Amicus Curiae Brief — Trinova Corp. v. Michigan Dept. of Treasury
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APR 27 BAP
No. SY-T LO JOSEPH F SPAMION
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In The
Supreme Court of the United States :
October_lerm, 1989 |
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On Writ Of Certiorari
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BRIE OF ALCAN ALUMINUM
CORPORATION, ET AL. AS AMICLS
CURIAT IN SUPPORT OF PETITIONER
+
RECT AVAILARIE COPY
LIST OF AMICI CURIAE
ALCAN ALUMINUM CORPORATION,
ALLEGHENY LUDLUM CORPORATION,
ALUMINUM COMPANY OF AMERICA,
ARMOUR AND COMPANY,
ARVIN INDUSTRIES, INC.,
ASHLAND OIL, INC.,
BP OIL INC.,
BEATRICE COMPANY,
BECTON DICKINSON AND COMPANY,
THE BOC GROUP, INC.,
BLUE BELL, INC.,
BROCKWAY, INC.,
BURLINGTON INDUSTRIES, INC.,
CARLISLE CORPORATION,
CASTLE & COOKE, INC.,
CENTRAL SOYA COMPANY, INC.,
C. H. MASLAND & SONS,
THE COCA-COLA COMPANY,
COLGATE-PALMOLIVE COMPANY,
COLT INDUSTRIES OPERATING COMPANY,
CONSOLIDATION COAL COMPANY,
CONTROL DATA CORPORATION,
CRUCIBLE MATERIALS CORPORATION,
CUMMINS ENGINE COMPANY,
DATA GENERAL CORPORATION,
DEARBORN CHEMICAL COMPANY,
DIAL CORPORATION,
DIGITAL EQUIPMENT CORPORATION,
DONALDSON COMPANY, INC.,
THE DURIRON COMPANY, INC.,
E. 1. DU PONT DE NEMOURS & CO.,
ELI LILLY AND COMPANY,
E. R. SQUIBB & SONS, INC.,
THE FIRESTONE TIRE & RUBBER COMPANY,
FIRST WISCONSIN FINANCIAL CORPORATION,
FISCHBACH AND MOORE, INC.,
FLEETGUARD, INC.,
FMC CORPORATION,
il
LIST OF AMICI CURIAE (Continued)
FOAMEX PRODUCTS, INC.,
GENERAL FELT INDUSTRIES, INC.,
GEO. A. HORMEL & CO.,
GRACE PETROLEUM CORPORATION,
HAMMERMILL PAPER COMPANY,
HONEYWELL INC.,
HONEYWELL INFORMATION SYSTEMS, INC.,
HOUSEHOLD MANUFACTURING, INC.,
HOUSEHOLD MERCHANDISE, INC.,
ICI AMERICAS, INC.,
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
INTERNATIONAL PAPER COMPANY,
JOY MANUFACTURING COMPANY,
KITCHENS OF SARA LEE, INC.,
LYNCHBURG FOUNDRY COMPANY,
MAGIC CHEF, INC.,
McDONALD’S CORPORATION,
MIDWAY AIRLINES, INC.,
MINNESOTA MINING AND MANUFACTURING
COMPANY,
MOBAY CORPORATION,
MOORE BUSINESS FORMS, INC.,
NORANDEX INC.,
NORTHERN TELECOM INC.,
OLIN CORPORATION,
PRESTO PRODUCTS, INCORPORATED,
PRIMERICA CORPORATION,
RCA CORPORATION,
R. J. REYNOLDS TOBACCO COMPANY,
SARA LEE CORPORATION,
SCOTFOAM CORPORATION,
SHELLER-GLOBE CORPORATION,
SQUARE D COMPANY,
STANDARD PRODUCTS COMPANY,
STANDARD OIL CHEMICAL COMPANY,
SUN REFINING AND MARKETING COMPANY,
SUPPORT TERMINAL SERVICES, INC.,
LIST OF AMICI CURIAE (Continued)
TELEFLEX INCORPORATED,
THIOKOL CORPORATION,
TOYS “R” US,
UNION CARBIDE CORPORATION,
USS GREAT LAKES FLEET, INC.,
USX CORPORATION,
W. HEATH & COMPANY,
W. R. GRACE & CO.,
WM. WRIGLEY JR. COMPANY
iv
TABLE OF CONTENTS
Page
& 56° FF abe’ § eer yer eer recy i
ce 6 ie MP ty 4s er ere V
jf vg: yt ty re ree |
Fe 5. | Re Re CRC ie ee een SD AES 7
A. Overview of the Single Business Tax Apportion-
ey err rrr rrr aye ret /
B. Federal Constitutional Requirements for the Val-
idity of State Tax Apportionment.............. 10
C. The ] & L Interpretation of § 69 of the Act Was
Constitutionally Correct and Consistent with the
tales Cl Ce Cee oes ce esaneaees ; 25
SUMMARY OF ARGUMENT............... 2Y
PE te noi cc ceadacnunnswhucs ee 29
INDEX OF AUTHORITIES
Page
Cases:
American Trucking Ass'ms Inc v Scheiner, 483 US
266, 107 S Ct 2829; 97 L Ed 2d 226 (1987)........ 12
AMP Inc v Michigan Department of Treasury, Court
of Claims Docket No. 86-10216-CM................ 3
Armco Inc v Michigan Department of Treasury, Court
of Claims Docket No. 84-9612 ...................5. 2
ASARCO, Inc v Idaho State Tax Comm'n, 458 US
307; 102 S Ct 3103; 73 L Ed 2d 787, reh den, 459
St SN as ores ness tree eae eeakerccewncns 10
Blue Bell, Inc v Michigan Department of Treasury,
Court of Claims Docket No. 86-10620-CM.......... 4
Butler Brothers v McColgan, 315 US 501, 62 S Ct
FURS We Ue Oe Pe CO sao des scbecteesvons 10, 11, 13
Complete Auto Transit Inc v Brady, 430 US 274; 97S
Ct 1097; 51 L Ed 2d 326 (1977)............ i, 12 3
Consolidation Coal Co v Michigan Department of
Treasury, Court of Claims Docket No. 82-8407...... 3
Container Corp of America v Franchise Tax Board, 463
US 159; 103 S Ct 2933; 77 L Ed 2d 545
[cuvaeed nen OOCeRe RE Mebe DereeS Re 10, 13, 14, 21, 23, 28
Digital Equipment Corp v Michigan Department of
Treasury, Court of Claims Docket No. 86-10484-
BRIA Ra Neen! ETE SEF Nye 2 ig A fa ty CAS A 3
Exxon Corp v Wisconsin Dep't of Revenue, 447 US
207; 100 S Ct 2109; 65 L Ed 2d 66 (1980)
First Wisconsin Financial Corp v Michigan Depart-
ment of Treasury, Court of Claims Docket No.
87-11132-CM ....... Ruieeakcstcraacd maser eae 4
Friendly Ice Cream Corp v Michigan Dep't of Treas-
ury, Court of Claims Docket No. 86-10413-CM ..... 3
vi
INDEX OF AUTHORITIES - Continued
Page
Hans Rees’ Sons Inc v North Carolina ex rel Maxwell,
283 US 123; 51 S Ct 385; 75 L Ed 879 (1930)
aes aaa WW ee ate oth ara ata ei LAGS eer eee 14, 16, 17
Jones & Laughlin Steel Corp v Michigan Dep't of
Treasury and Wilson Foods Corp v Michigan Dep't
of Treasury, Michigan Tax Tribunal Docket Nos.
57892 and 57893 (September 5, 1984)
Jones & Laughlin Steel Corp v Michigan Dep't of
Treasury and Wilson Foods Corp v Michigan Dep't
of Treasury, 145 Mich App 405; 337 NW 2d 397
atta ARS is oC AL Senet tae Naa pha 2, 9, 20, 25, 26, 27
Jones & Laughlin Steel Corp v Michigan Dep't of
Treasury and Wilson Foods Corp v Michigan Dep't
of Treasury, 424 Mich 895; 384 NW 2d 8 (1986) 2
Magic Chef, Inc v Michigan Department of Treasury,
Court of Claims Docket No. 86-10395-CM.......... 4
Mobil Oil Corp v Comm’r of Taxes, 445 US 425; 100 S
Ct 12zo; GL Be O0 SiO CIGGS) . . kk oe cickn. 1]
Moorman Manufacturing Company v Bair, 437 US
267; 98 S Ct 2340; 57 L Ed 197 (1978).......... 11, 12
MTD Products Inc v Michigan Department of Treas-
ury, Court of Claims Docket No. 86-10416-CL...... 3
Norfolk & Western R Co v State Tax Comm'n, 390 US
317; 88 S Ct 995; 19 L Ed 2d 1201 (1968)
SOT ee ee ELE PoE POE oo ne 15, 16, 17, 22
Northern Telecom, Inc v Michigan Department of
Treasury, Court of Claims Docket No. 86-10406-
CM c
2 £2 oO ei ae OR Se Os Se. Oo 8-6 6S. 6S 6 6 6 OS 6S 6 OR a @ O
Vil
INDEX OF AUTHORITIES -— Continued
Page
Northwestern States Portland Cement Co v Minneso-
ta, 358 US 450; 79 S Ct 357; 3 L Ed 2d 421 (1959) .... 10
Penton/Industrial Publishing Co Inc v Michigan De-
partment of Treasury, Court of Claims Docket No.
i RS ee re rrr Ee eee T ET eT CTT ELT 3
Presto Products, Inc v Michigan Department of Treas-
ury, Court of Claims Docket No. 83-8827........... 4
Sara Lee Corp v Michigan Department of Treasury,
Court of Claims Docket No. 87-11143-CM.......... 4
Sheller-Globe Corp v Michigan Department of Treas-
ury, Court of Claims Docket No. 87-11073-CM .. 5
Trinova Corp v Michigan Department of Treasury,
Court of Claims Docket No. 86-10430-CM....... 3, 28
Trinova Corp v Michigan Department of Treasury, 166
Mich App 656; 421 NW2d 258 (1988) ............5, 6
Trinova Corp v Michigan Department of Treasury, 433
Mich 141, 445 NW 2d 428 (1989) ....... 6, 17, 25, 26
Twentieth Century Fox Film Corp v Dep't of Revenue,
a0 Un Za; 700 F 26 W055 (ISR)... 2. eee eee 24
Underwood Typewriter Co v Chamberlain, 254 US
113; 41 S Ct 45; 65 L Ed 165 (1920)............ 10, 11
USX Corp v Michigan Department of Treasury, Court
of Claims Docket No. 86-10901-CM................ 5
Wallace v Hines, 253 US 66; 40S Ct 435; 64 L Ed 782 -
EN Ce cig Sheek aad oe ose sane a ee ea kee a EONS 17
Wm Wrigley Jr Co v Michigan Department of Treas-
ury, Court of Claims Docket No. 87-11013-CM ..... 4
Vill
INDEX OF AUTHORITIES - Continued
Page
STATUTES:
Michigan Single Business Tax Act, 1975 PA 228,
MCL 208.1 et seq; MSA 7.558(1) et seq ....... passim
iN 80416659460 s KERSRAON CESS CSSD SAO SERENE SS I, te a2
Per errr Tee et Peery Tee TTT Tee 7
EE aban veces sceaeeehueee Fasnsaeteanky eyes as a
ee er ae ac ea eee oe ee 7
8 Se Pee ere eee ee eee ee er eee 8
MS ig ay soe CANS CLS TRETIV REE ERN CT ORS CORD Es passim
oe eg ee er er ere i. 2
Multi-State Tax Compact Act, 1969 PA 343; MCL
205.581 et seq; MSA 4.146(101) et seq. ............ 20
Uniform Division of Income for Tax Purposes Act
EINE <p denned sew akiceyeeced tarde evecean 19, 20
CONSTITUTIONS:
er, Oe So es eed vcew even sees passim
Se I Ry os kk vcd c os xo snk eneaabaines passim
OtrnerR AUTHORITIES:
Pierce, The Uniform Division of Income for Tax
Purposes Act, 35 TAXES 747 (1957)....
STATEMENT OF INTEREST
The procedural history of this case is a source of
grave concern to Amici as multistate taxpayers transact-
ing interstate business involving contact with the State of
Michigan. The sequence of events which have transpired,
beginning with the enactment of the Single Business Tax
(“SBT”) Act, the unanimous and final interpretation of
§ 69 of that Act by the courts of Michigan, the subsequent
legislative amendment of § 69 alleged to have retroactive
effect and the decision of the Michigan Supreme Court in
this case call into question the fairness of the apportion-
ment process under the SBT, the equality of treatment of
multistate taxpayers domiciled within and without the
State of Michigan and the tax consequences arising from
interstate transactions concluding in Michigan.
Each Amici multistate taxpayer has an interest in the
outcome of this case as either a Plaintiff in the Michigan
Court of Claims seeking refunds of single business tax
under § 69 of the Act or as a Petitioner in the Michigan
Tax Tribunal seeking refunds of the tax or opposing as-
sessment of additional single business tax where a re-
quest by certain Amici under § 69 of the Act has been
denied by Respondent or as SBT refund claimants whose
claims have not yet been ruled upon by the Respondent.
Thus, Amici are situated similarly to the Petitioner in that
in various administrative and judicial forums they seek
the same type of relief under § 69 of the Act as was
sought by Petitioner below.
The Michigan SBT Act was enacted as 1975 PA 228,
MCL 208.1 et seq.; MSA 7.558(1) et seq. effective January 1,
1976 (“the Act”). The provision of the Act at issue in this
case, § 69, was enacted in 1975 and remained unaltered
until June %, 1987 when 1987 PA 39 (“PA 39”) was signed
into law. Section 69 is Appendix Exhibit 1. 1987 PA 39 is
Appendix Exhibit 11.
2
Section 69 of the Act was applied by the Michigan
Tax Tribunal in Jones & Laughlin Steel Corp v Michigan
Dep't of Treasury and Wilson Foods Corp v Michigan Dep't of
Treasury, Docket Numbers 57892 and 57893 (September 5,
1984) (“] & L”). Appendix Exhibit 2. In J & L, the Tribunal
decided that the factual test contained in § 69 of the Act,
whether the apportionment provisions of the Act unfairly
represented the extent of | & L’s business activity in the
state, had been met. The Tribunal determined the test was
met based upon a showing that 50% more compensation
paid by J] & L in its business conducted everywhere was
attributed to Michigan through the operation of the ap-
portionment formula than J & L demonstrated was actu-
ally paid in Michigan. In a seven page opinion, the
Michigan Court of Appeals affirmed the Tax Tribunal on
September 3, 1985. 145 Mich App 405; 337 NW2d 397
(1985). Defendant applied for leave to appeal that deci-
sion to the Michigan Supreme Court and on March 18,
1986 the Court issued its Order denying the application
for leave to appeal. 424 Mich 895; 384 NW 2d 8 (1986).
