rather, despite being a sophisticated entity

with professional advisors, ML replaced the method for calculating the statutory apportionment formula with its own formula

that made it appear as if it owed far less in taxes than it actually

owed under the law. ML only argued that the proper formula was

unconstitutional after it was caught through the audit process

three years later. MCL 208.1309(1) allowed for a taxpayer to “petition for” the inclusion of separate accounting, inclusion of additional or alternative factors, or other alternative methods before

filing its tax return. ML never petitioned Treasury for any of the

five alternatives Vectren proposes here. Rather, ML got caught

having miscalculated its liabilities and now seeks to justify its

actions.

App. 10

sales factor. Instead, Treasury determined that the

sales factor should have been 69.9571%, the apportioned business income tax base should have been

$38,316,659, and the tax owed should have been

$2,926,765.07, including penalty and interest. Treasury therefore issued a notice of intent to assess to ML.8

After receiving the notice from Treasury, Vectren

asked for an informal conference, requesting alternative apportionment for the short year due to its belief

that all the receipts and income from the sale of its

company should be considered as “sales” in the sales

factor and exclusively allocated to Minnesota. In the

alternative, Vectren asked for the sale to be wholly excluded from the apportionment formula, including the

tax base, given that the asset sale was not in ML’s regular course of business and was therefore not “business

income.” To include the sale-of-business income, it contended, meant that the tax was “out of all appropriate

proportion” with the business actually transacted in

Michigan and thus the tax violated Vectren’s due-process rights as well as the Commerce Clause by taxing

money earned beyond Michigan’s taxing power.

Treasury denied Vectren’s request. It found:

While you have provided detail on how the

selling price was derived, you have not provided any evidence to the Department that

8

Treasury issued Notice of Intent to Assess No. UO71593 to

ML at its Big Lake, Minnesota, headquarters on April 20, 2016.

However, by that time, Vectren was the successor in interest to

ML and ultimately responsible for the tax burden.

App. 11

the business activities in Michigan did not

contribute to the gain realized or that the formula does not provide Michigan with an equitable allocation of income. Further, including

gain in the tax base is not an unusual fact situation or one that necessarily demonstrates

that application of the statutory apportionment formula does not reflect [ML’s] business

activity in Michigan.

Consequently, Treasury determined that Vectren had

not overcome the presumption that the statutory apportionment formula fairly represented what was

then ML’s business activity in Michigan for the period at issue. Soon after the denial, Treasury issued its

final assessment for the short year, reaffirming that

the amount owed with penalty and interest was

$2,926,765.07.

1.

VECTREN FILES THE PRESENT LAWSUIT

After Treasury denied Vectren’s request for alternative apportionment, Vectren sued Treasury in the

Court of Claims. Its complaint contained four counts,

summarized as follows:

I. Treasury’s failure to include the gain from the

sale of ML in the denominator of the sales factor resulted in a grossly distortive tax because the calculation did not fairly represent ML’s business activities in

the state, violating the Due Process and Commerce

Clauses of the federal Constitution;

App. 12

II. In the alternative, the gain on the asset sale

was nonoperational, nonrecurring, nonbusiness income

that should be excluded from ML’s tax base, and if not

excluded, the state violated the Due Process and Commerce Clauses of the federal Constitution;

III. Treasury unlawfully calculated ML’s tax base

by including the gain on the sale of ML, and under the

plain language of the MBTA, the sale of shareholders’

stock is not a business activity to be included in an S

corporation’s tax base and federal method of accounting; and

IV. The penalty for untimeliness should be abated

because the plaintiff timely paid the tax on the basis of

reasonable interpretations of the MBTA.

The Court of Claims granted Treasury’s motion for

summary disposition, determining that the business

income was properly subject to taxation under the

MBTA and that alternative apportionment was not required. The Court of Claims found that Vectren did not

dispute that ML’s Michigan sales as defined by the

statute made up 70% of its total sales for the short year

in question. Nor did Vectren argue that the formula

was misapplied. Rather, the crux of Vectren’s argument

was that it did not agree with what was included in the

tax base because it increased the total income subject

to taxation.

The Court of Claims also rejected Vectren’s arguments relating to the value of the goodwill that ML

accrued at the time of ML’s sale to Vectren. It noted

that Vectren failed to cite any documentary evidence

App. 13

to support its assertion that none of the goodwill

accumulated over the 52-year history of ML could

be attributed to the company’s business activities in

Michigan. The court disagreed with Vectren’s argument that because the imposed tax purports to tax the

value of the goodwill that the company accumulated, it

extended beyond the actual business activity that ML

had conducted in Michigan. Besides not meeting the

clear and cogent evidence standard in support of its assertion regarding goodwill, the court explained that

under the precedent of this Court and the United

States Supreme Court, it is not a constitutional requirement that a state’s apportionment formula have

surgical precision in identifying attributable income.

2. INITIAL APPEAL TO THE

COURT OF APPEALS AND THIS COURT

Vectren appealed the grant of summary disposition to the Court of Appeals. In a published decision,

the Court of Appeals reversed the Court of Claims’

opinion and held that an alternative formula was appropriate. The Court of Appeals held that “this is an

exceptional case in which the taxpayer has met its burden of providing clear and cogent evidence that the

business activity attributed to it ‘is out of all appropriate proportion to the actual business activity transacted in this state and [has led] to a grossly distorted

result.’ ” Vectren Infrastructure Servs Corp v Dep’t of

Treasury, 331 Mich App 568, 583; 953 NW2d 213

(2020) (Vectren I) (citation omitted), vacated 506 Mich

964 (2020).

App. 14

The Court of Appeals held that because applying

the statutory formula meant that a higher percentage

of ML’s income was subject to taxation in the 2011

short year (approximately 70%) than the 10-year average of the decade prior (approximately 7%), it did not

“fairly represent” the business done in the state. Vectren I, 331 Mich App at 577-578, 583. On the basis of

that determination, the court held that the tax unconstitutionally included income outside the scope of the

business transacted in Michigan. The panel did not address Vectren’s remaining allegations because it found

the need to use an alternative formula dispositive.

Treasury moved for reconsideration, and the motion

was denied. Treasury subsequently sought leave to appeal in this Court.

This Court issued an order vacating the Court of

Appeals opinion and remanding the case to the Court

of Appeals for the limited purpose of addressing

whether Treasury properly applied the apportionment

formula. Vectren Infrastructure Servs Corp v Dep’t of

Treasury, 506 Mich 964 (2020).

3.

PROCEEDINGS ON REMAND

The Court of Appeals, in response to our remand

order, in turn remanded the case to the Court of Claims

for it to address Count I of Vectren’s complaint, which

alleged that failure to include the sale-of-business

amount in the denominator of the sales-factor formula

improperly skewed its overall tax liability. The Court

of Claims again agreed with Treasury, holding that the

App. 15

asset sale at issue was not a “sale” as defined by MCL

208.1115(1)(a) because “inventory” does not include assets beyond those sold in “the ordinary course of the

taxpayer’s trade or business.” Because the assets sold

were not held out in the ordinary course of business for

sale, the Court of Claims reasoned that it was improper to include the sale of the business’s tangible

and intangible assets in the denominator of the sales

factor. Although the sale of ML to Vectren was “business activity” and thus was required to be included in

the tax base, it was not a “sale” for purposes of calculating the sales factor, because that calculation only includes sales of products or services by a business in its

ordinary course of business, and therefore should not

have been included in the denominator of the sales factor calculation. Accordingly, the Court of Claims

granted Treasury summary disposition as to Count I

of Vectren’s complaint.

Vectren once again appealed to the Court of Appeals, which issued a published opinion holding that

the Court of Claims had correctly analyzed the relevant statutes and applied the apportionment formula.

Vectren Infrastructure Servs Corp v Dep’t of Treasury

(On Remand), 339 Mich App 117, 124; 981 NW2d 116

(2021) (Vectren II). However, the Court of Appeals

adopted its original analysis regarding the constitutional defect present in applying the formula and concluded that Vectren was entitled to an alternative

apportionment because applying the formula extended

beyond the acceptable scope of Michigan’s taxing powers. Id. Finally, the Court of Appeals ordered that the

App. 16

parties work together to determine an alternative

method of apportionment. Id.

Treasury again sought leave to appeal in this

Court. We granted oral argument on the application

and ordered the parties to address

(1) whether the taxpayer established by clear

and cogent evidence 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’ ” under

MCL 208.1309(3) of the Michigan Business

Tax Act, MCL 208.1101 et seq.; (2) whether application of the statutory formula in this case

runs afoul of the Due Process and Commerce

Clauses incorporated in the statute because it

does not fairly determine the portion of income from the sale of a business attributed to

in-state activities; and (3) whether remand

for the parties to determine an alternate

method of apportionment conflicts with MCL

208.1309(2), which vests exclusive authority

to approve an alternate method of apportionment in the Department of Treasury. [Vectren

Infrastructure Servs Corp v Dep’t of Treasury,

509 Mich 882, 882 (2022).]

II.

STANDARDS OF LAW

A.

STANDARD OF REVIEW

Agency interpretations of the statutes they are

charged with implementing are generally given

App. 17

“respectful consideration” so long as they are consistent with the plain language of the statute. In re

Complaint of Rovas Against SBC Mich, 482 Mich 90,

93; 754 NW2d 259 (2008). However, we review a trial

court’s grant of summary disposition de novo. Maiden

v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999).

We also review questions of statutory interpretation

and constitutional law de novo. Fluor Enterprises, Inc

v Dep’t of Treasury, 477 Mich 170, 174; 730 NW2d 722

(2007).

B.

RELEVANT LEGAL CONSIDERATIONS

A long-settled principle of tax law is that “the entire net income of a corporation, generated by interstate as well as intrastate activities, may be fairly

apportioned among the States for tax purposes by formulas utilizing in-state aspects of interstate affairs.”

Exxon Corp v Wisconsin Dep’t of Revenue, 447 US 207,

219; 100 S Ct 2109; 65 L Ed 2d 66 (1980) (quotation

marks and citation omitted). The Due Process Clause

of the Fourteenth Amendment imposes two requirements on state taxation: a “minimal connection” or

“nexus” between the interstate activities and the taxing state, and a “rational relationship between the income attributed to the State and the intrastate values

of the enterprise.” Mobil Oil Corp v Comm’r of Taxes of

Vermont, 445 US 425, 436-437; 100 S Ct 1223; 63 L Ed

2d 510 (1980). The major requirement for taxing multistate corporations using an apportionment formula is

that it “must, under both the Due Process and Commerce Clauses, be fair.” Container Corp of America v

App. 18

Franchise Tax Bd, 463 US 159, 169; 103 S Ct 2933; 77

L Ed 2d 545 (1983). This requires that a formula have

both “internal consistency” and “external consistency.”

Id.

To be internally consistent, a formula must “result

in no more than one hundred percent of the taxpayer’s

business activity being taxed if all taxing jurisdictions

employed the same formula.” Trinova Corp v Dep’t of

Treasury, 433 Mich 141, 158; 445 NW2d 428 (1989)

(Trinova I). External consistency “requires that the

choice of factors used in the formula ‘must actually reflect a reasonable sense of how the business activity is

generated.’ ” Id. (citation and brackets omitted). When

a taxpayer attacks “the tax base rather than the formula,” it “substantially narrows the issues before [the

court].” Mobil Oil Corp, 445 US at 434. It limits the

inquiry “to the question whether there is something

about the character of income earned” from the sale of

assets “that precludes, as a constitutional matter, state

taxation of that income by the apportionment method.”

Id. at 435. Here, Vectren attacks both the inclusion of

the ML-to-Vectren asset-sale income in the tax base

and, in the alternative, the formula itself. For that reason, we will address both challenges.

As with most apportionment taxes, the MBTA

stated that the statutory apportionment formula

shall be rebuttably presumed to fairly represent the business activity attributed to the

taxpayer in this state . . . unless it can be

demonstrated that the business activity attributed to the taxpayer in this state is out of

App. 19

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. [MCL

208.1309(3).]

Significantly, the protesting taxpayer can only successfully challenge an apportionment finding with “clear

and cogent” evidence. See Trinova I, 433 Mich at 158.

Clear and cogent evidence means “more than a preponderance of evidence. . . . [T]he standard is much like

‘clear and convincing evidence.’ ” McQueen v Black, 168

Mich App 641, 645 n 2; 425 NW2d 203 (1988); see also

Black’s Law Dictionary (11th ed), p 698 (“Evidence indicating that the thing to be proved is highly probable

or reasonably certain. This is a greater burden than

preponderance of the evidence, the standard applied in

most civil trials, but less than evidence beyond a reasonable doubt, the norm for criminal trials.”) (emphasis added).

C.

SURVEY OF THE RELEVANT CASELAW

The constitutionality of taxation of businesses

that are located in more than one state has been debated for more than a century. The United States Supreme Court has issued many opinions that have

extensively analyzed the issue. A survey of the applicable caselaw is necessary to understand our decision.

In Underwood Typewriter Co v Chamberlain, 254

US 113; 41 S Ct 45; 65 L Ed 165 (1920), the United

App. 20

States Supreme Court examined the appropriateness

of a Connecticut business income tax. The taxpayer

was a Delaware corporation that engaged in the

manufacture and sale of typewriters and had its main

offices in New York. The Connecticut business tax statute imposed a 2% tax on the “net income earned during

the preceding year from business carried on within the

state. . . .” Id. at 117. When a company was engaged in

both intrastate and interstate commerce, the statute

used a single-factor proportionality calculation—a

comparison of the business’s in-state property against

the total property—to apportion income. Id. at 118.

Because Underwood Typewriter’s manufacturing

facilities were primarily located in Connecticut, the state

determined that 47% of its net income was subject to

taxation by Connecticut, despite the fact that only

3.3% of its national revenue was generated in Connecticut. Id. at 120. In affirming the tax, the United States

Supreme Court held that the taxes are “not obnoxious

to the commerce clause merely because [they are] imposed upon property used in interstate commerce. . . .

That a tax measured by net profits is valid, although

these profits may have been derived in part, or indeed

mainly, from interstate commerce, is settled.” Id. The

Supreme Court went on to hold that “profits of the corporation were largely earned by a series of transactions beginning with manufacture in Connecticut and

ending with sale in other states. In this it was typical

of a large part of the manufacturing business conducted in the state.” Id. at 120-121.

App. 21

In Bass, Ratcliff & Gretton, Ltd v State Tax Comm,

266 US 271, 277; 45 S Ct 82; 69 L Ed 282 (1924), the

United States Supreme Court addressed the constitutionality of a New York statute that imposed a 3% franchise tax on the net income of a corporation. If the

business engaged in interstate or foreign commerce,

apportionment was determined “by [examining] the

proportion which the aggregate value of specified classes of the assets of the corporation within the State

bears to the aggregate value of all such classes of assets wherever located.” Id. at 278. These assets included tangible property, real property, bills, accounts

receivable, and shares of stock in other corporations.

Id. The tax was challenged by a British company that

brewed and sold beer; the company’s manufacturing

operations and a significant portion of its sales were in

England, but the company had branch offices in New

York and Chicago that had no net income in the challenged tax year. Id. at 278-279. The Supreme Court upheld the net income tax in New York, which included

foreign income, because the company “carried on the

unitary business of manufacturing and selling ale, in

which its profits were earned by a series of transactions beginning with the manufacture in England and

ending in sales in New York and other places[.]” Id. at

282. Because “the process of manufacturing result[ed]

in no profits until it end[ed] in sales . . . the State was

justified in attributing to New York a just proportion of

the profits earned by the Company from such unitary

business.” Id. The Supreme Court also held that it was

appropriate to include the intangible assets, such as

App. 22

accounts receivable and stock owned in other corporations, in its taxation formula. Id. at 283.9

In contrast, the United States Supreme Court invalidated North Carolina’s application of its business

taxation scheme in Hans Rees’ Sons, Inc v North Carolina, 283 US 123; 51 S Ct 385; 75 L Ed 879 (1931).

There, a New York company challenged North Carolina’s tax apportionment formula that attributed

roughly 80% of the company’s income to the state for

taxation purposes, even though during the relevant tax

years “the average income [from] . . . the manufacturing and tanning operations within the State of North

Carolina was seventeen per cent” and “did not in any

event exceed 21.7 per cent.” Id. at 134 (quotation

marks omitted). The Court held that “with respect to

the facts shown, the statutory method, as applied to

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

9

See also Nat’l Leather Co v Massachusetts, 277 US 413, 423;

48 S Ct 534; 72 L Ed 935 (1928) (upholding a Massachusetts tax

imposed on the capital stock of two subsidiary corporations domiciled in Maine and finding that it was permissible for Massachusetts to tax the subsidiaries’ stock, regardless of the stock’s situs

or commercial domicile, because the companies themselves transacted business within Massachusetts and were “employed by the

petitioner in carrying on its business within Massachusetts”);

Ford Motor Co v Beauchamp, 308 US 331, 334, 336; 60 S Ct 273;

84 L Ed 304 (1939) (upholding an allocation of taxable capital to

Texas in excess of $23 million despite the taxpayer only having

roughly $3 million in in-state assets because with “a unitary enterprise, property outside the state, when correlated in use with

property within the state, necessarily affects the worth of the

privilege within the state”).

App. 23

proportion to the business transacted . . . in that state.”

Id. at 135-136.

California’s taxation of out-of-state transactions

was upheld in Butler Bros v McColgan, 315 US 501; 62

S Ct 701; 86 L Ed 991 (1942). That case dealt with a

wholesale company that operated seven “distributing

houses” in seven states, including California. Id. at

504. The company challenged a California tax that apportioned roughly 8% of the company’s approximately

$1.15 million profit to California because the California division of the company operated at a loss of almost

$83,000. Id. at 504-505. The Supreme Court found that

despite the internal accounting methods used, income

generated from entirely out-of-state transactions by

warehouses located in those states was still reachable

by California. Id. at 508. This is because the business

was unitary. Id. Thus, California was entitled to apportion the entire income of the company based on the relevant factors under its unitary business tax—despite

the actual loss the company’s California division experienced.

In Norfolk & W R Co v Missouri State Tax Comm,

390 US 317, 319; 88 S Ct 995; 19 L Ed 2d 1201 (1968),

the United States Supreme Court invalidated a Missouri ad valorem tax on Norfolk’s “rolling stock” of railcars. The Missouri tax was calculated by determining

the value of all rolling stock owned by the railroad,

then multiplying it by an apportionment factor based

on the miles of Missouri railroad compared to total

national railroad. Id. at 320-321. Norfolk leased rolling stock and railroad from a smaller rail company

App. 24

(Wabash) that primarily operated in Missouri. Id. at

319. Prior to the lease, Norfolk did not operate in any

meaningful way within Missouri and never moved its

existing rolling stock into the state, meaning that almost all its operations in the relevant tax years were

based upon use of Wabash’s rolling stock. Id. However,

because the statute assessed the entirety of Norfolk’s

rolling stock to determine the tax base, its application

led to a substantially higher tax assessment. The

Court noted that the “rigid application” of the statute

led to a rolling stock assessment of $19,981,757. Id. at

326. However, that was more than double the previous

year’s valuation; the only difference was the size of the

company.

Norfolk demonstrated by clear and cogent evidence that “it is chiefly a coal-carrying railroad, 70% of

whose 1964 revenue was derived from coal traffic,”

which “require[d] a great deal of specialized equipment, scarcely any of which ever enter[ed] Missouri.”

Id. at 328. It further established that the traffic density on the newly leased tracks was low when compared to the railway as a whole, and “it proved that the

overwhelming majority of its rolling stock regularly

present in Missouri was rolling stock it had leased

from . . . Wabash.” Id. This evidence was sufficient to

prove that the apportionment formula, as applied, was

a gross exaggeration of Norfolk’s unitary business activity within the state.

In Moorman Mfg Co v Bair, 437 US 267, 269; 98 S

Ct 2340; 57 L Ed 2d 197 (1978), an Illinois corporation

challenged Iowa’s business tax apportionment scheme.

App. 25

The apportionment formula for income that was not

“easily [geographically] identifiable” was a single-factor analysis comparing gross sales made within the

state with total gross sales. Id. (quotation marks and

citation omitted). The United States Supreme Court

held that “a single-factor formula is presumptively

valid.” Id. at 273. The Court rejected Moorman’s argument that the tax was unconstitutional because a substantial portion of the income attributed to Iowa was

actually due to the company’s manufacturing operations in Illinois. Id. at 272. The Court responded to

Moorman’s claim that there was duplication in taxation by holding as follows:

It is, of course, true that if Iowa had used Illinois’ three-factor formula, a risk of duplication in the figures computed by the two States

might have been avoided. But the same would

be true had Illinois used the Iowa formula.

Since the record does not reveal the sources of

[Moorman]’s profits, its Commerce Clause

claim cannot rest on the premise that profits

earned in Illinois were included in its Iowa

taxable income and therefore the Iowa formula was at fault for whatever overlap may

have existed. [Id. at 277.]

The Court refused to “constitutionalize[ ]” the formulas

used by the states because to do so would “require a

policy decision based on political and economic considerations that vary from State to State.” Id. at 279-280.

In Mobil Oil Corp, 445 US at 427, the United

States Supreme Court decided whether Vermont could

App. 26

impose its corporate income tax on dividend income

of foreign subsidiaries doing business abroad that had

no business activity within the state.10 Mobil’s business in Vermont was solely related to “wholesale and

retail marketing of petroleum and related products”

and had “no oil or gas production or refineries within

the State.” Id. at 428. Mobil argued that “taxation of

the dividend receipts under Vermont’s corporate income tax violated the Due Process Clause of the Fourteenth Amendment, as well as the Interstate and

Foreign Commerce Clause, . . . [and] that inclusion of

the dividend income in its tax base . . . would not result

in a ‘fair’ and ‘equitable’ apportionment. . . .” Id. at 432.

The United States Supreme Court disagreed.

Comparing it to cases in which taxpayers asked

for a “geographical accounting” of profits, or cases in

which companies operated in the United States and

abroad, the Court reiterated that “the linchpin of apportionability in the field of state income taxation is

the unitary-business principle.” Id. at 438-439. Specifically, the Court noted:

[S]eparate accounting, while it purports to

isolate portions of income received in various

States, may fail to account for contributions to

income resulting from functional integration,

centralization of management, and economies

of scale. Because these factors of profitability

arise from the operation of the business as a

10

These included subsidiaries incorporated and operating in

states other than Vermont as well as foreign corporations doing

business outside the United States.

App. 27

whole, it becomes misleading to characterize

the income of the business as having a single

identifiable “source.” Although separate geographical accounting may be useful for internal auditing, for purposes of state taxation it

is not constitutionally required. [Id. at 438 (citation omitted).]

Thus, “what [Mobil Oil Corp] must show, in order

to establish that its dividend income is not subject to

an apportioned tax in Vermont, is that the income was

earned in the course of activities unrelated to the sale

of petroleum products in that State.” Id. at 439 (emphasis added). The Supreme Court also found that the

Vermont tax did not violate the Commerce Clause by

“subject[ing] interstate business to a burden of duplicative taxation that an intrastate taxpayer would not

bear.” Id. at 443. In doing so, the Supreme Court held

that

a fictionalized situs for intangible property

sometimes has been invoked to avoid multiple

taxation of ownership, [but] there is nothing

talismanic about the concepts of “business situs” or “commercial domicile” that automatically renders those concepts applicable when

taxation of income from intangibles is at issue. . . . The Court also has recognized that

“the reason for a single place of taxation no

longer obtains” when the taxpayer’s activities

with respect to the intangible property involve relations with more than one jurisdiction. [Id. at 445, quoting Curry v McCanless,

307 US 357, 367; 59 S Ct 900; 83 L Ed 1339

(1939).]

App. 28

Similarly, in Exxon Corp, 447 US 207, the United

States Supreme Court affirmed Wisconsin’s ability to

proportionally tax the entirety of Exxon Mobil’s profit.

Exxon was “a vertically integrated petroleum company” headquartered in Texas. Id. at 210-211. At the

relevant time, the company was internally organized

into various subparts, although these subparts were

not separate subsidiaries; the subparts competed with

each other for internal investment as well as with

other companies operating in their respective fields.

Id. at 212. This meant, for instance, that “[t]here was

no requirement that [Exxon’s] crude oil go to its own

refineries or that the refined products sold through

marketing be produced from [Exxon’s] crude oil.” Id.

“Marketing” was the only activity carried out in Wisconsin.

Despite Exxon’s limited business in Wisconsin, the

United States Supreme Court held that Wisconsin was

entitled to include Exxon’s total income in the business

tax base because it “has long been settled that ‘the entire net income of a corporation, generated by interstate as well as intrastate activities, may be fairly

apportioned among the States for tax purposes by formulas utilizing in-state aspects of interstate affairs.’ ”

Id. at 219 (citation omitted). This is because “[t]he

‘linchpin of apportionability’ . . . is the ‘unitary-business principle.’ ” Id. at 223, quoting Mobil Oil Corp, 445

US at 439. That is, “[i]f a company is a unitary business, then a State may apply an apportionment formula to the taxpayer’s total income in order to obtain

a ‘rough approximation’ of the corporate income that is

App. 29

‘reasonably related to the activities conducted within

the taxing State.’ ” Exxon Corp, 447 US at 223 (citation

omitted).

To exclude income from the formula, “the company

must prove that ‘the income was earned in the course

of activities unrelated to’ ” the unitary business engaged in within the state. Id. (citation omitted). Despite Exxon’s internal divisions, “it [was] nonetheless

true that this case involve[d] a highly integrated business which benefit[ed] from an umbrella of centralized

management and controlled interaction.” Id. at 224.

The mere fact that the business could distill certain income streams to geographical locations did “not alter

the fact that such income [was] part of the unitary

business of the interstate enterprise and [was] subject

to fair apportionment among all States to which there

[was] a sufficient nexus with the interstate activities

of the business.” Id. at 230.

In ASARCO Inc v Idaho State Tax Comm, 458 US

307, 309-310, 330; 102 S Ct 3103; 73 L Ed 2d 787

(1982), the United States Supreme Court held that an

Idaho apportionment tax as applied to a mining company’s subsidiaries violated the Due Process Clause.

ASARCO was headquartered in New York, incorporated in New Jersey, and operated a silver mine in

Idaho. Id. at 309. It had eleven subsidiaries. Notably,

six of the subsidiaries were part of ASARCO’s unitary

business and thus were included in the Idaho tax calculation without contest by ASARCO. Id. at 312-313.

The question before the Court was whether Idaho

could include dividends, interest, and stock-sale profits

App. 30

from the remaining five out-of-state subsidiaries within

its business tax calculation. The United States Supreme Court, overturning the Idaho Supreme Court,

found that the profits of the five subsidiaries could not

be included in the apportionment calculation. Id. at

315.

Unlike other cases, ASARCO offered evidence that

the five subsidiaries did not contribute to the unitary

business. Id. at 320-324.11 The United States Supreme

Court refused to hold that ASARCO’s “corporate purpose” (mining) was sufficient to create a unitary business between a parent and its subsidiaries. Id. at 326327 (emphasis omitted). Rather, because it was “plain

that the five dividend-paying subsidiaries ‘add to the

riches’ of ASARCO” but “are ‘discrete business enterprise[s]’ that—in ‘any business or economic sense’—

have ‘nothing to do with the activities’ of ASARCO in

Idaho,” there was “no ‘rational relationship between

the [dividend] income attributed to the State and the

11

Specifically, with respect to one subsidiary, even though

ASARCO owned 51.5% of the stock, it entered into a management

agreement with the other four shareholders greatly diluting its

ability to control any of the corporate decisions of that company.

Id. at 321-322. Further, “[a]lthough ASARCO ha[d] the control

potential to manage [another subsidiary due to 52.7% stock ownership], no claim [was] made that it ha[d] done so.” Id. at 323. Two

other subsidiaries in which ASARCO held a minority ownership

position operated entirely independently of ASARCO and did not

“seek[ ] direction or approval from ASARCO on operational or

other management decisions.” Id. at 323-324. The same was true

of the final subsidiary, which was majority-owned by foreign nationals and “operate[d] independently of ” ASARCO. Id. at 324

(quotation marks and citation omitted).

App. 31

intrastate values of the enterprise.’ ” Id. at 328 (citations omitted).

In Container Corp, 463 US at 162-163, a Delaware

corporation headquartered in Illinois challenged California’s franchise tax targeting income that was derived, in part, from subsidiaries operating in other

countries. After finding sufficient control between the

Illinois parent company and its subsidiaries to consider them a unitary business, id. at 179-180, the

United States Supreme Court held that California’s

three-factor business tax base calculation (comparing

California sales, payroll, and property to companywide

sales, payroll, and property) did not unduly inflate

profits to increase the taxable base attributable to California, id. at 181-182. The Court rejected Container

Corp’s proposal to discount payroll because the foreign

payrolls were substantially lower as “precisely the sort

of formal geographical accounting whose basic theoretical weaknesses justify resort to formula apportionment in the first place.” Id. at 181. The Court also held

that the 14% increase in tax liability the formula imposed was “a far cry from the more than 250% difference which led [the Court] to strike down the state tax

in Hans Rees’ Sons, Inc., and a figure certainly within

the substantial margin of error inherent in any method

of attributing income among the components of a unitary business.” Id. at 184.

Turning to Michigan, in Trinova I, 433 Mich at

151-152, 167, we upheld Michigan’s now-repealed

value added tax. Trinova in that case sought an alternative accounting “on the ground that its apportioned

App. 32

1980 compensation was approximately forty times

greater than its actual Michigan compensation, and

that its apportioned depreciation was approximately

one thousand times greater than its actual Michigan

depreciation.” Id. at 163. Trinova I held:

[T]he test for fair apportionment is not whether

a formula results in inadequate or even inaccurate apportionment. The test is whether the

use of a particular method of apportionment

results in business activity being attributed to

this state which is “out of all appropriate proportions” to the taxpayer’s intrastate business

activity, or has “led to a grossly distorted result.” [Id. at 160.]

The Court further noted that “the constitution requires

neither a perfect formula nor a perfect apportionment.”

Id. at 162. The Court thus held that the resulting apportionment was not “out of all appropriate proportion”

to the business conducted in Michigan. Id. at 163-164.