Appendix Exhibit 3. On October 22, 1986, the Michigan
Supreme Court denied reconsideration. 424 Mich 895; 384
NW 2d 8 (1986). “Appendix Exhibit 4. Amici therefore
understood the settled state of the law on this question to
be that enunciated in the ] & L decision of the Michigan
Court of Appeals. Amici relied on this settled state of the
law in filing their single business tax returns and/or
refund claims arising from requests for apportionment
formula relief under § 69.
In the meantime, the lower courts were consistently
applying § 69 in granting apportionment formula relief to
taxpayers who could demonstrate an unfair representa-
tion of their business activity. On June 11, 1986 Ingham
County Circuit Chief Judge Michael G. Harrison granted
judgment in favor of Armco, Inc in Docket No. 84-9612.
ll
3
Appendix Exhibit 5. On January 24, 1987, Court of Claims
Judge Stell granted judgment in favor of Friendly Ice
Cream Corp in Docket No 86-10413-CM. Appendix Exhibit
6. On March 30, 1987, Court of Claims Judge (now Feder-
al District Judge) Robert Holmes Bell authored a seven
page Opinion and Order of the Court granting judgment to
MTD Products, Inc in File No. 86-10416-CL applying § 69.
Appendix Exhibit 7. On April 27, 1987 Chief Judge Mi-
chael G. Harrison granted judgment to AMP Inc in Dock-
et No. 86-10216-CM. Appendix Exhibit 8. On May 5, 1987
Court of Claims Judge Robert Holmes Bell granted the
judgment below for refund of SBT to Trinova Corp in
Docket No. 86-10430-CM. Appendix Exhibit 9. On May
22, 1987 Court of Claims Judge Robert Holmes Bell
granted judgment to Penton/Industrial Publishing Co Inc in
Docket No. 86-10231-CM. Appendix Exhibit 10.
Then, PA 39 was signed into law on June 9, 1987. PA
39 amended § 69 of the Act. Appendix Exhibit 11. Re-
spondent then sought to apply PA 39 retroactively to § 69
cases pending in the Court of Claims and involving tax
years prior to 1987, alleging that PA 39 constituted a
complete defense to the pending cases. However, on Au-
gust 21, 1987 Court of Claims Judge Thomas L. Brown
granted judgment in favor of Consolidation Coal Co for
refund of SBT in Docket No. 82-8407. In Consolidation
Coal, Judge Brown specifically considered PA 39 and
found that it was not applicable to Plaintiff’s preexisting
SBT Refund Claim based upon / & L. Appendix Exhibit
12. On November 2, 1987 Court of Claims Judge Kallman
denied Defendant’s Motion for Summary Disposition of
the SBT Refund Claim in Digital Equipment Corp in Docket
No. 86-10484-CM. Judge Kallman rejected Respondent's
claim that PA 39 was applicable to Digital’s pre-existing
SBT Refund Claim under § 69 of the Act. Appendix
4
Exhibit 13. On November 25, 1987 Court of Claims Judge
Carolyn Stell granted judgment for refund of SBT to First
Wisconsin Financial Corp in Docket No. 87-11132-CM.
Judge Stell found Respondent’s administrative effort to
retroactively apply PA 39 to pre-existing SBT Refund
Claims was not timely plead as an affirmative defense,
but held in the alternative that retroactive application of
PA 39 to pre-existing SBT Refund Claims for prior tax
years would violate the U.S. Constitution’s guarantee of
due process and the commerce clause. In the alternative,
Judge Stell also held that, factually, First Wisconsin had
established that the apportionment provisions of the Act
produced a grossly distorted result under PA 39 and
granted judgment to First Wisconsin under § 69 as
amended by PA 39. Appendix Exhibit 14.
On December 15, 1987 Court of Claims Judge James
R. Giddings granted a judgment of refund of SBT to
Magic Chef, Inc in Docket No. 86-10395-CM. Judge Gid-
dings held that PA 39 was not retroactively applicable to
Plaintiff's pre-existing SBT refund claims for the reason
that PA 39 worked a substantive change to § 69 of the Act
and that retroactive application would violate the Separa-
tion of Powers Clause of the Michigan Constitution. Ap-
pendix Exhibit 15. On December 17, 1987 Court of Claims
Judge Stell granted judgment to Sara Lee Corp for refund
of SBT in Docket No. 87-11143-CM for the same reason
and on the same basis as in First Wisconsin Financial Corp,
supra. Appendix Exhibit 16. On December 22, 1987 Court
of Claims Judge James T. Kallman granted judgment in
Presto Products, Inc, Court of Claims Docket No. 83-8827.
(Appendix Exhibit 17) and also on December 23, 1987 to
Wm Wrigley Jr Co in Docket No. 87-11013-CM. Appendix
Exhibit 18. On December 23, 1987 Chief Judge Michael G.
Harrison granted judgment for refund of SBT to Blue Bell,
5
Inc in Docket No. 86-10620-CM. Judge Harrison held that
it was unnecessary to rule on retroactivity of PA 39 for
the reason that Plaintiff sustained its burden of showing
that the apportionment provisions of the Act when ap-
plied to Plaintiff’s tax base for the years involved attrib-
ute activity to Plaintiff in Michigan which is out of all
appropriate proportion to the actual business transacted
in Michigan and led to a grossly distorted result. Appen-
dix Exhibit 19. On January 4, 1988 Court of Claims Judge
Stell granted judgment for refund of SBT under § 69 to
Sheller-Globe Corp in Docket No. 87-11073-CM. Appendix
Exhibit 20. On January 21, 1988 Court of Claims Judge
Thomas L. Brown granted a SBT refund to USX Corp in
Docket No. 86-10901-CM. Appendix Exhibit 21.
On February 22, 1988, a three judge panel of the
Michigan Court of Appeals issued an opinion in Trinova
Corp v Michigan Dep't of Treasury, 166 Mich App 656; 421
NW2d 258 (1988) (“Trinova”) which was critical of the
Court of Appeals’ decision in ] & L, rejecting the J] & L
holding and finding PA 39 was retroactively applicable to
its appellate review of a Court of Claims judgment
entered prior to the enactment of PA 39. In an accom-
panying order of the same date, the Trinova panel certi-
fied a conflict of the Trinova opinion with the J] & L
decision pursuant to Michigan Supreme Court Adminis-
trative Order 1984-2.
On February 23, 1988 Court of Claims Judge Carolyn
Stell granted a § 69 SBT Refund Claim judgment in North-
ern Telecom, Inc Docket No. 86-10406-CM. After reviewing
the Court of Appeals Decision in Trinova, Court of Claims
Judge Stell found in the alternative that Northern Tele-
com had factually established the existence of a grossly
distorted result under PA 39. Appendix Exhibit 22.
6
There followed the decision of the Michigan Supreme
Court in Trinova, which this Court has agreed to review.
In that decision, the Michigan Supreme Court rejected the
| & L rule and found that the apportionment formula
relief provision of § 69 was designed to function essen-
tially as a constitutional circuit breaker; acknowledged
that taxation of an intrastate activity by an interstate
enterprise presents the potential for due process and
commerce clause violations; found that § 69 allows the
use of an alternate method of apportionment if the appor-
tionment provisions result in the unconstitutional taxa-
tion of a unitary business, i.e., to tax the extraterritorial
activity of the taxpayer and that the primary role of § 69
is to safeguard the Act and satisfy the basic constitutional
foundation of fairness. Opinion, pages 156 and 157. The
Court found that the single business tax apportionment
process satisfied this Court’s requirement that an appor-
tionment formula be externally consistent and rejected
proof that the apportionment formula had wrongly sub-
jected to taxation the extraterritorial (to Michigan) activ-
ity of Trinova, relying upon the fact that the subject of the
Act (“Business Activity”) “thus encompasses the com-
plete range of entrepreneurial activities of which compen-
sating employees is but one part” (Opinion, page 161)
and upon “the integrated nature of formulary apportion-
ment which rejects separate accounting as a means to
identify business activity by reference to a discrete geo-
graphic boundary” (Opinion, page 162).
: 7
ARGUMENT
A. OVERVIEW OF THE SINGLE BUSINESS TAX
APPORTIONMENT PROCESS
The Act imposes a specific tax on the adjusted tax
base of every person with business activity within the
state. MCL 208.31(1); MSA 7.558(31)(1). The tax base con-
sists of various components, including federal taxable
income, compensation paid (payroll and fringe benefits),
depreciation deducted, interest, royalties and dividends
paid, plus other adjustments prescribed by § 9 of the Act.
The principal federal tax deductions added back to feder-
al taxable income in arriving at SBT base are compensa-
tion (wages and fringe benefits) paid to employees and
depreciation. Appendix Exhibit 23. The SBT base, and the
components of tax base, may be depicted as follows:
Taxable Business
Activity (§ 31(4)) = Tax Base (§ 9) =
TAX BASE COMPONENTS
federal taxable income +
compensation paid +
depreciation deducted +
interest paid +
royalties paid
other miscellaneous
adjustments in § 9
Tax responsibility is thus defined in terms of business
activity, which, in turn, is defined by the tax base compo-
nents of federal taxable income plus most deductions
taken in arriving at federal taxable income.
When a taxpayer engages in business activity both
inside and outside the state of Michigan, the statute re-
quires an apportionment of the tax base. MCLA 208.41;
MSA 7.558(41). A three-factor apportionment formula is
used to apportion the tax base. The formula makes a
comparison of sales made, property used and payroll
+
8
(wages and salaries) paid in Michigan to sales made,
property used and payroll paid by the taxpayer every-
where. MCL 208.45; MSA 7.558(45). The apportionment
formula may be depicted in the following fashion:
Michigan Property + Michigan Payroll + Michigan Sales
Total Property Total Payroll Total Sales
3
Average
= Apportionment
Percentage
The formula produces an average apportionment percent-
age by which the tax base is multiplied, resulting in an
approximation of that portion of the business activity,
defined in terms of tax base, attributable to Michigan.
Adjustments are allowed for certain capital expenditures
which are not relevant to the present controversy. The tax
rate is then applied to this apportioned, adjusted tax base
to determine tax liability. This process is depicted in
Exhibit 24.
The SBT apportionment formula is utilized by multi-
state businesses to approximate taxable business activity
within Michigan. However, formulary apportionment
may not accurately reflect the level of the taxpayer’s
activity within the state. Accordingly, the SBT Act con-
tains a relief provision found in § 69. Appendix Exhibit 1.
Section 69 provides in relevant part, that “If the appor-
tionment provisions of this Act do not fairly represent the
extent of a taxpayer’s business activity in this state, the
taxpayer may petition for or the commissioner may re-
quire, in respect to all or any part of the taxpayer’s busi-
ness activity if reasonable: . . . (d) the employment of any
other method to effectuate an equitable allocation and
apportionment of the taxpayer’s tax base”. (Emphasis add-
ed)
9
In ] & L, supra, the Michigan Court of Appeals
granted the taxpayer § 69 relief from the apportionment
provisions of the Act based on the fact that the apportion-
ment provisions unfairly represented the taxpayer’s busi-
ness activity in the state. This unfair representation of
business activity was evidenced in the overstatement of
the compensation component of tax base, which was the
major component (85%-100%) of the tax base being ap-
portioned. The Court held that an apportionment of the
compensation component of tax base that was more than
fifty percent greater than the actual compensation paid in
Michigan was an unfair representation of the taxpayer’s
business activity in the state. The relief granted in ] & L,
supra, was to allow apportionment of all of the tax base,
excluding the compensation component, by the use of the
average apportionment percentage, and to add to this
apportioned tax base the amount of compensation actu-
ally paid in Michigan. The relief granted was a combina-
tion of allocation of compensation and apportionment of
remaining tax base to effectuate an equitable attribution
of the tax base of J] & L to Michigan. This court will note
that such a bifurcated method of attribution of business
activity, utilizing “allocation and apportionment,” is specifi-
cally contemplated by subsection (d) of § 69. The relief
authorized by § 69 may also, by specific authorization of
the statute, be granted “in respect to all or any part of the
taxpayer’s business activity”. The ] & L Court was thus
operating on solid statutory underpinning in affirming
the Tribunal award of § 69 relief.
10
B. FEDERAL CONSTITUTIONAL REQUIRE-
MENTS FOR THE VALIDITY OF STATE TAX
APPORTIONMENT
An apportionment formula relief provision like § 69
is most easily understood against the background of fed-
eral constitutional principles concerning the scope and
extent of the taxing power of the states. This section of
the brief will therefore outline the requirements of the
federal constitution as interpreted by this Court to which
a state tax apportionment formula must conform.
The Due Process Clause of the 14th Amendment of
the U.S. Constitution, US Const, Am XIV, and the Com-
merce Clause (US Const, Art I, § 8 cl 3) have been
interpreted to prohibit a state from taxing “values outside
its borders.” Container Corp of America v Franchise Tax
Beard, 463 US 159; 103 S Ct 2933; 77 L Ed 2d 545, reh den,
464 US 909; 104 S Ct 265 (1983), quoting ASARCO, Inc v
Idaho State Tax Comm'n, 458 US 307; 102 S Ct 3103; 73 L Ed
2d 787, reh den, 459 US 961 (1982). In order to determine
what “values” are properly attributable to a given state,
this Court has upheld the constitutionality of the use of
formulary apportionment methods. Northwestern States
Portland Cement Co v Minnesota, 358 US 450; 79 S Ct 357; 3
L Ed 2d 421 (1959); Underwood Typewriter Co v Chamber-
lain, 254 US 113; 41 S Ct 45; 65 L Ed 165 (1920). The Due
Process Clause (14th Amendment, § 1) and Commerce
Clause (Art. I, § 10) of the United States Constitution
have both been interpreted by this Court as restricting a
state’s ability to tax a corporation conducting business
activities within and without the taxing state. The Due
Process Clause considers the fairness of a state’s tax
statute by determining whether it results in “extrater-
ritorial values being taxed”. Butler Brothers v McColgan,
315 US 501, 507; 62 S Ct 701; 86 L Ed 991 (1942). The
11
Commerce Clause has a broader reach, embracing the
Due Process requirement of fairness as well as prohibit-
ing discrimination against interstate commerce. In order
to satisfy the Commerce Clause, a state tax on multistate
business activities must (i) be applied to an activity with
a substantial nexus with the taxing state, (ii) be fairly
appprtioned (iii) not discriminate against inters! ste com-
merce, and (iv) be fairly related to the services provided
by the state. Complete Auto Transit, Inc. v Brady, 430 US
274; 97 S Ct 1097; 51 L Ed 2d 326 (1977).