In Trinova Corp v Mich Dep’t of Treasury, 498 US

358, 379; 111 S Ct 818; 112 L Ed 2d 884 (1991) (Trinova

II), the United States Supreme Court affirmed this

Court’s decision in Trinova I, holding that the factors

Trinova sought to exclude from the apportionment

formula were “with limited exception, out-of-state expenses.” Nevertheless, “[t]he same factors that prevent

determination of the geographic location where income

is generated, factors such as functional integration,

centralization of management, and economies of scale,

make it impossible to determine the location of value

added with exact precision.” Id. Trinova II rejected

App. 33

Trinova’s claim that the formula at issue lacked external fairness because Trinova failed to show that there

was “no rational relationship between the tax base

measure attributed to the State and the contribution

of Michigan business activity to the entire value added

process.” Id. at 380. Thus, the United States Supreme

Court rejected Trinova’s efforts to exclude “sales” as a

factor from the tax apportionment formula on the basis

that while Michigan sales constituted 26.5892% of Trinova’s total sales, its Michigan payroll constituted only

0.2328% of its companywide payroll total and its Michigan property constituted only 0.0930% of its companywide property total. Id. at 381. Inclusion of all three

factors resulted in a total Michigan apportionment

rate of 8.9717%, as opposed to the 0.1629% proposed

by Trinova in its two-factor analysis. Id.

Most recently, the Maine Supreme Judicial Court

addressed a situation similar to this case. In State Tax

Assessor v Kraft Foods Group, Inc, 235 A3d 837, 841;

2020 ME 81 (2020), the court rejected Kraft’s argument that it was entitled to use an alternative apportionment calculation for its corporate income tax filing

because of a giant one-time spike in income derived

from the $3.7 billion sale of its North American frozen

pizza business to Nestle. Kraft failed to include the

gross receipts from the frozen pizza transaction in its

subsequent Maine income tax return based on an assertion that the “income was not taxable by Maine under either the Maine Constitution or the United States

Constitution.” Id. Like Michigan, Maine also operated

using a single “sales factor” for its unitary business tax

App. 34

apportionment calculation. Id. at 843. And like Vectren

in this case, Kraft argued that the multibillion-dollar

frozen pizza business sale could not “ ‘be fairly represented by a single-sales factor formula determined in

principal part by gross receipts from Kraft’s day-to-day

food product sales.’ ” Id. at 845.

The court rejected Kraft’s argument, noting that

“the sales factor is designed to attribute a taxpayer’s

income to the jurisdictions in which its goods and services are consumed.” Id. (cleaned up). The court further

noted that “[t]he fact that Kraft’s net income in 2010

was much greater than in previous years does not support the conclusion that the sales factor itself does not

fairly represent the extent of the taxpayer’s business

activity in Maine.” Id. at 844 (cleaned up). “The question is not whether the sales factor fairly represents

the sales income; the question is whether the sales factor fairly represents the extent of Kraft’s business activity in Maine.” Id. at 845. As a result, the apportioned

tax was upheld. Id. at 853.

III.

ANALYSIS

A business’s income from the sale of assets is apportionable for business tax purposes even if the sale

occurred in another state so long as the tax is assessed

in a proportionate manner. Moreover, the United States

Supreme Court has clearly established that a party

challenging a business tax on the basis that it is disproportionate has a heavy burden of showing by clear

and cogent evidence that the apportionment formula

App. 35

attributed income “out of all appropriate proportion” to

the business activity in Michigan or that it led to a

“grossly distorted” result. Vectren is unable to meet

that burden—even construing the facts in the light

most favorable to the company.

A. THE INCOME AT ISSUE IS

APPORTIONABLE UNDER THE

STATUTE AND CONSTITUTION

The first question in any multistate business tax

apportionment dispute is whether the taxed entity is a

unitary business, which then triggers the ability for

states to tax under their individual business/corporate

tax apportionment statutes. There is no dispute that

ML, at the time it filed its return in 2011, was a unitary

business. Nor is there any debate that ML had a substantial nexus with Michigan given its work in the

state both with Consumers Energy and Enbridge.

Therefore, the first task for this Court is to determine

whether the ML-to-Vectren asset-sale income must be

included in the tax base and thus is subject to apportionment. If the sale-of-business income is not apportionable and cannot be included in the tax base,

that would prevent any formula—statutory or alternative—from taxing the asset-sale income.

1. THE CONTESTED INCOME IS

STATUTORILY APPORTIONABLE

In order to determine whether the asset-sale income

is apportionable, we must first determine whether the

App. 36

statute allows for the sale price of ML to be included in

the tax base portion of the formula. ML chose to treat

the sale of its business to Vectren as a sale of assets

under 26 USC 338(h)(10). As a result, the sale of the

business included both tangible and intangible assets.

The MBTA imposed a “business income tax on every

taxpayer with business activity within this state” unless exempted by federal law (which is not relevant to

this appeal). MCL 208.1201(1). As previously noted,

the tax liability owed by a unitary business is calculated by multiplying the tax base and the sales factor.

ML transferred “legal [and] equitable title” to its

tangible and intangible property to Vectren “with the

object of gain, benefit, or advantage . . . to the taxpayer

or to others. . . .” MCL 208.1105(1). This constituted

“business activity” under MCL 208.1105(1). Further, as

an S corporation, the sale to Vectren was income “attributable to business activity of the . . . S corporation

and separately reported to the partners or shareholders.” MCL 208.1105(2). Based upon these definitions, it

is undeniable that the ML-to-Vectren asset sale falls

squarely within the categories of “business activity”

and “business income” defined by the MBTA. Business

income must be included in the tax base of the apportionment formula. MCL 208.1201(2).

Next, to calculate the sales factor, ML’s total sales

in Michigan during the tax year must be compared to

ML’s total sales “everywhere” during the tax year. MCL

208.1303(1). For the sales-factor calculation, “sales” is

defined as “stock in trade,” property that can be inventoried, and services sold. MCL 208.1115(1)(a) and (b).

App. 37

It does not include the sale of a company. Therefore,

while the asset-sale income generated from the sale of

ML to Vectren is “business income” and includable in

the tax base, it is inappropriate to include the asset

sale in either the sales-factor numerator or denominator. Justice ZAHRA’s dissent spends significant time discussing the location of the physical assets of the

company and payroll. If these were included, it argues,

the apportionment would be substantially lower. This

is perfectly true, and perhaps a three-factor formula

would result in a lower tax in this instance. But the

Legislature chose a single-factor formula that is presumed valid and has been repeatedly upheld by the

United States Supreme Court. See, e.g., Underwood

Typewriter Co, 254 US at 120 (applying a single-factor

property formula); Moorman Mfg Co, 437 US at 273

(“[W]e have repeatedly held that a single-factor formula is presumptively valid.”). Our role is not to act as

seven super-legislators and overrule the Legislature’s

policy decisions.12 Because Vectren fails to show that

the formula either was improperly calculated or unreasonably reflects the business transacted in the taxing

year at issue, it must be upheld.

12

Justice ZAHRA’s dissent also goes into extensive detail

about the history of the company’s ownership, the location of the

company’s headquarters, the location of the out-of-state sale, and

the location of the company’s workers and equipment. These are

all factors that exist in every unitary business taxation dispute.

They are irrelevant to the assessment of tax liability because a

unitary business is just that—unitary. The different parts and

pieces are not picked apart for business taxation purposes.

App. 38

2. THERE ARE NO SPECIAL

CONSTITUTIONAL PROTECTIONS

THAT PROHIBIT INCLUDING BUSINESS

SALE INCOME IN NET INCOME

When a company “elect[s] to attack the tax base

rather than the formula,” it “substantially narrows the

issues before us.” Mobil Oil Corp, 445 US at 434. Given

ML’s decision to attack the tax base in the MBTA’s apportionment formula, the next question the Court

must answer is “whether there is something about the

character of income . . . that precludes, as a constitutional matter, state taxation of that income by the apportionment method.” Id. at 435. We are bound by the

weight of precedent and find no reason why ML’s business-asset-sale income is not part of the “entire net income of a corporation, generated by interstate as well

as intrastate activities, [which] may be fairly apportioned among the States for tax purposes by formulas

utilizing in-state aspects of interstate affairs.” Exxon

Corp, 447 US at 219 (quotation marks and citation

omitted).

Vectren and Justice ZAHRA’s dissent argue that

ML’s sale price should not be included in the tax base

because the value is attributable to tangible assets,

intangible assets, and the goodwill accumulated primarily outside of Michigan. But the “linchpin of apportionability in the field of state income taxation is the

unitary-business principle.” Mobil Oil Corp, 445 US at

439. To show that income is earned outside the stream

of the unitary business, ML must show that the challenged income “was earned in the course of activities

App. 39

unrelated to” the business activities it carried on in

Michigan. Id. (emphasis added). A lone contention that

the income source is from out of state does not suffice.

See id. (“Bass, Ratcliff & Gretton forecloses the contention that the foreign source of the . . . income alone suffices for this purpose.”).

Like Mobil Oil Corp, the United States Supreme

Court in Exxon Corp affirmed a Wisconsin statute

apportioning income from the entirety of the oil company’s operations. It did so even though only one “functional department” operated within the state, “[e]ach

functional department was organized as a separate

unit operating independently of the other operating

segments,” the “departments were treated as separate

investment centers by the company, and a profit was

determined for each functional department.” Exxon

Corp, 447 US at 212. Despite these internal separations, Exxon, as a unitary business, did “not carr[y] its

burden of showing that its functional departments are

‘discrete business enterprises’ whose income is beyond

the apportionment statute of the State.” Id. at 224; see

also Ford Motor Co, 308 US at 336.

Further, Mobil Oil Corp affirmed that taxation of

intangible assets such as stock ownership and dividend income was appropriate, even if those intangible

assets did not directly involve the taxing state. The

Court noted that “ ‘the reason for a single place of taxation no longer obtains’ when the taxpayer’s activities

with respect to the intangible property involve relations with more than one jurisdiction.” Mobil Oil Corp,

445 US at 445, quoting Curry, 307 US at 367.

App. 40

Kraft Foods Group, a Maine decision, is almost directly on point and engaged in the same analysis that

we must do here. There, as here, the taxpayer argued

that Maine’s statutory single sales-factor apportionment formula could not fairly impute tax liability to

Kraft in the face of an “ ‘unusual, non-recurring, and

extraordinary’ ” one-time gain. Kraft Foods Group, 235

A3d at 845. The Maine court noted that even “assuming for the sake of argument that the income from the

[frozen pizza] sale was generated primarily by unitary

business activity that took place outside of Maine, . . .

that still would not mean that the sales factor does

not fairly represent Kraft’s unitary business activity

within Maine.” Id. at 846 (citation omitted). The identical analysis applies to ML/Vectren in Michigan. There

is no evidence in the current record that demonstrates

that the MBTA apportionment formula fails to represent ML’s full business activity in Michigan at the time

of the sale.

While taxpayers have successfully challenged business tax formulas as disproportionate, the record here

stands in stark contrast to those cases. In ASARCO,

the appellant set forth clear and cogent evidence that

the income from five subsidiaries it sought to exclude

from its Idaho tax base was entirely generated in a different jurisdiction,13 was entirely unrelated to its primary and unitary business, and had nothing to do with

13

Indeed, as noted in that opinion, there were six subsidiaries whose status as part of the “unitary business” of ASARCO was

not challenged despite their location outside the taxing state.

ASARCO, 458 US at 313.

App. 41

ASARCO’s activities in Idaho. ASARCO, 458 US at

316, 321-325, 327.

Similarly, Norfolk held that the railroad appellant

provided clear and cogent evidence that the apportioned tax base was incorrect when the railroad provided proof that the “specialized equipment” used in a

majority of the rail system (1) was separate and distinct, and not interchangeable with the railcars leased

in the taxing state, and (2) almost never entered the

state. Norfolk, 390 US at 319, 321-322.

What was true in ASARCO and Norfolk cannot be

said for ML/Vectren. There is no evidence that ML’s

multistate business activities were carried out by independent subsidiaries or even autonomous internal

divisions. Vectren does not contend that the activities

ML engaged in outside of Michigan to build its tangible

assets, intangible assets, and goodwill were separate

and distinct types of business wholly unrelated to the

activities it engaged in within Michigan. Nor does Vectren eschew control over the company decisions made

anywhere in the 24 states in which ML operated. Indeed, in its own briefing, ML notes that the success of

the company was derived “from the family’s labor.”

Justice ZAHRA’s dissent vehemently disagrees

with the contention that the sale of assets outside of

Michigan could contribute to the tax base for Michigan

taxation. Its argument boils down to the same points

that were completely rejected in Mobil Oil Corp and

Exxon Corp—that the alleged out-of-state nature of

the activities which generated the income means that

App. 42

Michigan cannot include it in the tax base. This argument has been foreclosed repeatedly by the United

States Supreme Court, and we are bound to apply the

caselaw. See, e.g., Underwood Typewriter Co, 254 US at

120-121 (allowing Connecticut to tax sales made entirely out of state simply because “[t]he profits of the

corporation were largely earned by a series of transactions beginning with manufacture in Connecticut and

ending with sale in other states”); Bass, Ratcliff &

Gretton, 266 US at 282 (allowing New York to include

foreign sales in the taxable values because “the State

was justified in attributing to New York a just proportion of the profits earned by the Company from such

unitary business [carried on out of state]”); Ford Motor

Co, 308 US at 334 (affirming a Texas statute that allocated capital “as a base for taxation . . . in excess of

$23,000,000” despite “[t]he value of all assets located

in Texas [being] somewhat over $3,000,000”); Mobil Oil

Corp, 445 US at 441, 445-446 (finding that “dividends

from legally separate entities works no change in the

underlying economic realities of a unitary business,

and accordingly it ought not to affect the apportionability of income the parent receives”); Exxon Corp, 447

US at 212-213 (permitting Wisconsin to tax the income

of Exxon’s exploration, production, and refining operations despite Exxon having no such operations in Wisconsin; the only activity carried out in Wisconsin was

marketing). Of particular note, in Butler Bros, California was permitted to tax an Illinois company’s profits

from warehouses operating out of state. Butler Bros,

315 US at 508. The assets and sales at issue were definitively located out of state, and it was the profit on

App. 43

those—not the California sales—which drove the company’s overall profits. Id. at 506. Nevertheless, California was allowed to apply its apportionment formula to

the total profit. These cases definitively show that the

proper legal test is not where the assets are physically

located or where the company is domiciled for intangible assets but rather whether those assets play a part

in the unitary business operations that subject the corporation to taxation in the taxing state in the first

place.

3.

THE INTANGIBLE ASSETS ARE TAXABLE

Vectren additionally argues that ML’s value was

tied to its trade name, goodwill, and customer relationships, all intangible assets unrelated to Michigan. But

this argument also misses the mark. As an initial matter, the method for measuring intangible asset value

uses a forward-looking analysis. See Puca & Zyla, The

Intangible Valuation Renaissance: Five Methods, Enterprising Investor (January 11, 2019) <https://blogs.

cfainstitute.org/investor/2019/01/11/a-renaissance-inintangible-valuation-five-methods> (accessed June 27,

2023) [https://perma.cc/9QQ2-YJ52] (describing the five

most common “income approach” intangible asset valuation methods, which use forward-looking metrics).14

While past performance is an important part of the

14

Even the report that KPMG prepared for Vectren in anticipation of the sale described the “Income Approach” to valuation

as being “predicated upon the value of the future cash flows that

an asset will generate over its economic life” and noted that the

firm used the income approach to evaluate ML’s trade name, customer relationships, and backlog.