Formulary apportionment methods have generally
been found to fulfill both the Due Process and Commerce
Clause requirements; Butler Brothers, supra, (three-factor
formula); Underwood Typewriter Company v Chamberlain,
supra, (single-factor formula); Moorman Manufacturing
Company v Bair, 437 US 267; 98 S Ct 2340; 57 L Ed 197
(1978)(single-factor formula). However, formulary appor-
tionment has also been recognized as less than precise,
achieving only an approximation of a taxpayer’s business
activity in a particular state. Moorman Manufacturing Com-
pany, supra. This broad concept thus does not hold that
formulary apportionment is per se constitutional and the
impact of a state’s apportionment method on a particular
taxpayer must still satisfy the Due Process and Commerce
Clauses.
The U.S. Constitution requires that the tax base sub-
ject to tax in any state must bear a reasonable relationship
to the business activity conducted by the taxpayer within
the taxing state. For a formularly apportioned tax to
withstand constitutional scrutiny, the 14th Amendment
Due Process Clause requires a rational relationship be-
tween the tax base attributed to a state and the intrastate
values of the enterprise being taxed. Mobil Oil Corp v
Comm'r of Taxes, 445 US 425, 436-437; 100 S Ct 1223; 63 L
12
Ed 2d 510 (1980). Exxon Corp v Wisconsin Dep’t of Revenue,
447 US 207; 100 S Ct 2109; 65 L Ed 2d 66 (1980); Moorman
Mfg Co v Bair, supra. In analyzing whether such a relation-
ship exists, this Court has stated an apportionment for-
mula must be “fair”. Exxon, supra at 219. See also,
Moorman, supra.
In deciding cases involving the validity and legit-
imacy of state tax apportionment processes, this Court
has rejected the notion that judicial scrutiny of the proc-
ess begins and ends with merely a reference to the label
under which the taxing system parades. The leading case
on the Commerce Clause in state tax cases is Complete
Auto Transit, Inc., v. Brady, supra. Therein, this Court
stated:
There is no economic consequence that follows
necessarily from the use of the particular words,
“privilege of doing business” and a focus on
that formalism merely obscures the question
whether the tax produces a forbidden effect. 430
U.S. at 288.
In American Trucking Ass'ns, Inc. v. Scheiner, 483 US
266, 107 S Ct 2829; 97 L Ed 2d 226 (1987), this Court said:
In our more recent decisions we have rejected
the somewhat metaphysical approach to the
Commerce Clause that focused primarily on the
character of the privilege rather than the practi-
cal consequences of the tax. In 1977, while we
recognized that we had invalidated privilege
taxes on in-state activity deemed to be part of
interstate commerce, we also noted that we had
“moved toward a standard of permissibility of
state taxation based upon its actual effect rather
than its legal terminology.” 107 S.Ct. at 2846
[Citations and footnotes omitted.]
And further:
The way in which a tax levied on participants in
interstate commerce is measured and assessed
bears directly on whether it implicates central
13
Commerce Clause values. 107 S.Ct. at 2839 [Em-
phasis added].
Thus, as shown in A. of this Brief, and as amplified
by Appendix Exhibit 23, this Court must ascertain the
validity of the single business tax apportionment process
by reference to the way in which the single business tax
liability of a multistate taxpayer is measured and not end
its inquiry at the doorstep of the label which the Michi-
gan legislature and the Michigan Supreme Court have
placed upon the single business tax. A tax on “business
activity” measured principally by compensation and de-
preciation expense is a tax on compensation and depreci-
ation.
In its 1983 opinion in Container, supra, this Court
discussed the two tests of apportionment formula fair-
ness: internal consistency and external consistency. To be
internally consistent, a formula must be such that, if
applied by every jurisdiction, it would result in no more
than all of a taxpayer’s business income (or other tax
base) being taxed. External consistency requires that the
factor(s) used in the apportionment formula must accu-
rately reflect a reasonable sense of how the income (tax
base) to be apportioned is generated. 463 US at 169.
This court has recognized that the three-factor appor-
tionment formula is “necessarily imperfect,” Container,
supra, at 183, n 20, yet has upheld various methods as
“fair.” The three-factor formula was approved in Butler
Bros v McColgan, supra. However, in Container, this court
stated, at 170:
The Constitution does not “invalidat[e] an ap-
portionment formula whenever it may result in
taxation of some income that did not have its
source in the taxing State. . . .” Moorman Mfg.
Co., supra, at 272, 98 S Ct 2340, 57 L Ed 2d 197
(emphasis added). See Underwood Typewriter
Co., 254 US, at 120-121, 65 L Ed 165, 41 S Ct 45.
14
Nevertheless, we will strike down the applica-
tion of an apportionment formula if the tax-
payer can prove “by ‘clear and cogent evidence’
that the income attributed to the State is in fact
‘out of all appropriate proportion to the busi-
ness transacted .. . in that state,’ [Hans Rees’
Sons, Inc.], 283 US at 135 [51 S Ct 385, 75 L Ed
879] or has ‘led to a grossly distorted result,’
[Norfolk & Western R. Co. v State Tax Comm'n,
390 US 317, 326 [88 S Ct 996, 19 L Ed 2d
1201](1968)].” Moorman Mfg. Co., supra, at 274,
57 L Ed 2d 197, 98 S Ct 2340.
The context of the Container opinion was the appor-
tionment of an income base since that was the measure of
the tax. However, the general principle which may be
drawn from Container is that if the tax base attributed to
the taxing state by the apportionment formula is out of all
appropriate proportion to the business transacted in that
state or the apportionment process leads to a grossly
distorted result, application of the apportionment formu-
la will fail under the United States Constitution. A formu-
lary apportionment method which attributes an amount
of tax base “out of all appropriate proportion” to the
business transacted within the state is prohibited. Such a
method lacks the mandated rational relationship between
tax base attributed to the state and the intrastate values of
the enterprise. Such distortion may result due to a lack of
rational relationship between the tax base components
being apportioned and the factors of the apportionment
formula by which the tax base is apportioned. Absence of
this rational relationship runs afoul of the requirements
of the Due Process and Commerce Clauses of the Consti-
tution. Hans Rees’ Sons, Inc v North Carolina ex rel Maxwell,
283 US 123; 51 S Ct 385; 75 L Ed 879 (1930). In this case,
the Court found the statutory apportionment formula as
15
applied to the taxpayer’s business for the years in ques-
tion, “ . Operated unreasonably and arbitrarily, in
attributing to North Carolina a percentage of income out
of all appropriate proportion to the business transacted
by the appellant [taxpayer] in that state...” (283 US at
135) based on evidence presented by the taxpayer show-
ing that approximately 17% of its income had its source in
North Carolina rather than the 66% to 85% apportioned
to North Carolina. The Court based its holding on the
following ruling:
When, as in this case, there are different taxing
jurisdictions, each competent to lay a tax with
respect to what lies within, and is done within,
its own borders, and the question is necessarily
one of apportionment, evidence may always be
received which tends to show that a state has
applied a method, which, albeit fair on its face,
operates so as to reach profits which are in no
just sense attributable to the transactions within
its jurisdiction. 283 US at 134 [Emphasis added].
In Norfolk & Western R Co v State Tax Comm’n, 390 US 317;
88 S Ct 995; 19 L Ed 2d 1201 (1968), the Missouri tax
apportioned the value of all of the taxpayer’s rolling
stock among Missouri and other states based on a mile-
age formula (i.e., miles traveled by all of taxpayer’s roll-
ing stock in Missouri relative to miles traveled by
taxpayer’s rolling stock everywhere). The taxpayer pre-
sented evidence showing that the mileage formula yield-
ed a grossly distorted result because some of its rolling
stock was used permanently in Missouri whereas much of
the rest of the rolling stock was never used in Missouri.
In its finding that the tax assessment at issue violated the
Due Process and Commerce Clauses, this Court observed:
Any formula used must bear a rational relation-
ship, both on its face and in its application, to
property values connected with the taxing State.
390 US at 325.
16
The Court explained that an apportionment formula
cannot necessarily be universally applied to all taxpayers
without violating constitutional protections because:
17
state plainly beyond its borders... ’Any formu-
la used must bear a rational relationship, both
on its face and in its application, to property
values connected with the taxing State. 390 US,
The facts of life do not neatly lend themselves to
the niceties of constitutionalism; but neither
does the Constitution tolerate any result, how-
ever distorted, just because it is the product of a
convenient mathematical formula which, in
most situations, may produce a tolerable prod-
uct. 390 US at 327.
The Norfolk and Western decision applied the Hans
Rees rule as follows:
We repeat that it is not necessary that a State
demonstrate that its use of the mileage formula
has resulted in an exact measure of value. But
when a taxpayer comes forward with strong
evidence tending to prove that the mileage for-
mula will yield a grossly distorted result in its
particular case, the State is obliged to counter that
evidence or to make accommodations necessary to
assure that its taxing power is confined to its
constitutional limits. If it fails to do so and if the
record shows that the taxpayer has sustained
the burden of proof to show that the tax is so
excessive as to burden interstate commerce, the
taxpayer must prevail. 390 US at 329 [Emphasis
added].
The Court also said:
On the other hand, the Court has insisted for
many years that a State is not entitled to tax
tangible or intangible property that is uncon-
nected with the State... The taxation of proper-
ty not located in the taxing State is
constitutionally invalid, both because it imposes
an illegitimate restraint on interstate commerce
and because it denies to the taxpayer the proc-
ess that is his due. A State will not be permitted,
under the shelter of an imprecise allocation for-
mula or by ignoring the peculiarities of a given
enterprise, to ‘project the taxing power of the
at 325.
The Hans Rees case thus teaches us that a state agency
reviewing a challenge brought by a multistate taxpayer to
the fairness of the apportionment process must neces-
sarily engage in a review of evidence offered by the
taxpayer that the apportionment process, even if fair on
its face, has captured tax base which is in no sense
attributable to the activity within the taxing jurisdiction.
Norfolk adds to that teaching by instructing that the State
must come forward with evidence that its taxing power
has not extended beyond the borders of the taxing state.
Norfolk further instructs us that the State must make
accommodations necessary to insure confinement of the
taxing power to constitutional limits. As originally en-
acted, § 69 provided such an accommodation. However,
as interpreted and applied by the Michigan Supreme
Court in Trinova, amended § 69 does not provide the
accommodation necessary to assure taxing power con-
finement as required by Norfolk.
The decisions of this Court allow state taxing proc-
esses to look to the activity of a multistate taxpayer as a
whole where necessary to ascertain the extent and value
of the activity occurring within the taxing state. This
Court has made it clear, however, that such a multistate
perspective is not intended to allow the taxing state to
reach and subject to taxation those activities which occur
outside the state. In Wallace v Hines, 253 US 66; 40 S Ct
435; 64 L Ed 782 (1920), this Court said:
The only reason for allowing a State to look
beyond its borders when it taxes the property of
foreign corporations is that it may get the true
value of the things within it, when they are part
18
of an organic system of wide extent, that gives
them a value above what they otherwise would
possess. The purpose is not to expose the heel of
the system to a mortal dart - not, in other
words, to open to taxation what is not within
the State.
To sum these constitutional requirements before ap-
plying them to the case at bar, it is fair to conclude that
although this Court recognizes formulary apportionment
is imprecise and yields only an approximation of taxable
activity within a taxing state, formulary apportionment
generally meets Due Process and Commerce Clause re-
quirements as long as the result is not the taxing of values
outside the borders of the taxing state and the apportion-
ment process is fair and not discriminatory. The tax base
subject to tax must bear a reasonable relationship to the
business activity conducted by the taxpayer within the
taxing state and the guarantee of fairness in the process
of apportionment is assured, at least in part, by requiring
that the factors used in the apportionment formula accu-
rately reflect a reasonable sense of how the tax base to be
apportioned (whether income or value added) is gener-
ated. Finally, this Court has emphasized that the deter-
mination of constitutional acceptability of formulary
apportionment is not made by reference to the formal
language of the tax statute and the label under which it
operates but rather its practical effect and consequences
on the taxpayer.
Turning now to an application of these principles to
the case at bar, it is clear that the Michigan Single Busi-
ness Tax apportionment formula fails to meet the consti-
tutional requirements for fairness in the apportionment
process in this case. The tax base of Trinova consisted
exclusively of compensation expense and depreciation
expense in 1980. These expenses are of such a nature that
19
they can be geographically sourced to locations other
than Michigan and are also of such a nature that they can
be precisely calculated. In such an instance, it is difficult
to imagine why apportionment should even be consid-
ered.
Compounding the problem is the fact that the appor-
tionment formula requires these expenses to be impre-
cisely approximated and attributed to Michigan by
reference to the Petitioner’s property, payroll and sales
factors despite the fact that sales in Michigan bear no
rational relationship to the incurral of compensation ex-
pense or depreciation expense which is all that is being
taxed (the tax base) in 1980. In such an instance, the
foregoing constitutional principles render the tax base
apportionment attempted in this situation invalid.
The problem in this case arises from the selection of
the three factor apportionment formula as the mechanism
for attribution of the single business tax base of a multi-
state taxpayer to Mich:gan. Except for the payroll factor
(which correlates directly to the compensation compo-
nent of tax base) and to a lesser extent the property factor
(which correlates less precisely to the depreciation com-
ponent of tax base), the three factor apportionment for-
mula does not reflect a reasonable sense of the way in
which the tax base of Trinova and Amici is generated in
the taxing state. In the instance of Trinova and Amici, the
formula is simply unfair in its application. The reasons
for which this unfairness arises can be traced to the
genesis of the formula.