App. 44

evaluation of future earning potential, it is not the sole

consideration, as Vectren seems to suggest.

As an example, in the era of digital retail, a number of prominent retail establishments that once

posted massive sales and profits have gone bankrupt

or shrunk to shadows of their former selves because of

changing technology and shopping patterns. A business interested in purchasing the trade name of such

a retailer would consider both its past performance

and its future potential for rebirth. To argue—as Vectren does—that only those past actions out of state

should be included in the intangible valuation is belied

by the actual valuation process used when it purchased ML, the general rules of accounting, and common sense.

This is especially true when Vectren asks us to

consider the entire 52-year history of ML evenly and

to focus on the decades in which it did no business in

Michigan. It is undoubtedly true that the company’s

founder and his children worked hard to build the company over that time. But where a company operated or

whether it was reliable 45 years before its sale does not

matter as much as the company’s scope and reliability

immediately preceding the sale.15 Indeed, the “Offering

15

Moreover, the intangible assets would have logically increased in value on the basis of ML’s expansion into new markets.

Thus, evidence of prior inactivity in Michigan might actually make

Michigan more valuable to ML, not less. ML’s value increased after its extensive work in Michigan, and the contract here—beyond

adding $70 million in cash flow—certainly helped generate more

work both inside and outside the state. The Michigan work demonstrated the company’s ability to work in emergency conditions and

App. 45

Memorandum,” titled “Project Cadillac,”16 that was

prepared to help ML attract buyers only provides data

back to 2007.

Further, the record before us shows connections

between Michigan and ML both before the sale and as

a potential future growth market. The following is a

nonexhaustive summary of relevant evidence in the

record submitted to this Court:

•

The contract to clean up the Enbridge oil spill

was ML’s “largest single contract ever performed in Michigan,” entered into in 2010 and

continued throughout 2012.

•

In the Vectren acquisition presentation, Consumers Energy, a Michigan utility company,

was listed as a significant customer for ML,

along with Northern Natural, Enbridge Energy, and Minnesota Pipe Line, which all

operated in Michigan. The importance of Consumers Energy was reiterated during the deposition of ML’s former co-owner.

in all types of weather—strengths that it included in its Offering

Memorandum. Further, all income—whether based on sales of intangible assets or direct profit from standard business practices—

relies, in part, on the past decisions of ML’s leadership.

16

Notably, this title could be either an homage to the Detroitbased auto company or the French explorer Antoine de la Mothe

Cadillac, who founded Fort Pontchartrain du Détroit. Either usage shows the importance of Michigan in marketing the sale of

the business.

App. 46

•

The Vectren acquisition presentation identified Michigan as part of “[ML’s] current transmission territory.”

•

An audit report of the 2010 schedule of completed contracts included two recently completed “important” ML projects in Michigan:

(1) “Marquette BL Replacement Project” and

(2) “W Oakland and DeWitt Pipeline Project.”

•

The “Project Cadillac” memorandum identified

its “[k]ey customers” as including Enbridge,

Xcel Energy, Koch Pipeline Company LP, BP,

and Northern Natural Gas. These companies

maintained a significant presence in Michigan.

•

The “Project Cadillac” memorandum specified

that ML “also has substantial capabilities in

other regions with an emphasis on expansion

. . . [in] areas in the Great Lakes region,” that

ML’s Illinois office was acting as a “beachhead” for obtaining work in Michigan, and

that “[t]he Company plans to continue this

strategy and is evaluating opening two additional locations that would better position it

for work in the Great Lakes region. . . .”

•

The “Project Cadillac” memorandum reiterated the significant natural gas pipeline construction between Canada and the Great

Lakes region.

•

The “Project Cadillac” memorandum stated

that the “Antrim Shale formations are right in

the Company’s geographic sweet spot” and included a map showing that the Antrim Shale

App. 47

formations are, almost entirely, within the

state of Michigan.

•

The “Project Cadillac” memorandum specified

that a pipe installation project in Michigan for

“Customer C” in 2009 was one of ML’s “noteworthy pipeline construction projects.” This

same document noted that “Customer C” accounted for 18.3% of ML’s overall revenue in

2009—the third highest percentage of any

customer in that year.

The evidence shows that ML had a business presence

in Michigan for many years before the sale to Vectren. The record shows that Michigan remained a target for ML given ML’s existing customers and planned

market growth at the time of the sale.

Justice ZAHRA’s dissent argues that the ML marketing documents are virtually useless for our consideration because companies exaggerate information to

make their assets appear more versatile or useful in

generating profits. Even assuming that is the case, the

statements on asset versatility nevertheless play a

role in the valuation of an asset.17 Further, we have no

reason to believe that ML was dishonestly promoting

itself nor any reason to disbelieve ML’s corporate documents stating that Michigan would play a potential

role in its growth. Justice ZAHRA’s dissent’s observation that, years later, the potential growth in Michigan did not occur is hindsight-quarterbacking. The

17

Indeed, if statements by a seller on asset utility were revealed to be untrue, a buyer could have a cause of action against

the seller for fraud in the inducement.

App. 48

potential utility of the asset to the buyer is a key piece

of the value of that asset, regardless of whether that

value is eventually realized.18

Like the Maine Supreme Judicial Court in Kraft,

we fail to see any meaningful distinction between income from an asset sale and income from the regular

course of business that would make it constitutionally

unapportionable. The fact that some of the sale price

was related to intangible assets does nothing to change

that analysis. In Kraft, the brands included in the sale

to Nestle included Tombstone Pizza Company, Jack’s

Frozen Pizza, DiGiorno, and California Pizza Kitchen’s

frozen pizza division. Kraft, 235 A3d at 840-841. Certainly, a substantial part of the value in that sale was

the trade names and goodwill associated with some of

the largest frozen pizza brands in America.19 And yet

the full value of the one-time multibillion-dollar frozen

pizza sale was properly included in Maine’s business

apportionment tax formula. As stated in Kraft, the

“fact that Kraft’s net income in 2010 was much greater

18

Justice ZAHRA’s dissent uses a distorted food truck analogy

involving a food truck purchased in Michigan that the seller

claims can be driven to New York, California, or Florida to illustrate its point, but this analogy misses the mark. A food truck,

operating solely within Michigan, would not be subject to taxation

for an asset sale in a state in which it did no business because a

food truck is fundamentally intrastate in nature, which is vastly

different from the interstate conglomerate we deal with here.

19

See Conway, Market Share of the Leading Frozen Pizza

Brands in the United States in 2017, Statista (January 2, 2023)

<https://www.statista.com/statistics/586978/market-share-frozenpizza-brands-in-the-united-states/> (accessed June 28, 2023)

[https://perma.cc/8DJH-KVP4].

App. 49

than in previous years does not support the conclusion

that the sales factor itself does not fairly represent the

extent of the taxpayer’s business activity in Maine.” Id.

at 844 (cleaned up). The facts here require the same

result as to ML/Vectren under the MBTA.

B. THE APPORTIONMENT FORMULA

DOES NOT VIOLATE THE CONSTITUTION

Next, we must address whether Vectren has

shown by clear and cogent evidence that the sales factor, as applied, appropriately captured the business activity of ML in Michigan during the 2011 short year.

The formula is “rebuttably presumed to fairly represent the business activity attributed to the taxpayer in

this state, . . . 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.” MCL 208.1309(3); see also Moorman Mfg Co,

437 US at 273 (“[W]e have repeatedly held that a single-factor formula is presumptively valid.”). In the present case, even viewing the evidence in the light most

favorable to it, plaintiff has failed to show by clear and

cogent evidence that the taxation formula includes income that is disproportionate to business transacted in

Michigan or that the result is “grossly distorted.” Id. at

274; Container Corp, 463 US at 170.

To satisfy the United States Constitution’s Due

Process Clause, a state’s taxation scheme must show

App. 50

(1) “a ‘minimal connection’ or ‘nexus’ between the interstate activities and the taxing State” and (2) “ ‘a rational relationship between the income attributed to

the State and the intrastate values of the enterprise.’ ”

Exxon Corp, 447 US at 219-220 (citation omitted). A

tax satisfies the Commerce Clause when “[1] the tax is

applied to an activity with a substantial nexus with

the taxing State, [2] is fairly apportioned, [3] does not

discriminate against interstate commerce, and [4] is

fairly related to the services provided by the State.”

Amerada Hess Corp v Dir, Div of Taxation, New Jersey

Dep’t of Treasury, 490 US 66, 72; 109 S Ct 1617; 104 L

Ed 2d 58 (1989) (quotation marks and citation omitted).20 The Due Process and Commerce Clause analyses largely overlap. The United States Supreme Court

has, for instance, often considered the two tests as being essentially the same. See Container Corp, 463 US

at 169 (“Such an apportionment formula must, under

both the Due Process and Commerce Clauses, be fair.”).

Fairness has been broken into two components,

known as internal and external consistency. Internal

consistency requires that if the formula was “applied

by every jurisdiction, it would result in no more than

all of the unitary business income being taxed.” Id.

20

A “substantial nexus” is also not a particularly high burden. In Amerada, the United States Supreme Court held that

there “can be no doubt that New Jersey has ‘a substantial nexus’

with the activities that generate appellants’ ‘entire net income,’

including oil production occurring entirely outside the State. Each

appellant’s New Jersey operations are part of an integrated ‘unitary business,’ which includes the appellant’s crude-oil production.” Amerada, 490 US at 73 (citation omitted).

App. 51

External consistency means that “the factor or factors

used in the apportionment formula must actually reflect a reasonable sense of how income is generated.

The Constitution does not ‘invalidate an apportionment formula whenever it may result in taxation of

some income that did not have its source in the taxing

State.” Id. at 169-170 (cleaned up).

Here, the parties do not contest that ML has a substantial nexus with Michigan. ML agrees that it owes

at least “some Michigan tax” but disputes the amount

and argues that application of the statutory formula

results in a “grossly distorted” tax liability when compared to its actual business in Michigan. ML set forth

the total amount of its sales and its sales in Michigan

from 2001 (approximately $19.6 million in total sales

with $0 in Michigan) compared to 2010 (approximately

$110.4 million in total sales with approximately $43.4

million in Michigan). In the 2011 short year, apparently because the Enbridge contract was ongoing while

the winter months generally meant decreased workflow for the company, almost 70% of the company’s

sales were in Michigan. This led to the 69.96% salesfactor calculation at issue here.

ML does not contest the fact that 70% of its business in the relevant tax year was in Michigan. Rather,

it contends that before the 2011 short year, Michigan

represented a smaller share of its overall business and

that 2011 sales do not reasonably indicate “income attributed to the state” but “is in fact out of all appropriate proportions to the business transacted in [the]

State. . . .” Container Corp, 463 US at 170 (quotation

App. 52

marks and citation omitted). The extensive caselaw set

forth in this opinion says otherwise.

1. THE MBTA TEST DOES

NOT VIOLATE DUE PROCESS

a. THE MBTA TEST IS

INTERNALLY CONSISTENT

To begin, we must determine whether the MBTA

apportionment formula is internally consistent—that

is, if every state employed Michigan’s test under the

MBTA, would there be double taxation? The answer is

simple: no. The MBTA imposed a sales-only formula

that attributed 70% of ML’s business activity—including the asset-sale income—to Michigan for the 2011

short year. If every other state employed Michigan’s

test, the other jurisdictions in which ML operated

would both (1) apportion the sale income and (2) divvy

up the remaining 30% of sales and apply the same formula to the same tax base to calculate their apportioned share. See, e.g., Trinova I, 433 Mich at 158 (“In

this case, the apportionment provisions of the single

business tax are internally consistent because no multiple taxation would result if every state were to adopt

the act. The business activity of any unitary business

would be apportioned by each taxing jurisdiction using

the identical method.”). This is the benchmark of internal consistency, and it has been met.

Justice ZAHRA’s dissent states that “it is very likely

that the income derived from ML’s sale was subject to

double taxation: once in Minnesota as a capital gain or

App. 53

pass-through income to ML’s owners and twice in

Michigan (and perhaps other states) as an asset sale

to Vectren.” As support, Justice ZAHRA’s dissent cites

Vectren’s Court of Appeals brief, which states that the

shareholders of ML paid federal and state taxes and

that ML filed tax returns for the short year in multiple

jurisdictions. While the former owners of ML might

have paid individual income taxes on the income generated from ML’s asset sale, and while ML might have

included the capital gains in its short-year tax returns,

“the constitutionality of a [Michigan] tax should not

depend on the vagaries of [another state’s] tax policy.”

See Mobil, 445 US at 444.

In Mobil, the plaintiff attempted to exclude dividend income from apportionment by Vermont because

it argued that Vermont’s tax “subject[ed] interstate

business to a burden of duplicative taxation that an intrastate taxpayer would not bear. . . . [The plaintiff ]

contend[ed] that any apportioned tax on its dividends

[would] place an undue burden on that specific source

of income, because New York, the State of commercial

domicile, has the power to tax dividend income without

apportionment.” Id. at 443-444. Vectren and Justice

ZAHRA’s dissent appear to be making the same argument here: because the income from the asset sale may

be taxable as income of the shareholders of an S corporation elsewhere, Michigan may not include it as “business activity.” This approach would mean that any S

corporation’s asset-sale income could be inherently unapportionable because the income is passed through to

shareholders outside of Michigan as income and is also

App. 54

income from an asset sale. This is precisely why the

constitutionality of Michigan’s taxes does not rely on

what other states do or do not tax, a principle recognized by the United States Supreme Court.21

b. THE MBTA TEST IS

EXTERNALLY CONSISTENT

In order for the MBTA apportionment formula to

be externally consistent, “the choice of factors used in

the formula must actually reflect a reasonable sense

of how the business activity is generated.” Id. (cleaned

up). ML generated income by contracting to service

pipelines and conducting hazardous material cleanup

services. To establish that the MBTA test was externally inconsistent, Vectren had to show by clear and

cogent evidence that the ML business activity attributed to Michigan was “in fact out of all appropriate

21

See Moorman, 437 US at 276-278. The Moorman Court rejected the appellant’s contention that taxation in Illinois and Iowa

that might overlap was unconstitutional because “[i]t is, of course,

true that if Iowa had used Illinois’ three-factor formula, a risk of

duplication in the figures computed by the two States might have

been avoided. But the same would be true had Illinois used the

Iowa formula.” Id. at 277. Further, “[t]he only conceivable constitutional basis for invalidating the Iowa statute would be that the

Commerce Clause prohibits any overlap in the computation of

taxable income by the States. If the Constitution were read to

mandate such precision in interstate taxation, the consequences

would extend far beyond this particular case. For some risk of duplicative taxation exists whenever the States in which a corporation does business do not follow identical rules for the division of

income. Accepting appellant’s view of the Constitution, therefore,

would require extensive judicial lawmaking.” Id. at 278.