The source of the three-factor apportionment formila
utilized in the SBT Act is the Uniform Division of Incoine
for Tax Purposes Act (UDITPA) drafted by the National
Conference of Commissioners on Uniform State Laws and
approved by the House of Delegates of the American Bar
20
Association in 1957. Its purpose and design was to pre-
scribe a uniform method by which the income of a multi-
state taxpayer could be apportioned to the various states.
Indeed the prefatory note to UDITPA says: “The Uniform
Division of Income for Tax Purposes Act is designed for
enactment in those states which levy taxes on or mea-
sured by net income”. Appendix Exhibit 25.
UDITPA was adopted in Michigan as a portion of the
Multi-State Tax Compact Act, 1969 PA 343; MCL 205.581
et seq; MSA 4.146(101) et seq. UDITPA § 18 is virtually
identical to § 69 of the Act as originally enacted. Appen-
dix Exhibits 1 and 26. The editorial comment to UDITPA
§ 18 contemplated, more than thirty years ago, exactly the
type of relief granted by the Tax Tribunal and approved
by the Courts in ] & L. The comment provides, in part,
“The phrases in § 18(d) do not foreclose the use of one
method for some business activity and a different method
for a different business activity”. Thus, it was entirely
within the purview of § 69(d) that compensation and
depreciation in SBT base could be allocated and the re-
mainder of the tax base components could be apportioned
under a relief provision such as UDITPA § 18 and § 69 of
the Act.
Professor William J. Pierce of the University of Michi-
gan Law School authored an article entitled The Uniform
Division of Income for Tax Purposes Act, 35 TAXES 747
(1957). At page 747, Professor Pierce wrote:
The Uniform Act deals with the allocation and
apportionment of income of multistate busi-
nesses and is designed for enactment in those
states which have either net income taxes or
taxes measured by net income .. .
At page 781, Professor Pierce concludes:
Section 18 [of UDITPA, which is § 69 of the SBT
Act] is a general section which permits the tax
21
administrator to require or the taxpayer to peti-
tion for some other method of allocating and
apportioning the income where unreasonable re-
sults ensue from the operation of the other pro-
visions of the Act. This section necessarily must be
used where the statute reaches arbitrary or unreason-
able results so that its application could be attacked
successfully on constitutional grounds. Further-
more, it gives both the tax collection agency and
the taxpayer some latitude for showing that for
the particular business activity, some more equi-
table method of allocation and apportionment
could be achieved. Of course, departures from
the basic formula should be avoided except
where reasonableness requires. Nonetheless,
some alternative method must be available to
handle the constitutional problem as well as the
unusual cases, because no statutory pattern could
ever resolve satisfactorily the problems for the multi-
tude of taxpayers with individual business charac-
teristics. (Bracketed material and emphasis
added)
Thus, the authors of the three-factor apportionment
formula recognized at the outset the observation of this
Court that formulary apportionment is necessarily impre-
cise and imperfect and suggested that a relief mechanism
must be built into any apportionment system. ) othe-
less, apportionment of income remains the gene. ule
due to the fact that it is practically impossible it st
cases to precisely attribute to each state that amou -—“f
income earned in each state by a multistate taxpayer. As
this Court said in Container, supra:
Allocating income among various taxing juris-
dictions bears some resemblance, as we have
emphasized throughout this opinion, to slicing a
shadow. 463 US at 192.
However, the SBT is not a tax upon income. MCL
208.31(4); MSA 7.558(31)(4) provides, “The tax so levied
and imposed is upon the privilege of doing business and
22
not upon income.” The tax base contains federal taxable
income only as a starting point. MCL 208.9(1); MSA
*.558(9)(1). As to Trinova, the SBT operates to a predomi-
Nant extent as a tax upon compensation paid and depreci-
ation deducted. 105% of Trinova’s tax base in 1980
consisted of compensation paid to its employees every-
where and 10.52% consisted of depreciation deducted
with respect to property located everywhere. Stipulated
Facts, 8.
Unlike the difficulty traditionally associated with de-
termining the state by state sources of net income for a
multistate taxpayer, the location of employees and assets,
the payment of compensation, and the deduction of de-
preciation can usually be precisely determined and fairly
allocated to a particular state.
The apportionment provisions of the Act, when ap-
plied to the most significant component of Trinova’s tax
base, compensation, resulted in an apportionment to
Michigan of 3,868% more compensation than its actual
Michigan compensation paid. Furthermore, the appor-
tionment formula resulted in an apportionment to Michi-
gan of 96,883% more depreciation than Trinova’s
depreciation deductions taken on property actually lo-
cated in Michigan. Application of the apportionment pro-
visions of the Act to Trinova’s tax base thus results in
taxation of values clearly reposing outside of the borders
of Michigan. The distortions demonstrated by Trinova are
“out of all appropriate proportion” to actual compensa-
tion paid and depreciation deducted for assets located
within the state of Michigan by the taxpayer. Norfolk,
supra. There is clearly no rational relationship between
compensation and depreciation apportioned to the state
and the amount of compensation and depreciation which
Trinova has demonstrated it paid and deducted in
23
Michigan. Absence of this rational relationship runs afoul
of the requirements of the Due Process and Commerce
Clauses of the Constitution. Therefore, application of the
apportionment formula to the compensation and depreci-
ation components of Trinova’s tax base is in violation of
both the Due Process and Commerce Clauses of the U.S.
Constitution.
In fact, the SBT apportionment formula, when ap-
plied to some taxpayers without mitigation under § 69,
violates the external consistency requirement of Container,
supra. External consistency, as one of the two components
of fairness of an apportionment formula identified by the
Court in Container, supra, requires that the factors used in
the apportionment formula reflect a reasonable sense of
how the tax base to be apportioned is generated. As
applied to Trinova, the SBT apportionment formula lacks
the requisite external consistency since the factors used to
apportion the SBT base, (property, payroll and sales) do
not reasonably reflect how that tax base is generated. As
with Amici, most SBT taxpayers have a tax base which is
comprised principally of compensation paid. Appendix
Exhibit 23 indicates that the tax base of a typical SBT
taxpayer consists principally of compensation paid
(76.77%) with the balance being composed of deprecia-
tion, interest expense, business income (5.7%) and other
adjustments to tax base in § 9 of the Act. This tax base,
composed primarily of compensation paid, is appor-
tioned to the state by the use of an apportionment formu-
la comprised of the property, payroll and sales factors.
Despite the fact that the sales factor of the statutory
apportionment formula relates only to business income, a
relatively insignificant portion of the tax base (5.7%), the
sales factor is weighed equally (1/3) along with the other
apportionment factors. The factors used to apportion the
tax base thus do not reasonably relate to the components
24
of that tax base, as the apportionment formula does not
properly weigh the factors so as to reflect the composi-
tion of the tax base. Absence of this relationship between
the apportionment factors and the components of tax
base indicates a lack of external consistency. The distor-
tive operation of the SBT apportionment formula on Tri-
nova and Amici is thus in violation of the Due Process
and Commerce Clauses of the U.S. Constitution.
However, this constitutional issue need not be
reached by this Court if Trinova is allowed to show by
credible evidence that it is entitled to relief under § 69 of
the Act for the reason that apportionment of the compen-
sation and depreciation components of its tax base results
in an unfair representation of its business activity within
Michigan. The remedy to an unconstitutional reach of the
SBT to out of state compensation and depreciation is
provided by the Act itself. Section 69 provides the test is
whether the apportionment provisions of the Act do not
“fairly represent” the extent of a taxpayer’s business
activity. If so, a modification of the apportionment meth-
od is allowed, including a combination of apportionment
and allocation.
In Twentieth Century Fox Film Corp v Dep't of Revenue,
299 Or 220; 700 P2d 1035, 1039-40 (1985), the Supreme
Court of Oregon ruled that its statutory equivalent to § 18
of UDITPA was to be applied to remedy situations where
the apportionment formula does not fairly represent the
business activity of a taxpayer. The Court held that the
relief provisions of UDITPA were applicable in two situa-
tions: (1) To remedy unconstitutional results; or (2) To
provide alternatives to statutory apportionment in cases
where the UDITPA formula does not fairly represent the
business activity of the taxpayer. Id. at 228. Twentieth
Century Fox illustrates the employment of § 69-type relief
25
to avoid the necessity of a ruling by this Court on wheth-
er the SBT apportionment provisions unconstitutionally
tax a multistate taxpayer. The Michigan Supreme Court
below, although incorrect in its conclusion that Trinova
was not subjected to unfair apportionment and discrimi-
nation, at least admitted that § 69 was enacted to protect
against an unconstitutional application of the apportion-
ment provisions of the Act. This Court should enunciate
guidelines to be followed by the Michigan Courts in
exercising the power granted by § 69 so that it is allowed
to operate to such end.
C. THE J & LINTERPRETATION OF § 69 OF THE
ACT WAS CONSTITUTIONALLY CORRECT
AND CONSISTENT WITH THE DECISIONS
OF THIS COURT
Following enactment of the SBT Act in 1976, the
Michigan Court of Appeals was faced with interpreting
the meaning of “fairly represent the extent of the tax-
payer’s business activity” for purposes of § 69 of the new
Act. What constituted “fairness” for purposes of this
section was the sole issue before the court in] & L, supra.
The Court noted that:
Respondent contends that fairness is tested by
weighing the reasonableness of the taxpayer’s
final tax liability against the level of its business
activity within the state, citing Armco Steel Corp
v Dep't of Revenue, 359 Mich 430; 102 NW2d 552
(1960) .. . The problem with respondent’s pro-
posed test is that it does not focus on the fair-
ness of the apportionment provisions of the Act
for which § 69 is designed to provide relief. We
believe instead that the proper test for invoking
§ 69 relief is whether the taxpayer’s Michigan
tax base, as derived from the application of the
three-factor apportionment formula to its ad-
justed tax base, accurately reflects the extent of
26
the taxpayer’s business activity within the state.
(Emphasis added) 145 Mich App at 409.
Noting that § 69 of the Act and a prior tax statute
were, for pertinent purposes, identical to one another, the
court looked to the interpretations of the prior law in
determining what is meant by the statement that “the
apportionment provisions . . . do not fairly represent the
extent of the taxpayer’s business activity in this state.”
145 Mich App at 410. The Court emphasized that, “The
inquiry does not turn on the end result, i.e., tax liability.
Rather, it turns on whether the basis for computing tax
liability is fair, i.e., is the business activity subject to
taxation accurately reflected by application of the three-
factor formula?” Id., at 412.
In its brief to this Court in opposition to the Writ,
Respondent argued that the tax that would be paid by
Trinova under the statutory formula was not an unrea-
sonable tax burden considering the amount of sales made
in the state, a subjective concept of fairness. (P. 26 of
Respondent’s brief to this Court).
The Michigan decisions, prior to the Trinova decision
of the Michigan Supreme Court below, had traditionally
rejected this mode of analysis. In J & L, the Court said:
In Donovan [Donovan Construction Co v Depart-
ment of Treasury, 126 Mich App 11; 337 NW2d
297 (1983) lv den 419 Mich 894 (1984)] and Payne
and Dolan [of Wisconsin, Inc v Department of Treas-
ury, 138 Mich App 418; 360 NW2d 208 (1984)],
the Treasury Department based its request for
relief primarily on a showing of gross disparity
in tax liability results and not on a showing that
the apportionment formula distorted business
activity within the state. Therefore, this Court
denied relief. Similarly, because the burden of
showing distorted activity was not met in Inter-
national Telephone & Telegraph Corp, supra, the
27
corporation was not entitled to relief in comput-
ing franchise fees. The basis for denial of relief
in these cases was not, as Respondent suggests,
that the resulting franchise fee or tax liability
seemed reasonable or not excessive. The inquiry
does not turn on the end result; i.e., tax liability.
Rather, it turns on whether the basis for comput-
ing tax liability is fair; i.e., is the business activ-
ity subject to taxation accurately reflected by
application of the three-factor formula. (Brack-
eted material added). 147 Mich App, at 412.
| & L contended that inclusion of the compensation
component in the tax base to which the statutory formula
was applied resulted in the attribution to Michigan of far
more compensation than was actually paid in the state.
Based on this contention, ] & L requested relief under
§ 69, asking the Commissioner to allow direct allocation
of compensation actually paid in the state by the tax-
payers, and an apportionment of the remaining compo-
nents of the SBT base by use of the statutory formula. The
Court of Appeals affirmed the decision of the Tribunal
holding that the Commissioner erred in denying the re-
quested relief. The Tribunal emphasized two stipulated
facts which demonstrated that the three-factor formula
unfairly represented business activity in Michigan the
apportionment formula attributed substantially more
compensation (50 percent) to Michigan than was actually
paid in Michigan, and the compensation attributable to
Michigan could be precisely calculated. The Court of
Appeals concluded that:
Petitioners did not merely show a gross dis-
parity in tax liability depending on the account-
ing method employed. Instead, based on the
stipulated facts, petitioners presented evidence
which demonstrated that the three factor formu-
la over-apportioned or excessively attributed
compensation to Michigan. The facts revealed
that the compensation component of business
activity subject to taxation was overstated by
28
approximately fifty percent. As required by
Donovan, supra, petitioners presented clear and
convincing evidence ‘that the statutory formula
inadequately or inaccurately representled]
[their] unitary business activity in the taxing
state’. 145 Mich App at 413.
This Court, in Container, supra, has affirmed the fact
that the proper focus is not on the end result of an
application of the apportionment process, but on the
integrity of the process itself. By looking at the external
consistency of an apportionment formula, the Court fo-
cuses on the fairness of the apportionment process, and
not on a-subjective test of the reasonableness of resulting
tax liability. Amici therefore respectfully suggest that this
Court ignore the temptation offered by Defendant to
make a determination in this case based upon a compari-
son of tax liability or whether the tax result seems fair in
relation to Trinova’s sales in Michigan. That is not the
standard advanced under § 69 of the Act nor by the
decisions of this Court. This Court should decline the
invitation of Defendant to deviate from the Container
analysis in deciding this case.
Finally, it should be noted that the decision of the
Court of Claims in Trinova was made as contemplated by
the statute. The very existence of an apportionment for-
mula relief provision such as § 69 anticipates that the
Commissioner of Revenue and, ultimately, the Courts are
to exercise the powers granted in § 69 to remedy those
situations which a finder of fact determines to be “un-
fair”. The Court of Claims was not engaged in an extraor-
dinary activity in any sense. The statute provides for
apportionment formula modifications. The power is to be
exercised in factual circumstances determined by the
finder of fact to be “unfair”. The Court of Claims was
thus completely within the bounds of the authority
29
granted by the statute in awarding the relief which Tri-
nova was seeking.
SUMARY OF ARGUMENT
To be valid, a state tax on interstate commerce must,
among other things, not result in taxing values outside
the taxing state. Further, the formula used must contain
factors which rationally relate to the tax base being ap-
portioned and how it is generated. The tax at issue fails
this standard as to Trinova and Amici, and a modification
of the apportionment process such as requested by Tri-
nova and Amici is therefore required.
CONCLUSION
The claim of Trinova which is presented to this Court
is based upon the unfair apportionment of Trinova’s sin-
gle business tax base in 1980. Trinova also claims that the
single business tax apportionment formula discriminates
against taxpayers domiciled outside of the State of Michi-
gan due to the composition of the tax base and the
application of equally weighted apportionment factors to
that tax base. The discrimination claim is premised upon
the adoption of an unfair system of apportionment of a
value added tax base designed to promote development
and investment within the State of Michigan. As to Tri-
nova and Amici, superimposing the three factor income
tax apportionment formula on the single business tax
base consisting in the main of non-income related busi-
ness expenses produces an unfair representation of the
business activity of Trinova and Amici. In such a circum-
stance, the decisions of this Court require that an accom-
modation be provided to such taxpayers in order to
assure that the taxing power of Michigan is confined to
&
30
its constitutional limits. A statutory vehicle for such an
accommodation exists in the form of § 69 of the Act.
When interpreted in light of the foregoing constitu-
tional adjudications of this Court concerning apportion-
ment, § 69 of the Act, whether before or after amendment,
requires an accommodation by the Respondent of an
unfair representation of business activity by apportion-
ment which is out of all appropriate proportion to busi-
ness transacted in the state or which leads to a grossly
distorted result. When thus interpreted consistently with
the foregoing constitutional determinations of this Court,
the objectives of fair apportionment and non-discrimina-
tory taxation of interstate commerce expressed by this
Court in Complete Auto Transit, supra, may be achieved.
For the foregoing reasons, the judgment of the Supreme
Court of Michigan in this case should be reversed.
Respectfully submitted,
Patrick R. VAN TIFLIN
(Counsel of Record)
Myra L. WiiLIs
James H. Geary
Howarpb & Howarpb Attorneys, P.C.
Phoenix Building, Suite 500
222 Washington Square, North
Lansing, Michigan 48933
(517) 485-1483
Attorney for Alcan Aluminum
Corporation, et al.
April 27, 1990
APPENDIX TO AMICUS CURIAE BRIEF OF
ALCAN ALUMINUM CORPORATION, ET AL.
TABLE Or CONTENTS
Exhibit 1... MCL 208.69; MSA 7.558(69), prior to
amendment by 1987 Public Act 39... 1c
Exhibit 2... Michigan Tax Tribunal Decision in
Jones & Laughlin Steel Corp v Michi-
gan Dep't of Treasury, Docket Nos.
57892, 57893 (Sepiember 5, 1984).. 2c
Exhibit 3... Order denying Application for
Leave to Appeal, Jones & Laughlin
Steel Corp v Michigan Dep't of Treas-
ury, 424 Mich 895 (March 18,
Da deceevesuueeuianeceaveens 18c
Exhibit 4... Order denying Motion for Recon-
sideration, Jones & Laughlin Steel
Corp v Michigan Dep't of Treasury,
424 Mich 895 (October 22, 1986)... 20c
Exhibit 5... Armco, Inc v Michigan Dep't of Treas-
ury, Court of Claims Docket No.
84-9612 (June 11, 1986) ........... 22c
Exhibit 6... Friendly Ice Cream Corp v Michigan
Dep't of Treasury, Court of Claims
Docket No 86-10413-CM (January
PP cks nlswoacdien hes buaenees 25¢
Exhibit 7... MTD Products, Inc v Michigan Dep't of
Treasury, Court of Claims Docket No.
86-10416-CL (March 30, 1987)........ 27¢
Exhibit 8... AMP Inc v Michigan Dep't of Treas-
ury, Court of Claims Docket No.
86-10216-CM (April 27, 1987)...... 37¢
Exhibit 9...
Exhibit 10 .
Exhibit 11...
Exhibit 12...
Exhibit 13...
Exhibit 14...
il
Trinova Corp v Michigan Dep't of
Treasury, Court of Claims Docket
No. 86-10430-CM (May 5, 1987)...
Penton/Industrial Publishing v Mich-
igan Dep't of Treasury, Court of
Claims Docket No. 86-10231-CM
i 5g Gm res
19G7 PUBNC ACE DP... oc cccceees
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Consolidation Coal Co v
Michigan Dep't of Treasury, Court of
Claims Docket No. 82-8407 (Au-
ge. A ererret eee
Opinion and Order denying Defen-
dant’s Motion for Summary Dispo-
sition in Digital Equipment Corp v
Michigan Dep't of Treasury, Court of
Claims Docket No. 86-10484-CM
(November 2, 1907). .........2.-.
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in First Wisconsin Financial
Corp v Michigan Dep't of Treasury,
Court of Claims Docket No.
87-11132-CM (November 25,
62¢
66c
68c
Exhibit 15...
Exhibit. 16. .
Exhibit 17...
Exhibit 18. .
Exhibit 19...
Exhibit 20...
ili
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Magic Chef v. Michigan Dep't
of Treasury, Court of Claims Docket
No. 86-10395-CM (December 15,
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Sara Lee Corp v Michigan
Dep't of Treasury, Court of Claims
Docket No. 87-11143-CM (Decem-
ee EE ee ere
Opinion and Order granting Plain-
tiff’s Motion for Summary Disposi-
tion in Presto Products, Inc v
Michigan Dep't of Treasury, Court of
Claims Docket No. 83-8827 (De-
Ug eg errr
Opinion and Order granting Plain-
tiff’s Motion for Summary Disposi-
tion in Wrigley v Michigan Dep't of
Treasury, Court of Claims Docket
No. 87-11013-CM (December 23,
oe ¢ 42826 2.6 8 ©: 9°28 6 6S 6.0.8 6 4 2 OO 6.46 SO
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Blue Bell, Inc v Michigan
Dep't of Treasury, Court of Claims
Docket No. 86-10620-CM (Decem-
SR py re ere
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Sheller-Globe Corp v
Michigan Dep't of Treasury, Court of
Claims Docket No. 87-11073-CM
ee er errr re
76¢
79¢
85¢
90c
Exhibit
Exhibit
Exhibit
Exhibit
Exhibit
Exhibit
ho
—_
iv
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in USX Corp v Michigan Dep't
of Treasury, Court of Claims Docket
No. 86-10901-CM (January 21,
POMS o 08 Ga hn o s acine bee oases 99¢
Order and Judgment granting Plain-
tiff’s Motion for Summary Disposi-
tion in Northern Telecom, Inc v
Michigan Dep't of Treasury, Court of
Claims Docket No. 86-10406-CM
oe SS eee 102c
Table 4, “Analysis of the Michigan
Single Business Tax”, p 27, Michi-
gan Department of Treasury
PE Pe eiees dxcesneanewedaons 107¢
Diagram of Single Business Tax
NR Sid dicee racassconse sees 108c
UDITPA Prefatory Note.......... 109¢
UDITPA § 18 and Editorial Com-
le
Exhibit 1—4 69
208.69. RELIEF AS TO TAX BASE
Sec. 69. (1) If the apportionment provisions of this
act do not fairly represent the extent of the taxpayer’s
business activity in this state, the taxpayer may petition
for or the commissioner may require, in respect to all or
any part of the taxpayer's business activity, if reasonable:
(a) Separate accounting.
(b) The exclusion of any 1 or more of the factors.
(c) The inelusion of 1 or more additional factors
which will fairly represent the taxpayer’s business activity
in this state.
(d) The employment of any other method to effee-
tuate an equitable allocation and apportionment of the
taxpayer's tax base.
(2) An alternate method will be effective only if it is
approved by the commissioner.
2¢
Exhibit 2—MTT—‘J € L’’
STATE OF MICHIGAN
MICHIGAN TAX TRIBUNAL
Jones and Laughlin Steel
Corporation,
Petitioner
Vv MTT Docket
No. 57892
Michigan Department of Treasury,
Respondent
and
Wilson Foods Corporation,
Petitioner
Vv MTT Docket
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
) No. 57893
Michigan Department of Treasury, )
Respondent )
OPINION AND JUDGMENT
Tribunal Judge Present
Charles P. McDonald
This matter having come on for hearing before Hearing
Officer Roger M. Groves, and briefs having been filed and
a Proposed Judgment having been issued from which ex-
ceptions and written arguments thereto were filed, and
The Tribunal having considered all matters raised and
being fully familiar in the premises, does hereby adopt
and incorporate by reference the findings of fact and con-
clusions of law in the said Proposed Judgment, issued
April 6, 1984, as the final decision of the Tribunal, except
as noted hereinafter.
3¢
Exhibit 2—MTT—‘ J & L’’
The taxpayers have noted that if the Section 69 relief is
granted, they will withdraw from consideration the re-
maining issues presented. Among such remaining issues
is that related to the number of statutory exemptions au-
thorized under Section 35(2) to members of an affiliated
group. By stipulation, taxpayers have acknowledged that
they were affiliated as defined in Section 3(1) of the Act,
but argue that both are entitled to an exemption on the
grounds that the statute limiting them to a single exemp-
tion is unconstitutional.
This Tribunal does not have the requisite jursdiction to
declare a statute unconstitutional; see Henshaw v State
Tax Commission (on remand), 126 Mich App 806, 810; —
NW2d — (1983). Accordingly, assuming the statute con-
stitutional and in the absence of any factual dispute re-
maining, the Tribunal must find only a single exemption
allowable, and a revised assessment appropriate.
In all other respects the facts and conclusions in the Pro-
posed Judgment are ADOPTED pursuant to Section 26
of the Tax Tribunal Act.
Judgment
IT IS HEREBY ORDERED AND ADJUDGED that As-
sessment Numbers B502664 and B506830 be and are here-
by CANCELLED.
IT IS FURTHER ORDERED AND ADJUDGED that
a revised assessment be issued by Respondent pursuant to
allowance of a single statutory exemption.
MICHIGAN TAX TRIBUNAL
By /s/ Charles P. McDonald
Entered: September 5, 1984
te
Exhibit 2—MTT—‘ J & L’’
STATE OF MICHIGAN
MICHIGAN TAX TRIBUNAL
Jones & Laughlin Steel )
Corporaton, )
Petitioner )
)
Vv ) MTT Docket
) No. 57892
Michigan Department of Treasury, ) Assessment
Respondent No. B502664
) Account No.
and ) 25-0580280
)
Wilson loods Corporation, )
Petitioner )
)
Vv ) MTT Docket
) No. 57893
Michigan Department of Treasury, ) Assessment
Respondent ) No. B506830
Account No.
73-0955617
PROPOSED JUDGMENT
Hearing Officer Presiding
Roger M. Groves
Findings of Fact
In this cause a Stipulation of Facts was entered by the
parties in contemplation of four issues in controversy.
An evidentiary hearing was held regarding the primary
issue of whether the Petitioners’ single business tax re-
turns properly included an alternative formula under
Section 69 of the Single Business Tax Act (‘‘Act’’), MCL
208.1 ef seq.; MSA 7.558(1) et seq., to the statutory three
de
Exhibit 2--MTT—*‘J & L’’
factor apportionment formula used by the Respondent.
Briefs by the parties concerning all contested issues were
filed by August 17, 1983.
Both Petitioners were incorporated under the laws of a
state other than Michigan; Jones & Laughlin Steel Corpo-
ration (hereinafter J & L Steel) in Pennsylvania, and
Wilson Foods Corporation (hereinafter Wilson) in Dela-
ware. The principal offices of the Petitioners were also
foreign to Michigan, being Pittsburgh, Pennsylvania and
Oklahoma City, Oklahoma, respectively. During the tax
years in controversy, J & Il, Steel was engaged in the man-
ufacture of steel and related steel products, which it sold
on a nationwide basis. Wilson, during the same relevant
tax period, was engaged in the business of manufacturing
and selling meat and related meat products, also marketed
on a nationwide basis. The Michigan business activities
of both Petitioners were primarily the operation of mar-
keting and sales offices. Additionally, J & L Steel had a
manufacturing plant in Warren, Michigan. The primarily
sales force of J & L Steel has been in Troy, Michigan, with
a retail sales outlet in Kalkaska, Michigan. (J & L Stipu-
lation of Facts, paragraph 1, 2 and 3.)
The tax years in controversy are calendar years 1976,
1977 and 1978. (J & L Steel Stipulation of Facts, para-
graph 4; Wilson Stipulation of Facts, paragraph 4.)
The cumulative amount in controversy, exelusive of inter-
est, is $556,697 for J & L Steel and $37,694 for Wilson.
Notices of Final Assessment to both taxpayers, issued on
the same date, September 21, 1981, being No. B502664
and B506830, respectively, reflect those amounts.
6¢
Exhibit 2—MTT—‘J & L’’
For all years in question, both taxpayers utilized the
three factor formula from Chapter 3 of the Act when ap-
portioning the business income portion of their respective
tax base. Both taxpayers, however, allocated to Michigan
the compensation portion of their tax base on their SBT
returns for all three years, rather than apportion to
Michigan, based on total compensation. (J & L Steel’s re-
turns are Exhibits P-1, P-2 and P-3; Wilson’s returns are
Exhibits P-4, P-5 and P-6).
The parties have stipulated that the amount of Michigan
compensation for J & L Steel for all years in question was
as follows:
Year Michigan Compensation
1976 $26,385,639
1977 21,629,704
1978 21,782,621
The Michigan compensation of Wilson was also stipulated
between the parties for all controverted years:
Year Michigan Compensation
1976 $91,642
1977 58,811
1978 82,215
(See J & L Steel Stipulation of Facts, paragraph 25 and
Wilson Stipulation of Facts, paragraph 25.)
Thus, the amount of compensation attributable to Michi-
gan was known and finitely determined for both taxpayers
for all years in question.