App. 55

proportions to the business transacted in that State or

has led to a grossly distorted result.” Container Corp,

463 US at 170 (cleaned up). It has failed to do so.

Vectren argues that removing the asset sale from

the denominator of the sales factor results in a gross

distortion of its true tax liability. Including the asset

sale in the denominator—which ML did in its tax filings for the 2011 short year—resulted in an apportionment of 14.99%. After Treasury removed the asset

sale from the denominator of the sales factor, that percentage increased to 69.96%. This, ML argues, results

in a gross distortion of its true tax liability. Justice

ZAHRA’s dissent goes further and uses a parade of

statistics comparing the short-year percentage to historical averages. But the calculation is not a gross distortion because the numbers used by ML and adopted

by Justice ZAHRA’s dissent are based on a “baseline”

that is entirely made up. ML was never entitled to add

the asset-sale income to the denominator of the sales

factor without first obtaining permission from Treasury to pursue an alternative apportionment. By doing

so in the first instance, and seeking forgiveness instead

of permission, ML has created an expectation that is

devoid of any connection to its real liabilities. Instead,

the caselaw we have set forth in this opinion, which

includes a century of jurisprudence from the United

States Supreme Court, shows that taxing a company’s

entire taxable base using a proportionality formula

App. 56

that accurately measures sales is appropriate and is

not a gross distortion.22

ML and Justice ZAHRA’s dissent further argue

that removing the value of the asset sale from the denominator of the sales factor leads to gross distortion

22

See Underwood Typewriter Co, 254 US at 120 (upholding

a 47% allocation based on property ownership in the state of Connecticut, despite 3% of revenue coming from Connecticut); Bass,

Ratcliff & Gretton, 266 US at 279-280 (affirming a New York apportionment of income to the state despite the entirety of the company’s profits being derived from foreign sources); Ford Motor Co,

308 US at 336-337 (holding that a tax “may be properly measured

by capital wherever located” and that “[t]he weight, in determining the value of the intrastate privilege, given the property beyond the state boundaries is but a recognition of the very real

effect its existence has upon the value of the privilege granted

within the taxing state”); Moorman Mfg Co v Bair, 254 NW2d 737,

740 (Iowa, 1977) (approving a 22.6% apportionment under a new

single-factor analysis despite the fact that the prior three-factor

analysis would have resulted in a 14.1% apportionment), aff ’d

437 US 267 (1978); Container Corp, 463 US at 184 (finding that a

14% discrepancy between the state’s apportionment method and

the taxpayer’s proposed method was “a far cry from the more than

250% difference which led us to strike down the state tax in Hans

Rees’ Sons Inc., and a figure certainly within the substantial margin of error inherent in any method of attributing income among

the components of a unitary business”) (emphasis added); Trinova

I, 433 Mich at 158 (“[T]he choice of factors used in the formula

must actually reflect a reasonable sense of how the business activity is generated.”) (cleaned up), aff ’d Trinova II, 498 US 358;

Kraft, 235 A3d at 845-846 (noting that “[t]he question is not

whether the sales factor fairly represents the [asset] sale income;

the question is whether the sales factor fairly represents the extent of Kraft’s business activity in Maine. . . . [E]ven if we were to

assume that the sale was ‘extraordinary’ or ‘unusual’ . . . that

would not support the conclusion that the sales factor does not

fairly represent Kraft’s unitary business activity in Maine”).

App. 57

because, without it, the sales factor fails to adequately

consider how the income was generated. This is nothing more than a gripe about which factors are or are

not included in the formula, and it is unpersuasive.

Whether a one- or three-factor test is used (or any

other number of factors), litigants have consistently

unsuccessfully argued exactly what ML argues here—

that a different combination is required.23 Just as

the courts in Moorman, Kraft, Container Corp, and

Trinova II rejected these endless propositions of different proportionality factor combinations, so too do we.

Michigan chose a single-factor modifier based upon

sales generated within the state. Courts have routinely

upheld the use of both a sales-factor modifier and other

single-factor modifiers. The same courts have also upheld the end result even when the difference using an

alternative modifier would have resulted in a much

lower tax bill.

23

Compare Moorman Mfg Co, 437 US at 272 (holding that a

sales-only single-factor formula did not improperly ignore out-ofstate operations that “were responsible for some of the profits generated by sales in Iowa” and did not reach income “not in fact

earned within the borders of the taxing State”), and Kraft, 235

A3d at 846 (“Even assuming for the sake of argument that the

income from the [asset] sale was generated primarily by unitary

business activity that took place outside of Maine, and assuming

Kraft could prove that, that still would not mean that the sales

factor does not fairly represent Kraft’s unitary business activity

within Maine.”) (citation omitted), with Container Corp, 463 US

at 181 (discussing and rejecting Container Corp’s challenge that

California’s three-factor formula overweighed certain aspects of

its business), and Trinova II, 498 US at 382 (rejecting a two-factor

alternative apportionment in favor of Michigan’s three-factor formula regarding the former value added tax).

App. 58

ML made its money by completing contracts for

services that were performed in numerous states, including Michigan. These are the “sales” that must be

included in the sales-factor calculation under MCL

208.1115(1)(b). The asset sale’s valuation—especially

when considering intangible assets—is based on ML’s

ability to complete these service sales skillfully, on

time, and within budget. Proportionality taxation formulas that consider a unitary business’s overall income or value are designed to provide a measure of

intangible considerations when it is otherwise difficult

to draw hard lines as to which state is responsible for

the intangible value. See, e.g., Mobil Oil Corp, 445 US

at 438 (noting that centralized business functions arise

from the operation of the business as a whole and that

it is “misleading to characterize the income of the business as having a single identifiable ‘source’ ”). This is

precisely the reason for formula apportionment.

Major Michigan-oriented contracts, like those with

“Customer C” and Enbridge, demonstrate that ML’s intangible value extends to Michigan. To hold that the

sales factor does not adequately represent “the factors

related to the generation of that income” makes little

sense when viewed alongside which factors generated

that income—i.e., completing contracts like those at issue here. As described in Part III(A)(3) of this opinion,

intangible assets are valued on a forward-looking basis. The evidence provided during litigation shows that

Michigan played an important role in ML’s geographic

portfolio and that the ML growth strategy relied on

App. 59

existing clients, including Consumers, Enbridge, and

other companies with a strong Michigan presence.

The nature of ML’s business was to contract for

building or repairing pipelines. Justice ZAHRA’s dissent repeatedly notes that the Enbridge contract was

an “emergency”—but that is a red herring. Although it

is true that the contract was entered into quickly and

the pipeline break posed an ecological and business

emergency for Michigan and Enbridge, the contract

appears, based on the record before us, to be for exactly what ML did best: repairing and maintaining

petrochemical infrastructure (including during cold

weather). Providing emergency services was part of

ML’s unitary business operation. Thus, when ML provided services during the relevant tax year in Michigan, Michigan was entitled to a share of the income

generated from its sales in the ordinary course of business and its asset sale during that year. See Kraft, 235

A3d at 844. To find otherwise would mean that ML

would receive more favorable tax treatment than others who sell goods or services in Michigan just because

its unitary business operation provides emergency

services. The sales factor is related to Michigan-based

considerations and did not unconstitutionally ignore

factors relevant to the generation of the asset-sale

value.24

24

The cases that Justice ZAHRA’s dissent cites to show improper apportionment actually demonstrate the opposite or are

inapposite. In JD Adams Mfg Co v Storen, the “vice of the statute

as applied to receipts from interstate sales [was] that the tax include[d] in its measure, without apportionment, receipts derived

App. 60

Vectren’s other argument that the tax formula

leads to grossly distorted results relies inappropriately

on historical tax liability without a convincing explanation as to why the historical taxes paid by a company

from activities in interstate commerce[.]” JD Adams Mfg Co v

Storen, 304 US 307, 311; 58 S Ct 913; 82 L Ed 1365 (1938) (emphasis added). Similarly, in Gwin, White & Prince Inc v

Henneford, 305 US 434, 439; 59 S Ct 325; 83 L Ed 272 (1939), the

Supreme Court found a tax that was “measured by the entire volume of the interstate commerce in which appellant participates,

[and] is not apportioned to its activities within the state,” violated

the Commerce Clause because “[i]f [one state] is free to exact such

a tax, other states to which the commerce extends may, with

equal right, lay a tax similarly measured for the privilege of conducting within their respective territorial limits the activities

there which contribute to the service.” (Emphasis added.) Thus,

the problem in Henneford was also that the tax was an unapportioned gross receipts tax. The tax here was an apportioned tax.

While Justice ZAHRA’s dissent disagrees with the factors used at

the time to apportion in Michigan, that is a policy matter for the

Legislature. McGoldrick v Berwind-White Coal Mining Co, 309

US 33; 60 S Ct 388; 84 L Ed 565 (1940), dealt with whether the

city’s sales tax was a tax on sales made out of state and neither

found a Commerce Clause violation nor dealt with an income tax.

Miller Bros Co v Maryland, 347 US 340; 74 S Ct 535; 98 L Ed 744

(1954), held that the state of Maryland could not compel a business in Delaware to collect taxes on its behalf. This is not the issue

before us. American Trucking Associations, Inc v Scheiner, 483

US 266; 107 S Ct 2829; 97 L Ed 2d 226 (1987), dealt with a Pennsylvania tax that clearly gave advantageous treatment to Pennsylvania companies. This is also not an issue before us. Minnesota

v Blasius, 290 US 1; 54 S Ct 34; 78 L Ed 131 (1933), answered the

question of how long personal property must be out of the stream

of commerce before a state may impose a property tax on it. In

sum, none of these cases gets to the operative question we address

here. The cases that have addressed the issue in this case have

uniformly held that a unitary business’s assets are subject to apportioned taxes regardless of their technical situs so long as they

contribute to the unitary business at issue.

App. 61

are relevant to a different year’s tax liability. ML calculated its 2001 to 2010 average Michigan apportionment percentage at 6.782% and argues that the 70%

figure is a tenfold increase of the prior 10-year average.

Vectren and Justice ZAHRA’s dissent rely on Hans Rees’

Sons for the proposition that historical tax information

is a relevant consideration. But this reliance is misplaced.

In Hans Rees’ Sons, the United States Supreme

Court held that “for the [tax] years 1923, 1924, 1925,

and 1926, the average income having its source in the

manufacturing and tanning operations within the

state of North Carolina was 17 per cent.” Hans Rees’

Sons, 283 US at 127 (quotation marks omitted). Further, it “did not in any event exceed 21.7 per cent” during those years. Id. at 134. This stood in stark contrast

to the tax assessments of 83%, 85%, 66%, and 85% during those years. Id. at 128. Although Vectren is correct

that the Court in Hans Rees’ Sons averaged the attributable income, it was not a historical average. Rather, the Court examined work performed in the taxing

state for the specific multiple tax years at issue and

concluded that the states incorrectly measured that

work. Unlike in Hans Rees’ Sons, ML does not dispute

that work was, in fact, occurring in Michigan during

the 2011 short year. Nor does it dispute that 70% of

ML’s work was occurring in Michigan during that time

period. Rather, Vectren argues that ML’s prior tax history should inform our decision.

It is true that in 2001 ML conducted no business

in Michigan and that for much of the next 10 years it

App. 62

conducted small portions of its total business in Michigan. However, the chart Vectren provided to support

its claim that it should pay a lower 2011 tax given its

minimal work in Michigan in prior years actually establishes the opposite conclusion. The chart shows

exponential growth in ML’s Michigan sales between

200725 and 2010, increasing from $957,516 (approximately 1% of overall sales) to $43,352,830 (approximately 40% of overall sales). Neither the chart nor any

of the evidence provided by ML shows any reason to

believe that ML did any less business in Michigan in

calendar year 2011 than it did in 2010.

In rejecting the application of proportionality formulas and finding for the taxpayers in Hans Rees’ Sons

and Norfolk, the United States Supreme Court relied

on evidence clearly displaying that the actual income

attributable to the taxing states during the relevant

years was substantially lower than what the statutory

formulas attributed to those states. Contrastingly, Vectren has not challenged Treasury’s tabulation of the

amount of business conducted in Michigan in the relevant tax year. Instead, Vectren relies on a faulty assumption that past taxes dictate future taxes under

the MBTA. Tax liability is a snapshot of the business

transacted during a tax year, not a historical analysis.

25

2007 is the first year ML approached $100 million in total

sales. Comparing a $110 million company at the time of sale (2010

to 2011) to a $19.6 million company (2001) is not helpful to our

analysis. 2007 was also the first year that the “Project Cadillac”

memorandum cited ML-specific data with respect to its financial

reporting.

App. 63

The tax year is “the calendar year, or the fiscal

year ending during the calendar year, upon the basis of

which the tax base of a taxpayer is computed under this

act. If a return is made for a fractional part of a year,

tax year means the period for which the return is made.”

MCL 208.1117(4) (emphasis added). If ML had done

zero business in Michigan one year and 80% of its business in Michigan the next, the United States Constitution would not offer protection so that ML could avoid

paying its proportional share of tax liability. That is no

less the case when ML jumped from a 40% sales-inMichigan ratio in 2010 to a 70% ratio in the 2011 short

year. Similarly, the fact that ML chose to sell its assets

in March instead of November—when business may

have been more spread across its various jurisdictions—does not dictate a different result. A company’s

internal business decisions26 do not mandate differential tax treatment. See Kraft, 235 A3d at 845 (“The

question is not whether the sales factor fairly represents the sales income; the question is whether the

sales factor fairly represents the extent of Kraft’s business activity in Maine.”).

In contrast to Hans Rees’ Sons and Norfolk, Vectren has failed to provide clear and cogent evidence

proving why or how the sales factor is a grossly disproportionate reflection of the business done during the

tax year at issue in the state. While Vectren contends

26

The record indicates that ML was motivated to sell given

one of its owner’s health concerns. While this decision is certainly

understandable, it does not obviate the constitutional power of

the state to tax the business.

App. 64

that the unique nature of the ML contract with

Enbridge created substantial business during the time

of year normally considered to be an “off ” season and

that the sales factor is therefore disproportionate, this

argument is unsupported by the evidence presented to

this Court, which demonstrated ongoing future growth

plans in Michigan as set forth in ML’s “Project Cadillac” memorandum. Vectren presents no argument as to

why ML’s good fortune to make substantial sales during a normally slow time of the year27 creates a constitutional problem for taxation purposes under the

MBTA. Undoubtedly, the high volume of work in Michigan was factored into the sale of its business assets to

Vectren. In short, ML was actively providing services

in Michigan during the relevant 2011 time period, and

Michigan only taxed a proportional amount of ML’s income based upon ML’s business activity in Michigan.

Treasury’s tax assessment therefore does not violate

the Due Process Clause.

27

Vectren’s claim that the ML-Enbridge contract was “unique”

in that it created “off-season” work is also belied by the quarterly

revenue breakdown in the “Project Cadillac” memorandum, which

shows that, although Q1 revenues are generally substantially

lower than revenues in other quarters, in 2008, Q1 revenues were

substantially similar to Q2 revenues and higher than Q4 revenues. Thus, although uncommon, this contract type was certainly

not so unheard of or unique that it somehow must be constitutionally differentiated from the rest of ML’s revenue stream.

App. 65

2. THE MBTA TEST DOES NOT

VIOLATE THE COMMERCE CLAUSE

The Commerce Clause requires that a multistate

business tax “is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned,

does not discriminate against interstate commerce,

and is fairly related to the services provided by the

State.” Exxon Corp, 447 US at 227-228 (quotation

marks and citation omitted). Here, there is no dispute

about the existence of a substantial nexus to Michigan, nor is there any claim that the tax discriminates

against interstate commerce. As discussed previously,

the tax is fairly apportioned to Michigan given the services ML was providing in Michigan at the time.