Pursuant to audit, the Respondent redetermined the tax-
payers’ tax base using the three-factor formula to appor-
7¢
Exhibit 2—MTT—'‘J & L’’
tion each taxpayer’s total compensation rather than allow
a specific allocation to Michigan of the admittedly Michi-
gan compensation. The single business tax base for both
taxpayers was significantly increased under the compen-
sation apportionment. Respondent’s determination of
apportioned conmpensation for J & L Steel was as follows:
Michigan Apportioned
Tax Year Compensation
1976 $39,902,544
1977 38,662,908
1978 33,739,177
(Exhibit P-9)
The corresponding amounts of apportioned compensation
as determined for Wilson were as follows:
Michigan Apportioned
Tax Year Compensation
1976 $2,075,400
1977 1,946,831
1978 2,137,480
(Exhibit P10)
These amounts of compensation represent a substantial
majority of fie SBT tax base of both taxpayers.'
Both taxpayers also calculated their respective excess
compensation deductions under Section 31(5) of the Act
by utilizing an apportioned tax base, rather than an unap-
portioned tax base, when determining their ‘‘total tax
base’’. The total tax base that would result under both
IThe apportioned compensation comprised between 84.68°/o
and 93.58°/o of the J & L Steel tax base for the three years, and
between 96.5790 and 100.99°/o of the Wilson tax base. (Para-
graph 9 of both Stipulations of Fact.)
8e
Exhibit 2—MTT—‘J & L’’
methods was noted in paragraphs 33 and 34 of the Stipu-
lations of Facts of both parties. (See also Petitioner's
Principal Brief, page 7.)
Both taxpayers also excluded from ‘‘ecompensation’’ as
defined in Section 4(2) of the Act amounts of money that
are accruals to fund pension, retirement and/or profit
sharing plans prior to the effective date of the Act.
The parties have also stipulated with Respondent that the
taxpayers were ‘‘affiliated corporations’’ as defined in
Section 2(1) of the Act, for purposes of determining
whether each taxpayer is entitled to the Section 35 statu-
tory exemption. (J & L Steel Stipulation paragraph 35;
Wilson Stipulation, paragraphs 35 and 36.)
Joth taxpavers requested relief from the use of the appor-
tionment formula under the Act pursuant to Section 69 of
the Act. Such requests were denied, giving rise to the
cases before this Tribunal.
The taxpayers specifically note on the record and in their
collective principal brief that if the Section 69 relief is
granted, the taxpayers will withdraw from consideration
the other three issues presented in the brief. Regarding
those secondary issues, the taxpayers contend (1) that
‘total tax base’’ as used in the caleulation of the excess
compensation deduction [Section 31(5)] was intended to
mean ‘tax base’’ after apportionment; (2) that aceruals
of contributions of the taxpayers to retirement plans and
other elements of ‘compensation’? as defined in Section
4(3) of the Aet cannot be included as compensation when
the services that gave rise to the accruals occurred prior
9e
Exhibit 2--MTT—*J & L’’
to the effective date of the Act; and (3) that both tay-
payers, through members of an affiliated group, still ean-
not be denied the statutory exemption authorized under
Section 35(2). To deny same unconstitutional creates an
artificial distinction between affiliated taxpayers and
non-affiliated taxpayers who admittedly are similarly sit-
uated. While the statute doesn’t allow both taxpayers the
exemption, the statute is urged as unconstitutional.
Conclusions of Law
The primary issues in this ease are: (1) whether the 3-
factor formularly apportionment provisions under Section
45 of the Act fairly represent the extent of the taxpayers’
respective business activity in Michigan; (2) if not, does the
method utilized by the taxpayers in filing their separate
SBT returns or the additional methods suggested by
taxpayers at hearing, provide a substantially more aeeu-
rate representation of the extent of the taxpayers’ busi-
ness activity in Michigan. This Tribunal holds that the
statutory apportionment formula does nof fairly reflect
the extent of business activity for either taxpayer and
that the taxpayers’ alternative method in their returns is
substantially more accurate in exsecting the Michigan
business activity of the taxpayers. Accordingly, relief
from the Section 45 apportionment formula is granted
under Section 69 of the Aet, and is supported by tax-
payers’ alternate method utilized in its SBT returns.
The statutory apportionment formula provides that ‘‘all
of the tax base’’ of a Michigan multi-state taxpayer, except
the tax base derived from certain services not applicable
10e
Exhibit 2—MTT—‘ J & L’’
in the instant case or specifically allocated, shall be ap-
portioned to Michigan ‘‘by multiplying the ‘ax base by a
fraction, the numerator of which is the property factor
plus the payroll factor plus the sales factor, and the de-
nominator of which is 3°". MCL 208.45; MSA 7.088 (45).
Section 69 of the Act provides as follows:
Sec. 69. (1) if the apportionment provisions of this
act do not fairiy represent the extent of the taxpay-
er’s business activity in this state, the taxpayer may
petition for or the commissioner may require, in re-
spect to all or amy part of the taxpayers’ business ac-
tivity, of reasunable:
(a) Separate accounting.
(b) The exclusion of any 1 or more of the factors.
(c) The inclusion of 1 or more additional factors
which will fairly represent the taxpayer's business
activity in this state.
(d) The employment of any other method to effecu-
ate an equitable allocation and apportionment of the
taxpaver’s tax base.
(2) An alternate method will be effective only if it
is approved by the commissioner. MCL 208.69; MSA
7.558(69) (Emphasis Supplied).
In the instant case, it cannot be held that the apportion-
ment formula in the Act fairly represents the extent of
either taxpayer’s business activity, when the stipulated
actual compensation of J & L Steel is between $12,000,000
and $17,000,000 less than the apportionment formula would
indicate for each of the three years at issue (Exhibit
P-9); and when Wilson’s stipulated a actual compensation
lle
Exhibit 2—MTT—‘J & L”’
is approximately $2,000,000 less than the State’s appor-
tionment formula attribution to Wilson’s Michigan busi-
ness activity, for each vear in question. The apportioned
compensation exceeded the actual Michigan compensation
by greater than 50% for each taxpayer for every vear at
issue.
It is significant to note that the pragmatic analysis im-
mediately above is not inconsistent with the theoretical
underpinnings of this state’s apportionment formula, and
the circumstances under which relief from the formula is
appropriate. As discussed at length in an earlier Tribunal
case’ dealing with corporate income tax, a forerunner to
the SBT Act with virtually the same apportionment formu-
la, Michigan’s apportionment formula and relief provi-
sions are derived from the Uniform Division of Income
for Tax Purposes Act (UDITPA) and the Multistate Tax
Compact (MTC). Michigan has adopted the latter, ef-
fective 1970, see 1969 PA 343, MCL 205.281 et seq.; MSA
4.146(101) et seq. It appears clear that the 3-factor ap-
portionment formula from those sources was designed to
be a reasonable statistical approximation of each state’s
equitable share of income of a multistate taxpayer; such a
result being necessary because of the extreme difficulty in
determining the exact amount of net income by multistate
taxpayers attributable to a particular state. Altman and
Keesling, Allocation of Income in State Taxation, (CCH,
1946, p 108.) The testimony of Mr. Burns Stanley, who
?Payne & Dolan of Wisconsin, Inc v Department of Treasury,
MTT Docket No. 73934 (1983).
12e
Exhibit 2—MTT—‘ J & L’’
has had extensive experience in apportionment and allo-
‘ation matters, (Exhibits P-7 and P-S detail that experi-
ence) underscored that point. The utopian result, if the
uniform method was utilized in each state was described
as follows:
The Uniform Act, if adopted in every state having
a net income tax or a tax measured by net income,
would assure that 100 percent of income, and no more
or no less would be taxed.’’ Pieree, The Uniform
Diviston of Income for State Tax Purposes, 35 Taxes
747, 748 (1957).
Consistent with the apportionment formula is the necessity
for a relief provision. As the taxpayers state in their
principal brief, the primary draftsman of UDITPA notes
that the relief provision is necessary ‘*where reasonable-
ness requires’’, in order to accommodate the unusual eases
and constitutional entanglements. Pierce, The Uniform
Division of Income for State Tax Purposes, 35 Taxes 747
(1957). The instant case is the unusual circumstances
where the compensation of each taxpayer comprises be-
tween 84.68% and 100° of their respective Michigan tax
base, all [of] which has been identified and stipulated be-
tween the taxpayers and the taxing entity. Where the
amount of compensation attributable to a state is known,
it is not, in this Tribunal’s view, a reasonable or fair repre-
sentation of state activity to approximate the compensation
at over 50% of the actual amounts. It would also be con-
stitutionally troublesome for one state to tax a substantial
amount of income not generated within the state's borders.
13e
Exhibit 2—MTT— J & L"”’
Greyhound Lines, Inc. and Affiliates v. Department of
Treasury, Michigan Board of Tax Appeals, Docket No.
976, 1720 (1977).
Having found that the 3-factor formula does not fairly
represent the business activity of the taxpayers in this
‘ase, it is next necessary to determine whether any of the
three alternative methods advocated by these taxpayers
comport with the Section 69 relief provision. That pro-
vision clearly authorizes an alternate method ‘in respect
to... any part of the taxpayer’s business activity, if
reasonable” [Section 69(1) }.
In this matter, the only part of the taxpayers’ business ac-
tivity altered by their alternate method is the compensa-
tion attribution. Under the taxpayers’ method, that com-
ponent is specifically allocated since it is finitely known.
The taxpayers do not herein quarrel with the apportion-
ment formula application against all other components of
SBT tax base, which were not finitely quantified.
Section 69 also specfically authorizes ‘tany other method”’
to produce an ‘equitable allocation and apportionment of
the taxpayer's tax base’’. [Section 69(1) (d) J.
That provision should be construed to allow the flexibility
to combine allocation and apportionment as long as it rea-
sonably reflects the taxpayer's business activity. That
combination in this case appears to have accomplished that
result because the allocation has eliminated a substantial
amount of compensation, which is admittedly not part of
the Michigan tax base.
oa : _. ‘
Since the taxpayers’ method combines allocation and ap-
portionment, and since the Act also provides for statutory
l4e
Exhibit 2—MTT—‘ J & L’’
allocation and apportionment, it is important to distin-
guish between the taxpayers’ use of allocation as only a
part of its alternate apportionment formula, and the statu-
tory allocation, which is designed to distribute the entire
tax base. Allocation, most fundamentally, means to allot,
distribute or assign, Jacobson v Bowles, 53 FSupp 582,
534, income property, ete., to one state while apportion-
ment means to divide and distribute proportionally income
among different states. Black's Law Dictionary 4th Ed
(1968), p 128. The allocation formula, which evolved
from the UDITPA model, provides that income which has
its source entirely from within one state is allocated to
that state. Altman and Keesling, Allocation of Income
in State Taxation, supra’. Similarly, under the Act, if all
of a taxpayer’s business activity is confined to Michigan,
the tax base is allocated entirely to Michigan. MCL
208.40; MSA 7.558(40). The historical necessity for ap-
portionment in state income tax jurisprudence, however,
was noted by the same source to have arisen in the follow-
ing context:
“It is only the income derived from a source which
crosses state lines, such as business operations extend-
ing into more than one state, to which a rule of appor-
tionment must be applied.’’ (Emphasis Supplied).
3To avoid semantic confusion, the application of apportionment
could be said to result in allocating X amount to State A, and Y
amount to State B (meaning that a particular state received the
whole amount due it, though the rest of the business activity of
the multistate taxpayer is apportioned among other states, each
state getting its allocated share.
lde
Echibit 2—MTT—‘J & L’’
It follows that under the single business tax, only business
activity that extends to non-Michigan sources is neces-
sarily apportioned. Because in this case, 85-100% of each
taxpayer’s tax base is compensation confined solely to
Michigan, there is no need to apportion that segment of
business activity. Rather, the compensation should be al-
located since it is almost entirely from Michigan sources.
This use of allocation is not the statutory allocation scheme
under the Act. Section 40 only codifies allocation in the
context of a self-contained method where the entire tax
base is confined to Michigan. That statutory allocation
formula should not be construed as the only permissible
use of allocation. The Act’s own relief provision allows
for ‘‘any other method”’ relating to ‘‘all or any part’’ of
the business activity.
Having accepted the method advocated by the taxpayers as
their first alternative, which is the method utilized in filing
their respective SBT returns in each year in question, the
Tribunal need not address the other alternative methods
set forth by the taxpayers.‘
Similarly the taxpayers set forth alternate issues in the
event the Section 69 relief was not granted. Consistent
‘The taxpayers’ other methods involved the use of (1) a single
factor payroli formula, since the difference between payroll and
compensation is very small in this case, and compensation is
practically all of the tax base; and (2) reducing the sales factor
by 50°/o, thereby reducing the apportioned sales factor to com-
port with the actual compensation in Michigan. Thus, all three
apportionment factors would be utilized, but one would be
modified to reduce the distortion.
16¢e
Exhibit 2—MTT—‘J € L”’
with taxpayers’ statement of withdrawal of those issues if
they prevailed on the principal issue, those issues are not
herein resolved.
Respondent's assertion that the Section 69 relief was not
requested is unpersuasive. The Respondent has not
promulgated rules or prescribed forms for such a request,
though authorized, if not required to do so under Bection
104(1) of the Act. Nonetheless, the taxpayers did utilize
the alternate method in filing their return and did make a
request at the departmental informal conference prior to
the issuanee of the Final Assessment. That request was
riled upon by the Respondent's Decision and Order of
Determination in both cases. See, also, Acco Industries,
Tne v Devartneut of Treasury, MTT Docket No. 40141,
40252, 57826, 57689, at pages 12, 13.
The taxpavers’ burden of proof in this single business tax
case is wholly analogous to the burden involving the for-
mer corpentiia income tax with regards to relief from the
three-factor apportionment formula. Under that former
tax, the Michigan Court of Appeals recently stated :
The party seeking to employ the alternate apportion-
ment method has the burden of showing that the form-
lary anportionment os tmampropriate by clear and
convincing evidence, See Butler Bros + Met olgan,
315 US 501: 62 SCt 701: 86 LEd 991 (142), St Johns-
bury Trucking Co, Ine v New Hampshire, 380 A2d 215,
217 (NH, 1978), Deseret Pharmaceutical € 0, Tne v
State Tax Comm, 579 P2d 13232, 1326 (Utah 2d, 19705).
See venerally, Keesling & Warren, Caltfornia’s Uni-
form Division of Income for Tax Purposes Act (Part
1),15 UCLA L Rev 156 (1967). Evidence introduced
to overcome the formula method of allocation must ad
dress each element of the formula’s equation. ve
Bros v McColgan, 111 P2d 334, 341 (Cal 2d, 1941),
lve
Pahibit 2—MTT—*J & L”
aff'd 315 US 501; 62 SCt 701; 86 LEd 991 (1942).