Additionally, the tax is related to services provided

by the state, including “police and fire protection, the

benefit of a trained work force, and the advantages of

a civilized society.” Id. at 228 (quotation marks and citation omitted). ML relied on local union workforces

hired from local chapters to do intrastate work, rented

most of its equipment intrastate for use on Michigan

projects, engaged in highly regulated work constructing and repairing pipelines, and performed hazardous

material cleanup related to oil pipelines. The ties between ML’s business and the services Michigan provided are clear.

In Exxon Corp, the Exxon business division operating in Wisconsin turned no profit during the relevant

tax years. Id. at 213. Nevertheless, Wisconsin was able

to tax the entire net income of the corporation as

App. 66

statutorily apportioned. Id. at 213-214. The United

States Supreme Court refused to engage in the geographical accounting requested by Exxon. Id. at 228229. The Court held that the Commerce Clause did not

“require[ ] allocation of exploration and production income to the situs State rather than apportionment

among the States” because “[a]s was the case with income from intangibles [in Mobil Oil Corp], there is

nothing ‘talismanic’ about the concept of situs for income from exploration and production of crude oil and

gas.” Id. at 229.

As in Exxon Corp and Mobil Oil Corp, this case involves a highly integrated unitary business. Thus, even

if we were to attribute the intangible and tangible asset-sale income to out-of-state business activities, “the

income [still] bears relation to benefits and privileges

conferred by several States. These are the circumstances in which apportionment is ordinarily the accepted method.” Exxon Corp, 447 US at 229 (quotation

marks and citation omitted). Vectren proposes the

following alternative calculations: placing the ML-toVectren asset-sale proceeds in the denominator (total

company sales) of the sales factor, as ML did when it

filed its tax return; apportionment of the asset-sale

proceeds based on tangible asset location; and attribution of the goodwill portion of the asset sale to the selling shareholders’ residence and ML’s headquarters.

These alternatives are, in essence, requests for a geographical accounting that the United States Supreme

Court has rejected time and time again.

Further, Vectren contends that Michigan treats intangible asset sales differently than other states and

App. 67

that commercial domicile is where intangibles should

be claimed for accounting purposes. However, “the constitutionality of [Michigan’s] tax should not depend on

the vagaries of [another state’s] tax policy.” Mobil Oil

Corp, 445 US at 444. Moreover, although a fictionalized

situs for intangible property is sometimes invoked to

avoid multiple taxation, “there is nothing talismanic

about the concepts of ‘business situs’ or ‘commercial

domicile’ that automatically renders those concepts

applicable when taxation of income from intangibles is

at issue.” Id. at 445. “[T]he reason for a single place of

taxation no longer obtains when the taxpayer’s activities with respect to the intangible property involve relations with more than one jurisdiction.” Id. (quotation

marks and citation omitted).

ML has presented no evidence to support the conclusion that the Commerce Clause requires Michigan

to segregate the intangible asset values. This is especially true when, as explained in Part III(A)(3) of this

opinion, there are ties between Michigan and those

values. Given the substantial nexus between ML and

Michigan and the fact that Michigan did not wholly tax

out-of-state values, the MBTA statutory formula did

not violate the Commerce Clause.28

28

Because we find that Treasury acted within its taxing

power, we need not decide whether it was appropriate for the

Court of Appeals to remand this case to the Court of Claims “with

directions to determine an appropriate alternative apportionment

method if the parties are unable to agree on one.” Vectren II, 339

Mich App at 124 (emphasis added). While not necessary to resolving this dispute, we note that the separation of powers enunciated

in our state Constitution, Const 1963, art 3, § 2, requires careful

consideration of the distinction between an order that finds that

App. 68

IV.

CONCLUSION

We hold that Treasury properly included the income from the ML-to-Vectren asset sale in the tax base

apportionment formula under the MBTA. Neither the

Due Process Clause nor the Commerce Clause has

been violated in this matter. We therefore reverse the

Court of Appeals holding that Vectren has demonstrated by clear and cogent evidence that the statutory

apportionment formula—which Vectren admits correctly denoted the percentage of ML sales in Michigan

during the relevant time period—created a grossly disproportionate result when applied to the one-time asset sale. We vacate the remainder of the Court of

Appeals opinion and remand this case to the Court of

Claims for further proceedings that are consistent

with this opinion.

We do not retain jurisdiction.

Elizabeth M. Welch

Richard H. Bernstein

Megan K. Cavanagh

Kyra H. Bolden

another branch lacked authority to take an action and an order

requiring specific action when the other branch has been delegated that responsibility. It is for the Legislature to determine

procedures for alternative apportionment, which was delegated

by statute to Treasury, an agency within the executive branch.

Thus, the Legislature entrusted the executive branch with that

role, not the courts. Additionally, we do not decide the appropriateness of penalties assessed in this matter because that is a matter for the Court of Claims to resolve on remand.

App. 69

STATE OF MICHIGAN

SUPREME COURT

VECTREN INFRASTRUCTURE

SERVICES CORP., successor in interest to

MINNESOTA LIMITED, INC.,

Plaintiff-Appellee,

v

No. 163742

DEPARTMENT OF TREASURY,

Defendant-Appellant.

ZAHRA, J. (dissenting).

Will Rogers once keenly observed, “The difference

between death and taxes is death doesn’t get worse

every time Congress meets.” And, with rare exception,

federal, state, and local governments take more of their

residents’ earnings with each passing year. But nothing in Michigan’s tax code or the United States Constitution permits the grossly disproportionate money

grab perpetrated on plaintiff by the Michigan Department of Treasury and sanctioned by a majority of this

Court today.

Minnesota Limited, Inc. (ML) built a large corporation with substantial assets, employees, and

contracts, almost entirely in Minnesota and other

Midwest states. It did minimal business in Michigan.

After years of hard work and management, the owners

sold the corporation in an asset sale. Now, the

App. 70

Department of Treasury argues that Michigan can be attributed 70% of the company’s sale, allowing application of a tax over 10 times larger than standard

attributions.1 In essence, the Department claims that

the substantial majority of the assets and value attributable to plaintiff ’s company is located in Michigan. That is a grossly disproportionate tax

distribution, which belies the economic value of plaintiff ’s activities in Michigan. To justify this valuation,

the Department cuts into the tax year, carves out a

three-month period of time, and attributes tax liability

solely on the basis of a single economic factor: directto-consumer sales. But valuing direct-to-consumer

sales for a highly limited period of time so that the

state can tax, most predominantly, the asset sale of an

entire out-of-state company creates a major distortion

in tax apportionment.

By turning a blind eye to the economic value of

plaintiff ’s operations in the state while applying a

highly limited time reference, the Department failed to

fairly attribute the tax to plaintiff ’s activities in Michigan. Instead of the apportionment used, the Department should have taken into account the massive asset

sale in Minnesota, whether as part of the calculation

of sales, or as part of a three-factor analysis that

properly encapsulated the value of out-of-state assets.

If the United States Constitution’s prohibition on disproportionate taxation of out-of-state activity is to

1

This opinion uses the terms “attribution” and “apportionment” interchangeably to reflect the amount of economic value

assigned to and derived from a given jurisdiction.

App. 71

retain viable force, this tax cannot withstand constitutional scrutiny. If 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; it is hard to see how budget-strained state

governments will keep their tax collectors at state

boundaries. 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.

The majority opinion endorses the Department’s

tax apportionment. While that may boost this state’s

coffers in the short term, businesses going forward

should remain vigilant when deciding whether and

when to invest in Michigan. If done at the wrong time,

even minor forays into Michigan could catch out-ofstate corporations in a web of extensive tax liability for

overwhelmingly out-of-state activities. Despite having

a statutory and constitutional obligation to avoid disproportionate taxation, Michigan tax authorities have

proven to be unsympathetic. Without federal court intervention to limit such behavior, more consistent and

aggressive tax assessments in this state and others are

likely to be issued. Because this result is not permitted

by the Constitution, I dissent. I would affirm the unanimous opinion of the Court of Appeals.

App. 72

I.

FACTUAL BACKGROUND AND RECORD

SUPPORT FOR VECTREN’S CLAIMS

This case comes to us on an appeal from crossmotions for summary disposition under MCR 2.116(C)(10).2

Given that the majority opinion directs the entry of

summary disposition in favor of the Department of

Treasury, the facts must be viewed in the light most

favorable to plaintiff.3 All reasonable inferences from

the record must be taken in favor of plaintiff.4 While

this procedural posture is completely ignored in the

majority opinion, it is nonetheless significant.5

ML was a family-owned business that specialized

in natural gas, oil, and other energy infrastructure.

Specifically, the company helped construct and repair

pipelines to enable and facilitate distribution of vital

fuels. Reuben Leines, an entrepreneur from Minnesota, founded ML in Minnesota in 1966. The company

2

A party may request judgment under the rule if there is “no

genuine issue as to any material fact.” MCR 2.116(C)(10).

3

Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d 817 (1999).

4

Bertrand v Alan Ford, Inc, 449 Mich 606, 618; 537 NW2d

185 (1995).

5

The facts outlined in this dissenting opinion are established

in the record and based on evidence presented by the plaintiff to

the Department of Treasury and in the lower courts below. Many

of these facts are ignored in the majority opinion, and few—if

any—are taken in the light most favorable to plaintiff. This evidence

was found in letters and correspondence between plaintiff ’s counsel and the Department, interrogatory responses, and depositions

of managers and experts. The record also includes a substantial

collection of plaintiff ’s historical financial records, accounting

statements, and tax receipts; this record was thoroughly developed in the lower courts and provided to this Court with citations.

App. 73

started its work in Minnesota, and expanded from

there to neighboring Midwest states, specifically Wisconsin, Iowa, and North and South Dakota. The company’s work in Michigan was limited, sporadic, and of

overall low value to the company. Minimal work was

done in Michigan year-to-year, and no significant contracts sufficient to provide a major source of income in

any given year involved the Michigan market. From

50% to 70% of the company’s sales from its founding

up to the tax in question were in Minnesota, with residual sales being sourced to other Midwest states outside of Michigan. From 2007 and 2008, ML’s largest

sale in its history occurred within the company’s historical market territory, totaling over $100 million in

sales for a single contract in Minnesota.

In 1998, Reuben Leines retired after decades of

work. Two of his children who lived and worked in

Minnesota, Christopher Leines and Paulette Britzius,

took over the company. The two children managed the

company and were the sole owners, splitting the

shares 50/50. ML remained a predominantly Minnesotabased company, but some of its sales continued to expand to other states. Its reach to Michigan remained

very limited. Although the company worked in a limited capacity with Consumers Energy, the following

chart shows a total valuation of sales occurring in the

state of Michigan. As can be observed, in line with the

company’s tradition and financial history, ML had insignificant exposure to the Michigan market post2000:

App. 74

YEAR MICHIGAN ALL SALES APPORTIONMENT

SALES

TO MICHIGAN

2001

0

$19,577,034

0.0000

2002

0

$25,255,248

0.0000

2003

$522,713

$38,328,523

0.0137

2004

$1,428,969

$42,391,279

0.0337

2005

$1,101,714

$46,556,704

0.0222

2006

$1,011,461

$48,270,114

0.0210

2007

$957,516

$99,876,379

0.0096

2008

$3,341

$155,164,472

0.00002

2009 $22,420,0736 $121,058,709

0.1852

By comparison, in 2009, at least 63% of ML’s revenue came from business occurring in Minnesota. In

6

Vectren’s briefing before the Court included a typographical error for ML’s aggregate in-state sales for 2009. However, the

percentages underlying the in-state sales were taken from ML’s

tax returns and other financial documents. It was undisputed before this Court and the Court of Appeals that the percentages of

sales attribution to Michigan listed in the above chart are fully

accurate and complete. The amount of sales occurring in Michigan in 2009, after adjustments for tax purposes and given the accepted percentages of in-state attribution, was $22,420,073. This

is corroborated by multiple uncontradicted financial statements

submitted by Vectren to the Court, which indicate $22 million in

sales were derived from Consumers Energy in Michigan in 2009.

Given that the in-state attribution rates are undisputed and correct, and the aggregate in-state sales number for 2009 is corroborated with several other undisputed financial records, the correct

in-state sales number is stated.

App. 75

2007 and 2008, that number was 87% and 84%, respectively.7

ML’s assets, organization, and employment contracts were even more weighted toward its central location in Minnesota and the neighboring states. The

company’s central management, strategy, and structural oversight took place at its headquarters in Big

Lake, Minnesota. The buildings at Big Lake constituted 60,000 square feet of office space, warehouses,

and construction facilities. ML also owned 22 acres of

undeveloped land that was adjacent to the headquarters, all of which were located around Minneapolis suburbs (40 miles outside of the city). In addition, the

company owned a 4,878 square foot facility on 3.75

acres in Bemidji, Minnesota; a 13,280 square foot facility on 4.5 acres in Superior, Wisconsin; and a 4,800

square foot facility on 5.10 acres in Altamont, Illinois.

No permanent facilities or real properties were owned,

leased, or operated in Michigan; no management centers were located in the state. The Minnesota corporation owned 1,195 individual pieces of equipment,

notably including 53 pipelayers and 57 excavators. All

of this equipment was stored and used as part of operations in Minnesota, at the company’s real property

locations, or close to work sites in Minnesota and

7

Of note, ML contracted with Consumers Energy for a project in 2009. In that year, a mere 18% of ML’s sales occurred in

Michigan. The identity of Consumers Energy can be confirmed by

comparing the sales description of ML’s customers in a report prepared by Greene Holcomb & Fisher LLC with the actual names of

ML’s customers, included in the purchase agreement with Vectren. The numbers therein match perfectly.

App. 76

neighboring states. Given the minimal amount of business in Michigan, none of the tangible property owned

by ML was permanently located or stored in Michigan.

ML had contracts with 600 employees. But it had no

employees permanently assigned or placed in Michigan. Thirty employees were assigned to management

and administration, located at the company’s Minnesota headquarters and physical office locations, and

570 of the employees were on-the-ground labor. The

company negotiated and entered into collective bargaining agreements with the workforce, which was

represented by two unions.

In the winter and spring of 2010, Christopher

Leines and Paulette Britzius contemplated selling ML.

The owners hired an investment firm in Minneapolis,

Greene Holcomb & Fisher LLC, to develop and produce

a report on ML’s business and its financial metrics.

Considering ML’s customer base, experienced labor

force and management team, and the value of its pipeline construction business, Vectren Infrastructure Services Corporation (Vectren) indicated an interest in

buying ML. Specifically, Vectren wanted to use the assets and value built by ML to expand into the natural

gas and energy transportation market, which was

growing larger with the extraction and development of

the Marcellus, Utica, and Bakken shale formations in

North and South Dakota, Ohio, Pennsylvania, and

West Virginia. Natural gas or other resource extraction

from Michigan was not considered as part of Vectren’s

decision to purchase ML. In explaining Vectren’s choice

to purchase ML, Vectren’s president, Douglas Banning

App. 77

Jr., provided uncontradicted testimony that Vectren

“never even looked at a shale play in Michigan at all”

when considering whether to purchase ML. Any natural resource development in Michigan “didn’t really enter into our acquisition criteria as far as whether we

wanted to acquire [ML] or not.”8

Vectren was an Indiana corporation. ML and Vectren retained counsel in Minnesota and Indiana respectively to review and negotiate the deal. The parties

relied upon a Minnesota banking agent to hold the

transaction’s funds in escrow, they identified Minnesota courts as the mandated choice of venue in the case

of disputes, and Minnesota law governed the agreement.

In late July 2010, and while ML was courting a

purchase agreement with Vectren, the Kalamazoo

River oil spill occurred. The spill, one of the largest inland spills in United States history, saw over 800,000

gallons of oil flow out of a broken pipeline and enter

the Kalamazoo River near Marshall, Michigan.9

8

This is highly unsurprising given the absence of meaningful shale deposits in Michigan:

9

See U. S. Environmental Protection Agency, FOSC Desk

Report for the Enbridge Line 6b Oil Spill Marshall, Michigan

(April 2016), p 89 (“The Enbridge Line 6B pipeline release of diluted bitumen into the Kalamazoo River downstream of Marshall

is one of the largest freshwater oil spills in North American history. The unprecedented scale of impact and massive quantity of

oil released required the development and implementation of new

approaches for detection and recovery.”), available at <https://www.epa.

gov/sites/default/files/2016-04/documents/enbridge-fosc-report-201604

07-241pp.pdf> (accessed July 17, 2023) [https://perma.cc/Z93R-ESJC].

App. 78

U.S. Energy Information Administration, Natural Gas Explained <https://www.eia.gov/energyexplained/natural-gas/where-our-naturalgas-comes-from.php> (accessed July 17, 2023) [https://perma.cc/HVG8-WSB3].

App. 79

Reacting to this extraordinary event, the owner of the

pipeline, Enbridge Energy Partners LLP (Enbridge),

took emergency action and requested ML’s immediate

services to respond and properly repair the pipeline.

ML and Enbridge entered into a service agreement

within two weeks of the spill, and ML was on site in

Michigan working on the pipeline by August 2010.10

ML had no permanent or consistent footprint in

Michigan, with no facilities, property, or employees

placed in the state. Accordingly, ML brought some

equipment and a small number of full-time employees

into Michigan. However, instead of transporting equipment or reassigning their workforce, ML rented most

of their equipment to use in the Enbridge spill response, and all but a minimal contingent of workers

were taken from local union shops for the duration of

the project. ML asserted that they brought 5 pieces of

equipment and 10 contracted employees into the state.

Affidavits and testimony from Christopher Leines, who

managed ML during the project, support that conclusion, as does ML’s financial data. As part of the contract with Enbridge, ML in 2010 incurred $10,715,793

in total costs. Of the construction costs incurred by ML

in 2009 and 2010, more than 45% were attributable to

labor. Specifically, $46,440,250 in costs were incurred

in 2009 and $44,767,410 in 2010 (including labor, payroll taxes, and employee benefits). ML’s attributed labor costs for the Enbridge contract, which would

10

For a discussion of Enbridge’s recent relationship with

ML, which, like the rest of ML’s sales, was primarily located outside of Michigan, see note 81 of this opinion.

App. 80

include both temporary labor for the Enbridge job as

well as the minimal amount of permanent employees

used in Michigan for the contract, were almost 10% of

the company-wide cost of labor. Further, ML provided

property tax statements that indicated a total cash

value of $803,389 was located in Michigan in December 2009, which decreased to $267,977.65 in December

2010, in the midst of ML’s Enbridge contract. The property in Michigan included 4 pipe handlers, 1 evacuator

trailer, 3 push rollers, 2 pipe cradles, 5 pumps, lineup

clamps, and counterweights, valued at $267,977.65.

After discussions with local tax authorities, in March

2011, the estimated cash value for personal property

was $148,637. At the time of ML’s sale in March 2011,

the book value of ML’s equipment was valued at

$3,429,239 and a purchase price of $18,354,285. Thus,

the equipment ML attested to be in Michigan, documented by property tax statements, was between 1.4%

and 8% of the total equipment owned by ML.

The Enbridge deal was a historic contract for ML,

as the spill was a historic environmental event. The

revenue produced in the Enbridge deal was the most

ML had ever received in Michigan. The deal also coincided with an increase in sales to Consumers Energy

during 2010.11 As explained earlier, before the Kalamazoo River oil spill, ML’s business in Michigan was sporadic, limited, and of insignificant value as compared

to the rest of ML’s sales. Nonetheless, even with this

11

Revenue from Consumers Energy dropped from $22.2 million in 2009 to $17.8 in 2010, corresponding to the end of a pipeline contract in 2010.

App. 81

unexpected and immediate boost in revenue, the share

of sales coming from Michigan in 2010 remained below

40%. In 2010, ML completed $110,365,790 in sales,

with $43,352,830 sourced to Michigan, resulting in an

apportionment of 0.3928 for Michigan. The margins

earned on the deal were well in line with historical averages for ML. In 2010 to 2011 (the tax year at issue),

ML’s gross profit margin from the Enbridge contract

was 18.1%. In 2007, 2008, 2009, and 2010, ML’s overall gross profit margin was 20.3%, 19.3%, 16.1%, and

18.2%, respectively. Under ML’s federal tax filing in

2011, ML’s gross profit margin remained within the

same range, coming in at 17.1%.

The unique and emergency nature of the Enbridge

contract produced distortions and unusual means of

revenue collection. ML’s business in pipeline construction and maintenance was substantially reduced and

constrained in the winter months. This is because

digging, construction, and use of earth, which was fundamental to ML’s responsibilities, is limited when the

ground is frozen in cold northern winters, especially in

Minnesota, where most of ML’s revenue was derived.

However, ML possessed the capability to service customers in the winter, and Enbridge relied upon ML to

do so. Therefore, during this winter offseason, ML derived a substantial portion of its revenue from the

Enbridge contract, over and above what was previously received in Michigan in the company’s 52-year

history and far above the proportion of work if completed in ML’s summer high season. It is undisputed

that the substantial rise in sales sourced to Michigan

App. 82

during the 2011 winter offseason derived from the

Enbridge contract.12

ML’s sale to Vectren was completed on March 31,

2011, and the fundamental conflict under Michigan tax

law between the 52-year history of the Leines family

company and the extraordinary nature of the Enbridge

contract began to come into view. ML and Vectren completed a stock sale but elected to classify the deal as an

asset sale. As part of the out-of-state deal, ML’s property, contracts, intellectual property, and business

value accumulated through decades were transferred

to Vectren. In exchange, Vectren paid cash to ML, distributed directly to ML’s shareholders in Minnesota.

While initially the parties agreed upon a purchase

price of $80 million, the ultimate value of the deal, considering added expenses and assumed debt, came to

12

The parties are apparently in agreement that substantially all the sales produced in the 2011 short year in Michigan

derived from the Enbridge contract. See Plaintiff ’s Supplemental

Brief on Appeal (May 25, 2022), p 3; Defendant’s Supplemental

Brief on Appeal (May 4, 2022), p 22 (describing the parties’ “agreement” on the location of sales and the Enbridge contract); Defendant’s Court of Appeals Brief (March 8, 2019), p 37 (“But Vectren

acknowledges the business activity [ML] had in Michigan—i.e.,

the Enbridge contract performed during the audit period.”). This

is well supported in the record. At the time of ML’s sale, it had 16

active contracts, with Enbridge being the only contract of material value sourced to Michigan at the end of the short year. The

contract with Consumers Energy, the only other customer providing a notable amount of business in Michigan, concluded in 2010.

ML’s initial accounting attributed revenue of $13.3 million to the

Enbridge contract during the short year. This is in line with the

total sales in Michigan during the 2011 short year, valued after

adjustments and review from the Department at $14.7 million.

App. 83

$88.6 million. From that amount, $34.4 million was in

tangible assets, out of which $18.4 million was derived

from equipment. In addition, $3.7 million was associated with ML’s established contracts and placements

with employees; $19.1 million was derived from other

intangible assets such as trade names and consumer

relationships; and $16.6 million was associated with

goodwill.13

Because ML sold the entirety of its company, it

filed a final tax return as an independent business,

both federally and in states around the country. This

was ML’s “short tax year” extending from January

2011 to March 2011. To determine a company’s business tax liability in Michigan, a company must multiply its tax base, i.e., its business income, by a “sales

factor,” which in essence is a percentage of (mostly) direct-to-consumer sales the company has within the

state.14 Therefore, at a basic level, the equation for ML

13

The remainder was associated with working capital, which

included financial accounts of cash and receivables owned and

controlled by ML. There is no dispute that ML reported and filed

taxes in Michigan recognizing the revenue obtained from in-state

contracts in the year they were earned. Thus, Michigan fully

taxed ML’s revenue from the Enbridge contract separately from

working capital listings on the asset sale. This revenue includes

the in-state sales attributed in the short-year filing to the

Enbridge contract. See note 12 of this opinion. There is no contention that the Department can tax cash or cash equivalents that

are transferred in the process of corporate reorganization. The financial accounts owned by ML and sold in the asset sale outside

of Michigan are not considered in depth in the following analysis.

14

There are several statutory provisions that establish this

method of taxation. MCL 208.1201(1) explains that the tax

amount is determined by multiplying “the business income tax

App. 84

to calculate business taxes in Michigan was: base corporate income x (sales in Michigan/total sales by the

company) x 0.0495.

In filing a return for the short year, ML attempted

to properly attribute taxation given the unusual nature of the winter tax season and a highly significant

base, after allocation or apportionment to this state,” by “the rate

of 4.95%.” “The business income tax base means a taxpayer’s business income” subject to a few adjustments. MCL 208.1201(2). Apportionment to the state is determined by “the sales factor.” MCL

208.1301(2). The sales factor is “a fraction, the numerator of

which is the total sales of the taxpayer in this state during the tax

year and the denominator of which is the total sales of the taxpayer everywhere during the tax year.” MCL 208.1303(1). Sales

are defined under MCL 208.1115(1) and include the following categories:

(a) The transfer of title to, or possession of, property that is stock in trade or other property of a kind

that would properly be included in the inventory of the

taxpayer if on hand at the close of the tax period or

property held by the taxpayer primarily for sale to customers in the ordinary course of the taxpayer’s trade or

business. For intangible property, the amounts received shall be limited to any gain received from the

disposition of that property.

(b) The performance of services that constitute

business activities.

(c) The rental, lease, licensing, or use of tangible

or intangible property, including interest, that constitutes business activity.

(d) Any combination of business activities described in subdivisions (a), (b), and (c).

(e) For taxpayers not engaged in any other business activities, sales include interest, dividends, and

other income from investment assets and activities and

from trading assets and activities.

App. 85

company event: the sale of substantially all the company. ML included the gain on the company-wide asset

sale in the tax base, making up $51 million out of $55

million, or around 93% of total income.15 However, ML

attributed the sale to out-of-state economic activity.

Specifically, ML included the asset sale in the denominator of the sales factor, which took into account the

extraordinarily high proportion of Michigan activities

during the short year.16 It then calculated the sales

15

The exact amount of total direct-to-consumer sales included in the Department’s apportionment, $21,093,137, had an

associated profit of $3,608,484.

16

I do not agree with the majority opinion that Vectren’s initial tax filing is worthy of special critique. Although the Court of

Appeals concluded that this calculation conflicted with Michigan’s

default statutory computation of corporate tax apportionment,

that was only after extensive litigation and multiple court opinions. The Court of Appeals then correctly determined that the Department’s method of taxation was unconstitutional. Even though

Vectren was a “sophisticated entity,” there is no indication that

their initial tax filing was made in bad faith or was patently unreasonable. Without analyzing a complex statutory dispute that

is not before this Court, it was abundantly fair for Vectren to believe that Michigan corporate tax statutes did not, as a default,

mandate unconstitutional taxation, in that income from out-ofstate sales of the company’s entire assets would be completely ignored in the apportionment formula and 70% of the company’s

value would be attributed to Michigan. See Vectren Infrastructure

Servs Corp v Dep’t of Treasury, 509 Mich 882 (2022) (directing

briefing on whether the Department’s proposed tax method was

disproportionate or unconstitutional and whether remand to the

agency to work with Vectren on an alternative apportionment

was appropriate). Despite having no briefing on the issue, it is

hard to fault Vectren for interpreting Michigan’s tax statutes in a

manner that complies with the United States Constitution. Further, the parties agree that Vectren petitioned for an alternative

method of apportionment, even if the Department or courts were

App. 86

factor, which, due to the offseason and the emergency

contract in Michigan, resulted in a 14.986% attribution

to the state. This was over two times the average attribution of sales in the company’s modern, post-2000

history, and was over four times the company’s attribution of sales to Michigan prior to the Enbridge contract. As a result, ML paid Michigan over $400,000 in

income taxes, almost entirely derived from ML’s company sale.

Michigan’s Department of Treasury was not satisfied. It opened an audit of Vectren over three years

later, in December 2014. In April 2016, the Department

issued its assessment determination, which sought a

substantial increase in the taxable value of ML’s asset

sale. Specifically, the Department determined that none

of the value of the asset sale could be considered as

part of its sourcing of income. However, the state could

tax the entirety of ML’s asset sale as part of ML’s tax

base, multiplying that number by a sales factor that

excluded all revenue except for direct-to-consumer

sales, i.e., the Enbridge contract. ML had almost no income from direct-to-consumer sales in these offseason

winter months outside the Enbridge contract. Thus,

the Department calculated a sales factor that attributed 69.9571% of ML’s global income to Michigan.

Given that almost all the income in the short year was

derived from ML’s asset sale, the Department claimed

to determine that Vectren’s analysis of the default statutory calculation was incorrect. That is the issue before the Court. There

is no serious contention that if the Department’s proposed method

of apportionment is unconstitutional, it cannot be applied.

App. 87

70% of the taxable value of ML as a company, as a

whole. This represented over a 400% increase in attribution from the values ML calculated, which itself favored Michigan over pre-Enbridge sales periods, and

which would have paid taxes to Michigan on 15% of the

value of a company that was built, maintained, and located almost entirely in Minnesota. The Department’s

calculations constituted over a 900% increase from attribution of the company’s recent average sales history

and a 2,100% increase from the company’s post-2000

sales history, prior to the Enbridge contract. In addition to the tax attribution, the Department charged interest and fined ML. Given that ML was no longer a

separate corporation and Vectren purchased ML’s

stock (although not in tax election), Vectren, ironically

the buyer in the sale of ML, was ML’s successor in interest and was required to pay taxes, penalties, and interest totaling $3,407,337.36.

Michigan statutes allow taxpayers to file a petition and request that the Department apply an alternative apportionment of taxes.17 Vectren petitioned for

17

MCL 208.1309(3) explains that:

The apportionment provisions [under Michigan’s business tax code] 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.

App. 88

an alternative apportionment, explaining that the Department’s calculations were grossly disproportionate

and could represent unconstitutional taxation. In so

doing, Vectren cited ML’s sales and financial history,

its asset locations and company characteristics, and

detailed business and accounting reports prepared by

Greene Holcomb & Fisher LLC, who was ML’s selling

agent in Minnesota, and KPMG in Chicago. Vectren

also pointed to the extensive tax receipt documents in

the Department’s possession as Michigan’s taxing authority. The tax receipts described and provided data

on the location of ML’s business activities, specifically

the amount of sales and income derived nationally and

from Michigan in prior years. The documents also included ML’s payroll submissions and deductions for

asset depreciation in Michigan. Nonetheless, the Department declined Vectren’s request for alternative apportionment and issued a final assessment of taxation

in March 2017.