Donovan Construction Company v State of Michigan,
126 Mich App 11, 21; 337 NW2d 297 (1983).
In the instant case, the stipulated Michigan compensation
in relation to the uncontroverted amount of apportioned
compensation provides clear and convineing evidence
showing the inappropriateness of the formulary apport-
tionment. Each element of. the formula’s equation was
addressed by the taxpayers as the noncompensation com-
ponents of the tax base was determined with the formula,
and compensation was allocated.
Judgment
IT IS HEREBY ORDERED AND ADJUDGED that as-
sessment numbers B502664 and B506830 be and are hereby
CANCELLED.
IT IS FURTHER ORDERED AND ADJUDGED that the
partics to this cause of action shall have 20 days from date
of entry of this Proposed Judgment to file exceptions and
written arguments with the Tribunal consistent with See-
tion 81 of the Administrative Procedures Act |MCLA
24.281; MSA 3.960(181)]. The parties in presenting ex-
ceptions and written arguments shall limit them to the evi-
dence and testimony presented to the hearing officer. This
Proposed Judgment together with any exceptions and
written arguments shall be considered by the Tribunal in
arriving at a final decision in this matter pursuant to See-
tion 26 of the Tax Tribunal Act [MCLA 205.726; MSA
7.650 (26) |
MICHIGAN TAX TRIBUNAL
By /s/ Roger M. Groves
Hearing Officer
Entered: April 6, 1984
18e
Exhibit 3—Order Denying Leave
AT A SESSION OF THE SUPREME COURT OF THE
STATE OF MICHIGAN, Held at the Supreme Court
Room, in the City of Lansing, on the 18th day of March
in the year of our Lord one thousand nine hundred and
eighty-six.
Present the Honorable
G. MENNEN WILLIAMS,
Chief Justice
CHARLES L. LEVIN,
JAMES H. BRICKLEY,
MICHAEL F. CAVANAGH,
PATRICIA J. BOYLE,
DOROTHY COMSTOCK RILEY,
DENNIS W. ARCHER,
Associate Justices
JONES & LAUGHLIN STEEL CORPORATION,
Petitioner- Appellee,
¥
MICHIGAN DEPARTMENT OF TREASURY,
Respondent-Appellant.
SC: 77291
CoA: 80472
MTT: 57892
WILSON FOODS CORPORATION,
Petitioner-Appellee,
y
MICHIGAN DEPARTMENT OF TREASURY,
Respondent-Appellant.
19¢
Barhihit 83—Order Denying Leave
SC: 77292
CoA: 80473
MTT: 57893
(n order of the Court, the motion by the Motor Ve-
hicle Manufacturers Association of the United States, Ine,
to file a brief as amicus curiae in support of the ap-
plication for leave to appeal is considered, and it is
GRANTED. The application for leave to appeal is con-
sidered, and it is DENIED, because we are not persuaded
that the question presented should be reviewed by this
Court.
STATE OF MICHIGAN—ss.
I, CORBIN R. DAVIS, Clerk of the Supreme Court of
the State of Michigan, do hereby certify that the foregoing
is a true and correct copy of an order entered in said court
in said cause; that I have compared the same with the
original, and that it is a true transcript therefrom, and
the whole of said original order.
IN TESTIMONY WHEREOF, I have hereunto set
my hand and affixed the seal of said Supreme Court at
Lansing, this 18th day of March in the year of our Lord
one thousand nine hundred and eighty-six.
/s/ Corbin R. Davis Clerk.
SEAL
20¢
Exhibit 4—Order Denying Reconsideration
AT A SESSION OF THE SUPREME COURT OF THE
STATE OF MICHIGAN, Held at. the Supreme Court
Room, in the City of Lansing, on the 22nd day of October
in the year of our Lord one thousand nine hundred and
eighty-six.
Present the Honorable
G. MENNEN WILLIAMS,
Chief Justice
CHARLES L. LEVIN,
JAMES H. BRICKLEY,
MICHAEL F. CAVANAGH,
PATRICIA J. BOYLE,
DOROTHY COMSTOCK RILEY,
DENNIS W. ARCHER,
Associate Justices
JONES & LAUGHLIN STEEL CORPORATION,
Petitioner-Appellee,
V
MICHIGAN DEPARTMENT OF TREASURY,
Respondent-Appellant.
SC: 77291
COA: 80472
MTT: 57892
WILSON FOODS IRPORATION,
Petitioner-Appellee,
v
MICHIGAN DEPARTMENT OF TREASURY,
Respondent-Appellant.
SC: 77292
COA: 80473
MTT: 57893
21le
Exhibit 4—Order Den ying Reconsideration
On order of the Court, the motion for reconsideration
of this Court’s order of March 18, 1986 js considered, and
it is DENIED, because it does not appear that the order
was entered erroneously.
Boyle and Archer, JJ., would grant reconsideration
and grant leave to appeal.
STATE OF MICHIGAN—ss.
I, CORBIN R. DAVIS, Clerk of the Supreme Court
of Michigan, do hereby certify that the foregoing is a true
and correct copy of an order entered in said court in said
cause; that I have compared the same with the original,
and that it is a true transcript therefrom, and the whole of
said original order.
IN TESTIMONY WHEREOF, I have hereunto set
my hand and affixed the seal of said Supreme Court at
Lansing, this 22nd day of October in the year of our Lord
one thousand nine hundred and eighty-six.
/s/ Jacqueline B. MacKinnon
Deputy Clerk.
SEAL
22¢
Exhibit 5—Armco
STATE OF MICHIGAN
COURT OF CLAIMS
ARMCO, INC..,
__—"" Case No. 84-9612
Vv
STATE OF MICHIGAN, pene
DEPARTMENT OF TREASURY,
REVENUE DIVISION,
Defendant.
/
JUDGMENT ORDER
(Filed June 11, 1986)
, eye in the Town Center Build-
ession of said Court, held in " yh "PSone, 1906.
HAEL G. HARRISON,
vay + para Michigan, on the it
PRESENT: HONORABLE MI
CIRCUIT JUDGE |
This Court, having reviewed evidence presented in
relating to the request of Plaintiff for
this proceeding aie |
relief under Section 69 of the Michigan Single punmess
Tax Act, 1975 P.A. 228, MCL 208.1 et seq, MSA 7.508
(101) ef seq (herein the ‘‘Act’’); and
This Court having heard testimony presented by
Tames D. Ryan, senior tax attorney for Armco, Inc., and
This Court having also reviewed the pleadings, the
Stipulation of Facts presented to this Court by the wens
as well as Plaintiff’s Exhibits 1 through 8 and Defendant’s
Exhibits 1 through 7; and
23¢e
Exhilat 5—Armco
This Court further finding that application of the
statutory three factor apportionment formula against the
compensation component of Plaintiff’s tax base excessive-
ly attributes compensation to Michigan by more than
600% when compared with what the parties have stipu-
lated to have been Plaintiff’s Michigan actual compensa-
tion for each of the years here at issue: and
This Court further finding that the alternative as-
signment of compensation as reflected more particularly
in Plaintiff’s Exhibit 6 will more fairly represent Plain-
tiff’s business activity in this State for each of the years
here at issue;
NOW, THEREFORE, IT IS HEREBY ORDERED
that:
1. In order to more fairly represent Plaintiff’s busi-
hess activity in Michigan for its tax years 1977, 1978, 1979,
1980, 1981 and 1982, Plaintiff is entitled to relief under
Section 69 of the Single Business Tax Act.
2. The measure of the relief to which Plaintiff is
entitled is represented by methodology outlined in Plain-
tiff’s Exhibit 6; which applies the three factor apportion-
ment formula under the Act to all components of Plain-
tiff’s tax base except for compensation where, instead of
apportionment, there is allocated to this state for each of
the years here at issue Michigan actual compensation in
the following amounts: 1977, $2,349,074; 1978, $2,454,479 ;
1979, $2,252,491; 1980, $2,239,340; 1981, $2,465,810; 1982,
$2,214,554.
24e
Exhibit 5—Armco
3. As the Section 69 relief to be accorded Plaintiff
by allocating compensation to the extent indicated above
in paragraph 2 of this Order, Defendant shall refund to
Plaintiff One Million Six Hundred Twenty-five Thousand
Two Hundred Fifteen and No/100 ($1,625,215.09) Dollars
of single business tax, in the aggregate, for all years cov-
ered by this dispute, together with interest at the applic-
able statutory rate.
s/ Michael G. Harrison
Michael G. Harrison
Cireuit Judge
APPROVED FOR ENTRY:
/s/ Charles E. Liken
Charles E. Liken
Assistant Attorney General
25¢
Exhibit 6—Friendly
STATE OF MICHIGAN
IN THE COURT OF CLAIMS
FRIENDLY ICE CREAM CORPORATION
Plaintiff,
v Case No. 86-10413-CM
MICHIGAN DEPARTMENT OF TREASURY,
Defendant. HONORABLE
- —__—— — - CAROLYN STELL
David D. Waddell (P36814)
Fraser Trebilcock Davis & Foster, P.C.
Attorneys for Plaintiff
1000 Michigan National Tower
Lansing, Michigan 48933
(517) 482-5800
ORDER AND JUDGMENT
(Filed February 4, 1987)
At a session of the Court of Claims held in the City of
Lansing, Ingham County, State of Michigan on the 24th
day of January, 1987.
This matter having come to be heard on Plaintiff’s
Motion for Summary Disposicion, the Court having re-
viewed the Motion and supporting briefs and briefs in
opposition and having heard oral argument by counsel
for both parties ;
IT IS HEREBY ORDERED AND ADJUDGED that
Summary Disposition is granted in favor of Plaintiff with
respect to the 1981 and 1982 tax years against Defendant
in the amount of $20,698.00 plus interest as allowable by
law.
°26e
Exhibit 6—Friendly
FURTHERMORE IT IS ORDERED AND AD-
JUDGED that Summary Disposition is granted in favor
of Defendant with respect to the 1983 and 1984 tax years
against Plaintiff.
FURTHERMORE IT IS ORDERED AND AD-
JUDGED that no costs or attorneys fees shall be awarded
to either party.
/s/ Carolyn Stell
| Honorable Carolyn Stell
Court of Claims Judge
Approved as to form only:
/s/ David D. Waddell
David D. Waddell
Attorney for Plaintiff
Approved as to form only:
/s/ Charles E. Liken
Charles EF. Liken
Attorney General
27¢
Exhibit 7—MTD
STATE OF MICHIGAN
IN THE COURT OF CLAIMS
MTD PRODUCTS, INC,
an Ohio Corporation,
Plaintiff, File No. 86-10416-CL
Vv HON. ROBERT HOLMES BELL
MICHIGAN DEPARTMENT OF TREASURY,
Defendant.
OPINION AND ORDER OF THE COURT
This is an action under MCL 208.88; MSA 7.988(88)
to recover taxes paid by plsintiff. Now before the Court
is plaintiff’s motion for summary disposition, asserting
there is ne genuine issue of material fact and that plain-
tiff is entitled to judgment as a matter of law. MCR
1985, 2.116(C) (10).
Plaintiff is an Ohio corporation which does business
in Michigan. For the privilege of conducting business in
Michigan during tax years 1980, 1981, 1982 and 1983,
plaintiff paid a total tax of $201,932 under the Single
Business Tax Act. On July 31, 1985, plaintiff filed
amended single business tax returns for each of the above
four years, seeking refund in total of $116,824. The De-
partment of Treasury (‘‘ Department’’) denied plaintiff's
request for a refund on Novembo; D, 1985.
I
The Single Business Tax Act (**Act’’), MCLA 208.1
et seq.; MSA 7.558(1) et seq., imposes a specific tax on
28e
Exhibit 7—MTD
the adjusted tax base of every person who conducts busi-
ness in Michigan. The ‘‘adjusted tax base’’ is essentially
federal taxable income, subject to certain additions and
subtractions enumerated at {9 of the Act. One of these
‘“‘adjustments,’’ at 49 (5), requires the taxpayer to add
compensation paid its employees to its taxable income.
Thus, compensation becomes a part of the adjusted tax
base. In order to determine what portion of the adjusted
tax base of a corporation like plaintiff, which conducts
business within and without Michigan, is taxable as Mich-
igan business activity, a three-factor apportionment form-
ula is applied. Section 45 of the Act provides:
All of the tax base, other than the tax base de-
rived principally from transportation, financial, or
insurance carrier services or specifically allocated,
shall be apportioned to this state by multiplying the
tax base by a fraction, the numerator of which is the
property factor plus the payroll factor plus the sales
factor, and the denominator of which is 3.
Application of this apportionment formuia is designed to
produce a reasonable a.proximation of the share of a
multi-state taxpay r’s business activity which is attribut-
able to Michigan. Because the resultant approximation
may be more or less accurate, depending on taxpayer-
specific circumstances, relief from the apportionment
formula is sometimes available under § 9 of the Act:
(1) If the apportionment provisions of this act
do not fairly represent the extent of the taxpayer’s
business activity in this state, the taxpayer may peti-
tion for or the commission [sie] may require, in re-
spect to all or any part of the taxpayer’s business
activity, if reasonable:
29¢e
Exhibit 7—MTD
(a) Separate accounting.
(b) The exclusion of any 1 or more of the
factors.
(c) The inelusion of 1 or more additional fae-
tors which will fairly represent the taxpayer’s
business activity in this state.
(d) The employment of any other method to
effectuate an equitable allocation and apportion-
ment of the taxpayer’s tax base.
(2) An alternate method will be effective only
if it is approved by the commissioner.
The original returns filed by plaintiff for tax years
1980 through 1983 employed the Act’s apportionment
formula in the customary manner. After these returns
were accepted and fully processed by the Department,
plaintiff learned of a different method which it believed
would more accurately represent its Michigan business
activity. Plaintiff attempted to take advantage of the
relief available under $69 by filing amended returns
which incorporated a two-step apportionment /allocation
method. This method includes allocation of plaintiff’s
actual Michigan compensation expenses, rather than esti-
mation thereof through apportionment. In other words,
plaintiff excluded compensation from its pre-apportion-
ment adjusted tax base, contrary to §9(5). The appor-
tionment formula was applied to plaintiff’s adjusted tax
base less compensation. Then, the known amount of
plaintiff’s Michigan compensation expenses was added
to the apportionment product to yield that portion of
plaintiffs total business activity attributable to Michigan.