In April 2017, Vectren brought a declaratory-judgment action against the Department in the Court of

Claims. Vectren alleged that the Department failed to

accurately calculate ML’s tax liability under Michigan

statutory law and the United States Constitution. After a period of discovery, in which depositions and a

substantial record of ML’s business operations were

developed, the parties filed cross-motions for summary

disposition under MCR 2.116(C)(10) for lack of a genuine issue of material fact. The Court of Claims granted

summary disposition in favor of the Department. In a

unanimous opinion, the Court of Appeals reversed,

App. 89

concluding that the proposed tax was unconstitutional

and under Michigan corporate statutes, the Department was required to adopt an alternative method of

calculation.18 The Court of Appeals directed that judgment be entered in favor of Vectren and remanded the

case for the Department to determine an alternative

method.19

The Department sought leave to appeal in this

Court, and we vacated the Court of Appeals decision

and remanded the case to the Court of Appeals to address whether the Department had initially calculated

the tax properly under Michigan’s corporate tax code.20

Specifically, the Court remanded on the issue of whether

ML’s asset sale was properly excluded from the sales

factor calculation. On remand, the Court of Appeals

confirmed that the Department’s proposed taxation

was permissible as a default method of taxation under

Michigan statutory law but reiterated that the Department is statutorily required to apply an alternative

method of taxation if the tax is disproportionate or unconstitutional.21 The Court of Appeals readopted its initial analysis that the tax was disproportionate and

18

Vectren Infrastructure Servs Corp v Dep’t of Treasury, 331

Mich App 568, 583-586; 953 NW2d 213 (2020), vacated 506 Mich

964 (2020).

19

Id. at 586.

20

Vectren Infrastructure Servs Corp v Dep’t of Treasury, 506

Mich 964 (2020).

21

Vectren Infrastructure Servs Corp v Dep’t of Treasury (On

Remand), 339 Mich App 117, 124; 981 NW2d 116 (2021).

App. 90

unconstitutional, reversed the Court of Claims, and remanded the case for an alternative assessment.22

The Department again sought leave to appeal in

this Court, and we ordered oral argument on the Department’s application.

II.

ANALYSIS

The question presented to the Court is whether

the business activity attributed to ML in Michigan for

the short tax year from January 2011 to March 2011 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.”23 On the record before the Court, I conclude

that the Department’s extraordinary upward assessment of ML’s taxable income was unconstitutional and

disproportionate. ML offered to attribute to Michigan

15% of a company-wide asset sale that had little to

nothing to do with this state, solely on the basis of ML’s

choice to temporarily assist in the response to an environmental crisis in the state. The initial calculation

provided by ML to the Department was abundantly

reasonable, and in fact, more precise calculations of

economic value would have produced attributions far

lower than what ML initially offered. The Court of

22

23

Id.

MCL 208.1309(3).

App. 91

Appeals provided a thorough and convincing analysis,

and its decision should be affirmed.

A.

STANDARD OF REVIEW

This case comes to us on appeal from cross-motions

for summary disposition under MCR 2.116(C)(10). Under that standard, summary disposition is warranted

if there is no “genuine issue as to any material fact.”24

The Court must review the record and take “all legitimate inferences in the light most favorable to the nonmoving party.”25 If the evidence presents no genuine

issue of fact, “the moving party is entitled to judgment

as a matter of law.”26

B. THE DUE PROCESS CLAUSE,

THE COMMERCE CLAUSE, AND

OUT-OF-STATE ECONOMIC ACTIVITY

Much of the constitutional jurisprudence on interstate taxation derives from the birth and development

of the modern corporation, which has yielded economies of scale, inter-department specialization, and integration of a diverse array of economic tasks and

assets. While this has produced unprecedented value

for the companies themselves, and the country as a

whole, it has also proved to be a substantial challenge

for local and state taxing authorities. The actual value

24

25

MCR 2.116(C)(10).

Coblentz v Novi, 475 Mich 558, 567-568; 719 NW2d 73

(2006).

26

Maiden, 461 Mich at 120.

App. 92

of property located within a specific jurisdiction could

be minimal, yet that same property could play an indispensable part for a larger unified business operation. For example, the Supreme Court of the United

States observed that rail lines passing through a state

to deliver goods, services, or people to a different destination were on their own “of little value.”27 However,

the railroad operation, as a whole, had “an interest

much more important than it has in the limited part of

it lying” in metal lines on property.28 Thus, the Supreme Court sanctioned the use of “unitary business

taxation,” otherwise called the “unitary business principle.”29 A state through which the rail line ran could

apply a tax by calculating the portion of a rail line that

ran through the state and thereafter apportioning the

value of the rail line, as a whole, based on that percentage of rail line that was placed in the state. The state

thereby reasonably calculated the value of in-state activity of a consolidated multistate enterprise for purposes of in-state taxation.30

27

Taylor v Secor, 92 US 575, 608; 23 L Ed 663 (1875).

Id.

29

MeadWestvaco Corp v Illinois Dep’t of Revenue, 553 US 16,

25; 128 S Ct 1498; 170 L Ed 2d 404 (2008) (“[W]e have developed

the unitary business principle” in which “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.”) (quotation marks

and citation omitted).

30

Taylor, 92 US at 608 (“It may well be doubted whether any

better mode of determining the value of that portion of the track

within any one county has been devised than to ascertain the

value of the whole road, and apportion the value within the

28

App. 93

The Supreme Court has resisted invalidating under the Constitution state laws that regulate in-state

activities and have remote and indirect effects on

out-of-state activities.31 Such a strict constitutional

standard would largely result in courts overriding policy choices of local jurisdictions. Nonetheless, the Supreme Court has long made clear that borders matter.

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.32 This rule protects individuals from shifting and

county by its relative length to the whole.”); Adams Express Co v

Ohio State Auditor, 165 US 194, 220; 17 S Ct 305; 41 L Ed 683

(1897) (“As to railroad, telegraph, and sleeping-car companies, engaged in interstate commerce, it has often been held by this court

that their property, in the several states through which their lines

or business extended, might be valued as a unit for the purposes

of taxation, taking into consideration the uses to which it was put,

and all the elements making up aggregate value, and that a proportion of the whole, fairly and properly ascertained, might be

taxed by the particular state, without violating any federal restriction.”); MeadWestvaco, 553 US at 30 (describing the “ ‘hallmarks’

of a unitary relationship as functional integration, centralized

management, and economies of scale”).

31

See Nat’l Pork Producers Council v Ross, 598 US ___, ___;

143 S Ct 1142, 1149-1150; 215 L Ed 2d 336 (2023) (holding that a

state law regulating products sold inside the state was not unconstitutional and rejecting a per se rule against in-state laws that

affect out-of-state economic behaviors).

32

Id. at ___; 143 S Ct at 1156 (“In rejecting petitioners’ ‘almost per se’ theory we do not mean to trivialize the role territory

and sovereign boundaries play in our federal system.”); Healy v

Beer Institute, Inc, 491 US 324, 336; 109 S Ct 2491; 105 L Ed 2d

275 (1989) (holding that states are precluded from applying “ ‘a

App. 94

competing laws, provides consistency and predictability in out-of-state activities, and preempts reprisals

and capricious government behavior.33 It also protects

state statute to commerce that takes place wholly outside of the

State’s borders’ ”), quoting Edgar v MITE Corp, 457 US 624, 642643; 102 S Ct 2629; 73 L Ed 2d 269 (1982); Pike v Bruce Church,

397 US 137, 142; 90 S Ct 844; 25 L Ed 2d 174 (1970) (holding,

when reviewing a state statute that affects interstate commerce,

that state laws with “legitimate local public interest” that incidentally burden interstate commerce in a way that is not “clearly

excessive in relation to the putative local benefits” are permissible) (emphasis added); Shaffer v Heitner, 433 US 186, 197; 97 S

Ct 2569; 53 L Ed 2d 683 (1977) (explaining that state courts cannot, as a state sovereign authority, “ ‘directly’ . . . assert extraterritorial jurisdiction over persons or property” because such an act

would “offend sister States and exceed the inherent limits of the

State’s power”); Burger King Corp v Rudzewicz, 471 US 462, 472;

105 S Ct 2174; 85 L Ed 2d 528 (1985) (stating that a state court

can exercise jurisdiction over an out-of-state defendant only when

“the litigation results from alleged injuries that arise out of or relate to” that defendant’s activities directed “at residents of the forum”) (quotation marks and citation omitted); Strassheim v Daily,

221 US 280, 285; 31 S Ct 558; 55 L Ed 735 (1911) (explaining that

a state may criminally prosecute an individual for acts performed

outside the state when the individual’s acts “intended to produce

and [do] produc[e] detrimental effects within it”); Bonaparte v Tax

Court, 104 US 592, 594; 26 L Ed 845 (1881) (holding that exclusion from taxation of certain debt purchases in one state could not

control the taxation of individuals residing in another state because “[n]o State can legislate except with reference to its own

jurisdiction”).

33

See HP Hood & Sons, Inc v Du Mond, 336 US 525, 534535; 69 S Ct 657; 93 L Ed 865 (1949) (“While the Constitution

vests in Congress the power to regulate commerce among the

states, it does not say what the states may or may not do in the

absence of congressional action, nor how to draw the line between

what is and what is not commerce among the states. Perhaps even

more than by interpretation of its written word, this Court has

advanced the solidarity and prosperity of this Nation by the

App. 95

states’ independent sovereignty and the state’s ability

to determine the course of public policy within its

own borders, which would be substantially undermined if other states could extend their policy choices

directly into out-of-state jurisdictions and activity. The

Supreme Court has “recognized the usual legislative

power of a State to act upon persons and property

within the limits of its own territory, a feature of our

constitutional order that allows different communities

to live with different local standards.”34 The demands

meaning it has given to these great silences of the Constitution.”);

Healy, 491 US at 335-336 (explaining that the Constitution has a

“special concern . . . with the maintenance of a national economic

union unfettered by state-imposed limitations on interstate commerce”); Hughes v Oklahoma, 441 US 322, 325; 99 S Ct 1727; 60

L Ed 2d 250 (1979) (reasoning that the Constitution worked to

prevent “economic Balkanization” created through divergent and

competing regulatory regimes); Gwin, White & Prince Inc v

Henneford, 305 US 434, 439; 59 S Ct 325; 83 L Ed 272 (1939) (explaining that a tax on business sales that did not properly value

in-state activities was unconstitutional and noting that if one

state were permitted to apply such a tax, other states could apply

the same tax on the same activities); see also Burger King, 471

US at 472 (reasoning that due-process protections requiring a

connection between the state and the individual’s action provide

“a degree of predictability to the legal system that allows potential [individuals] to structure their primary conduct”) (quotation

marks and citation omitted).

34

Ross, 598 US at ___; 143 S Ct at 1156 (quotation marks

and citations omitted); see also Du Mond, 336 US at 533-534

(“The desire of the Forefathers to federalize regulation of foreign

and interstate commerce stands in sharp contrast to their jealous

preservation of power over their internal affairs.”); Healy, 491 US

at 336 (emphasizing that the constitutional limitations on regulation of interstate commerce vindicate “the autonomy of the individual States within their respective spheres”).

App. 96

of due process and the Commerce Clause serve to vindicate democracy, not subvert it. This principle has

been understood as far back as the Marshall Court,

which in Gibbons v Ogden repeatedly emphasized a

state’s authority to regulate “within [its] territory.”

However, the Court in Gibbons v Ogden notably cited

the “great force” of a limitation on regulating “commerce with foreign nations and among the States.”35

These constitutional doctrines apply to state tax

law, as they do any legal burden or obligation. The Supreme Court explained the standard in MeadWestvaco

Corp v Illinois Dep’t of Revenue:

The Commerce Clause and the Due Process Clause impose distinct but parallel limitations on a State’s power to tax out-of-state

activities. The 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. 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. The broad inquiry

subsumed in both constitutional requirements is whether the taxing power exerted

by the state bears fiscal relation to protection,

35

Gibbons v Ogden, 22 US (9 Wheat) 1, 203-209; 6 L Ed 23

(1824) (noting a state’s power to regulate “internal commerce of a

State” and “provide for the health of its citizens”).

App. 97

opportunities and benefits given by the

state—that is, whether the state has given anything for which it can ask return.[36]

Therefore, the basic demand of the Due Process

Clause and Commerce Clause is that the economic

value being subject to tax must be derived from instate activities.37 And it applies even when considering

36

MeadWestvaco, 553 US at 24-25 (quotation marks and citations omitted).

37

See Container Corp of America v Franchise Tax Bd, 463

US 159, 164; 103 S Ct 2933; 77 L Ed 2d 545 (1983) (reiterating

that the central demand of the Constitution with regard to tax

application is that states cannot “tax value earned outside its borders”) (quotation marks and citation omitted); Trinova Corp v

Mich Dep’t of Treasury, 498 US 358, 374-384, 386; 111 S Ct 818;

112 L Ed 2d 884 (1991) (reasoning that states may not constitutionally “tax burdens and import tax revenues,” analyzing the

economic value of sales and assets within a jurisdiction, and concluding that a “three-factor” attribution system is constitutional);

Miller Bros Co v Maryland, 347 US 340, 342; 74 S Ct 535; 98 L

Ed 744 (1954) (“No principle is better settled than that the power

of a state, even its power of taxation, in respect to property, is

limited to such as is within its jurisdiction.”) (quotation marks

and citation omitted); Taylor, 92 US at 608 (providing the foundations of the unitary business theory of taxation and stating that

states may constitutionally apply a tax that “apportion[s] the

value within the [jurisdiction]”); Butler Bros v McColgan, 315 US

501, 506-509; 62 S Ct 701; 86 L Ed 991 (1942) (emphasizing that

a state may reasonably apportion tax liability based on the “business done there” and not “extraterritorial values” and noting that

a tax attribution on regular business sales based on property, payroll, and sales located within the state satisfies constitutional requirements); Adams Express Co, 165 US at 220 (explaining that

states may tax a proportion of “value . . . fairly and properly ascertained”).

App. 98

the unitary business doctrine. In fact, the unitary

business theory is an accurate reflection of economic

reality, in that dispersed assets administered by a multistate organization can produce substantial real economic value within the state’s borders, beyond a mere

book-value accounting of the physical assets placed in

the state.38 The realities of economies of scale and modern corporate organization do not in any way change

the fundamental inquiry of our Constitution and its

demand that states tax the economic values only

within their jurisdiction.

The majority opinion at no point materially disputes the

basic principle taken from this caselaw, which limits taxation to

reasonable determinations of in-state economic values.

38

See Adams Express Co, 165 US at 220-221 (“The valuation

was, thus, not confined to the wires, poles, and instruments of the

telegraph company, or the roadbed, ties, rails, and spikes of the

railroad company, or the cars of the sleeping-car company, but

included the proportionate part of the value resulting from the

combination of the means by which the business was carried on,—

a value existing to an appreciable extent throughout the entire

domain of operation.”).

The majority opinion suggests that the source of economic

activity is largely irrelevant when dealing with taxation of a unitary business. That is in direct conflict with the jurisprudential

underpinnings of the unitary business doctrine, which relies on

the economic reality of accurately attributing activity to the taxing stat

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