30¢
Exhibit 7—MTD
I)partme nt refused te approve this alternate two-
thod even though the Tax Tribunal and the Court
\ppenls had previously recognized it as legitimate and
appropriate under similar circumstances. See Jones &
Lauahlin Stecl Corp v Dep't of Treasury, 145 Mich App
L053: 377 NW2d 397 (1985), le den 424 Mich 894 (1986).
In defense of its decision, the Department contends
the Jones & Laughlin ruling is not a binding precedent.
The Department presents arguments based on other auth-
orities which were largely rejected by the Jones & Laugh-
lin court. Adjudication of plaintiff’s claim depends al-
most exclusively upon the force and effeet of Jones &
Laughlin.
The Jones & Laughlin Steel Corporation and Wilson
Foods Corporation filed single business tax returns for
tax vears 1976, 1977 and 1978, using the above-described
two-step method. The Department refused to approve
the method. The Tax Tribunal overruled the Depart-
ment, holding (1) that the statutory apportionment form-
ula failed to accurately represent the taxpayers’ Michigan
business activity; and (2) that the alternate two-step
method yielded a substantially more accurate result.
Jones & Laughlin Steel Corp v Dep’t of Treasury, MTT
Docket Nos. 57892 and 57893, Opinion & Judgment dated
September 5, 1984. The Court of Appeals affirmed the
Tax Tribunal judgment. Thus, the Court of Appeals’
Jones & Laughlin ruling does not establish a broad rule
dle
Exhibit 7—MTD
of general applicability. It is merely an affirmance of
the Tax Tribunal’s treatment of two taxpayers under the
Single Business Tax Act. Yet, while it may be inaccurate
to characterize Jones & Laughlin as ‘binding precedent,”
to the extent the instant fact situation is materially in-
distinguishable from the one treated in Jones d Laughlin,
the Court of Appeals’ reasoning certainly represents per-
suasive authority.
Both the Tax Tribunal’s and the Court of Appeals’
determination that application of the statutory apportion-
ment formula yielded inaccurate results as to Jones &
Laughlin Steel and Wilson Foods rested essentially upon
two findings:
(1) that each taxpayer’s actual compensation
expenses attributable to Michigan was a known
amount; and
(2) that application of the statutory apportion-
ment formula to each taxpayer’s total compensation
expenses yielded an apportioned compensation ap-
proximation more than 50% greater than each tax-
payer’s actual Michigan compensation expenses for
each tax year.
Where these two circumstances coincided, it was deter-
mined that application of the statutory apportionment
formula was unfair, justifying § 69 relief.
It appears both circumstances are present in the in-
stant case as well. While the Department has questioned
the accuracy of plaintiff’s compensation figures, no docu-
mentary evidence has been submitted to refute plaintiff's
verified tax returns. Therefore, under MCR 1985, 2.116
32¢
Exhibit 7—MTD
(G)(4), the Court is bound to aecept as true the compen-
sation figures reflected in plaintiff’s tax returns. Fur-
ther, it appears use of the apportionment formula yields
approximations of Michigan compensation which range
from 194% to 790° greater than actual Michigan compen-
sation for the tax years at issue.'’| The Department has
suggested no viable grounds for distinguishing the Jones
«& Laughlin case from plaintiff’s case. Accordingly, the
Court hereby adopts the reasoning employed by the Court
of Appeals in Jones & Laughlin in holding that Act’s
three-factor apportionment formula fails to aecurately
represent the extent of plaintiff’s Michigan business
activity.
II
It follows from the foregoing conclusion that plaintiff
is entitled to (69 relief. However, an alternate method
of caleulating plaintiff’s tax base is effective only if ap-
proved by the Department. Plaintiff soaght approval of
its two-step method through filing amended tax returns.
The Department rejected the amended returns based ap-
parently upon its determination that application of the
Act’s apportionment formula did not yield unfair results.
Thus, it appears the Department never considered the
appropriateness of plaintiff’s alternate method. The pre-
requisite to the effectiveness of an alternate method, the
‘The Court notes that even if the Act § 31(5) deduction. dis-
cussed infra, is accounted for, plaintiff's Michigan compensation
is greatly over-estimated by application of the apportionment
formula, ranging from 171°/o to 613°/o greater than actual com-
pensation for the tax years at issue.
33¢
Exhibit 7—MUTD
Department’s approval, was never actually granted or
denied. The Department never reached the question,
When confronted with this situation in Jones
Laughlin, the Tax Tribunal noted the Departn
a
ent had not
promulgated procedural rules Whereby a proposed alter-
nate method could be evaluated. The Tax Tribunal pro-
ceeded to establish and apply its own standard. It de-
termined that a proposed method ought to be approved if
it provides a ‘substantially more accurate representa-
tion’? of the taxpayer’s Michigan business activity. The
Tax Tribunal determined in Jones Laughlin that the
two-step method varied from the Act's apportionment
formula in one respect only: its treatment of Michigan
compensation expenses. Since the two-step method sub-
stituted a known actual amount for an estimated inae-
curate amount, the Tax Tribunal concluded the two-step
method represented the taxpaver’s Michigan business ac-
tivity with substantially more accuracy than the Act’s ap-
portionment formula. As to this finding, there is no gen-
uine issue of material fact. Under the standard estab-
lished in Jones & Laughlin, this finding alone is sufficient
to dictate that the Department should have approved the
two-step method. Consistent with Jones & Laughlin,
therefore, the Court holds the Department must accept
and approve plaintiff's use of the alternate two-step
method.
The Court is not unmindful of the Department's ob-
jection. Indeed, the Act’s apportionment formula has
been recognized as the ‘*preterred method established by
the Legislature for determining the extent of a taxpayer's
34e
Exrhibit 7—MTD
business activity in Michigan.’* Payne & Dolan of Was-
consin, Inc v Dep't of Treasury, 138 Mich App 418, 424;
360 NW2d 208 (1984). Consistent with this preference, the
Department denied plaintiff’s request to depart there-
from. Now, based on Jones d& Laughlin, this Court has
overruled [sic] the Department's decision, has found appli-
eation of the Act’s apportionment formula unfair, and has
found plaintiff's proposed alternate method substantially
more accurate. The Department argues it should be al-
lowed to propose and ultimately employ an alternate meth-
od which is even more accurate than plaintiff's two-step
method. The Court disagrees.
The Department finds itself in what may be perceived
as a disadvantageous position due to its own negleet. Un-
der § 104 of the Act, the Department is empowered and
required to promulgate rules governing the Act’s imple-
mentation. It appears, however, that no rules have been
promulgated to govern the procedure whereby the appro-
priateness of (69 relief is evaluated. In the absence of
such rules, the Tax Tribunal in Jones & Laughlin created a
determinative standard, discussed supra. The standard
does not provide for ascertainment of the ‘‘most accurate
method.’’ It provides simply that if a proposed alternate
method is substantially more accurate than the Act’s ap-
portionment formula, it should be approved. The standard
+: not without its shortcomings. However, inasmuch as it
represents the Tax Tribunal’s reasonable attempt to ad-
minister the Act in a manner consistent with legislative
intent, it is entitied to this Court’s deference. Moreover,
the standard has been ratified by the Court of Appeals.
Under these circumstances, and considering the present
35¢
Exhibit 7—MTD
facts are materially indistinguishable from those reviewed
in Jones & Laughlin, the Court does not deem it proper to
supplant the Jones & Laughlin standard with the new one
proferred by the Department.
Ill
The Department further objects to the conjunctive use
of plaintiff’s two-step method with the deduction per-
mitted under §31(5) of the Act. Section 31(5) provides
that a taxpayer ‘‘may elect to reduce the adjusted tax base
by the percentage that the compensation divided by the
tax bse [sic] exceeds 63%.” This deduction is designed to
give a tax break to labor-intensive businesses. Franken-
muth Mutual Ins Co v Dep’t of Treasury, 134 Mich App 489,
495; 350 NW2d 903 (1984). It provides for a deduction
from the taxpayer’s pre-apportionment adjusted tax base.
Id, 134 Mich App 496. Compensation exempted from the
pre-apportionment adjusted tax base is not included in the
numerator of the §31(5) caleulation. Id, 134 Mich App
497. Since, under plaintiff’s two-step method, all compen-
sation is excluded from the pre-apportionment adjusted
tax base, plaintiff is entitled to no deduction under § 31(5).
IV
Accordingly, plaintiff is entitled to summary disposi-
tion under MCR 1985, 2.116(C)(10). The Department is
hereby directed to accept and process plaintiff's amended
single business tax returns, disallowing any claimed § 31(5)
deduction, and refunding any overpayment to which plain-
tiff is entitled.
36e 37e
Exhibit 7—MTD Exhibit 8—AMP
IT IS SO ORDERED. STATE OF MICHIGAN
Dated: March 30, 1987 COURT OF CLAIMS
/s/ Robert Holmes Bell AMP INCORPORATED.
ROBERT HOLMES BELL hii
CIRCUIT JUDGE aintiff,
Docket No. 86-10216-CM
Vs,
STATE OF MICHIGAN
DEPARTMENT OF TREASURY,
REVENUE DIVISION,
Defendant.
/
JUDGMENT ORDER
At a session of said Court, held in the
City Hall Building, Lansing, Michigan,
on the 2ith day of April, of 1987.
PRESENT: TONORABLE MICHAEL G. HARRI-
SON, CIRCULT JUDGE
This Court, having reviewed evidence presented in
this proceeding relating to the request of Plaintiff for re-
lief under Section 69 of the Michigan Single Business Tax
Act, 1975 PLA, 228, MCL 208.1 ef seg, MSA 7.558 (101)
ef seq (herein the “Act™): and
This Court having reviewed the affidavit of Stephen
Horoshak, Director of Taxes for AMP Ineorporated, and
This Court having also reviewed the pleadings and
Plaintiff's Motion for Summary Disposition: and
This Court further finding that appleatron of the stat
utory three factor apportionment formula against) the
38e¢
Exhibit 8—AMP
compensation component of Plaintiff’s tax base exces.
sively attributes compensation to Michivan by more than
890, when compared with what the parties have admitted
to have heen Plaintiff's Michigan actual compensation for
each of the vears here at issue: and
This Court further finding that the alternative assign-
ment of compensation as reflected in Plaintiff’s claims will
more fairly represent Plaintiff's business activity in this
State for each of the vears here at issue:
NOW, THEREFORE, AT IS HEREBY ORDERED
that:
1. In order to more fairly represent Plaintiff’s busi-
ness activity in Michigan for its tax vears 1980, 1981, 1982,
1983 and 1984, Plaintiff is entitled to relief under Section
6 of the Single Business Tax <Aet.
2. The measure of the relief to which Plaintiff. is
eutitled is represented by methodology outlined in Plain-
tiff’s claim; which applies the three factor apportionment
formula under the Act to all components of Plaintiff's tax
base except for compensation where, instead of apportion-
ment, there is allocated to this state for each of the years
here at issue Michigan actual compensation in the follow-
ing amounts: 1980, $452,229: 1981], $481,862; 1982, $541,-
786: 1983, $595,230: 1984, $694,286.
3. As the Section 69 relief to be accorded Plaintiff
by allocating compensation to the extent indicated above
in paragraph 2 of this Order, Defendant shall refund to
Plaintiff One Hundred Fifty-Five Thousand Fight Hun-
dred Forty-Three and No/100 ($155,843.00) Dollars of
39e
Exhibit 8—AMP
single business tax, in the aggregate, for all years covered
by this dispute, together with interest at the applicable
statutory rate.
/s/ MICHAEL G. HARRISON
MICHAEL G. HARRISON
Circuit Judge
APPROVED FOR ENTRY:
/s/ Charles FE. Liken
Charles E. Liken
Assistant Attorney General
40¢
Exhibit 9—Trinova
STATE OF MICHIGAN
IN THE COURT OF CLAIMS
TRINOVA CORPORATION, ( formerly
LIBBEY-OWENS-FORD COMPANY),
Plaintiff,
File No. 86-10430-CM
HON. ROBERT HOLMES BELL
YS.
STATE OF MICHIGAN, DEPART M ENT
OF TREASURY, REVENUE DIVISION,
Defendant.
OPINION AND ORDER OF THE COURT
This case presents an action by plaintiff, Trinova Cor-
poration, to recover an alleged overpayment of taxes saa
der the Single Business Tax Act. The Department ot
Treasury's answer thereto includes a counterclaim, assert-
ing plaintiff actually owes additional tax for tax year
1980. Both parties have moved for summary disposition
under MCR. 2.116(C)(9), asserting their opponent has
failed to state a valid defense.!
INormally, a mot.on for summary disposition under i
2.116(C)(9) is based exclusively on the pleadings. Pe sl
ever, both parties have asked the Court to also consider a neocon
ment entitled ‘Stipulated Facts” in’ evaluating their mo a.
Pursuant to this mutual request, this document is herein beg a °
as a pleading in which speaks on behalt of both parties as to
both claims betore the Court
tle
Exhibit 9—Trinova
Plaintiff is an Ohio corporation which conducts busi-
ness in Michigan. For the privilege of doing business in
Michigan during tax year 1980, plaintiff paid tax under
the Single Business Tax Act (“Act”), MCL 208.1 et seq.:
MSA 7.558(1) et seq. Plaintiff's tax liability for 1980
Was computed through application of the Act's ‘45 formu-
la. Plaintiff paid this amount, $295,528, in full. In 1985
plaintiff filed an amended single business tax return, re-
,
questing the Department of Treasury (“Department”) to
re-calenlate its 1980 tax liability by an alternate method.
When the request was denied, plaintiff filed the instant
complaint, asking the Court to rule that plaintiff is en-
titled to use the alternate method and to award a total
fax refund of $293,528. In its counterclaim, the Depart-
ment, too, asserts plaintiff's 1980 single business tax lia-
bility ought to have been ealeulated by an alternate meth-
od. According to its proposed method, plaintiff owes
additional tax in the amount of $76,804.
The Act imposes a specifie tax on the adjusted tax
hase of every person who conducts business in Michigan.
The “adjusted tax hase” is essentially federal taxable in-
come, subject to certain additions and subtractions enu-
merated at 49 of the Act. One of these “adjustments,”
at © 9(5), requires the taxpaver to add compensation paid
its emplovees to its tax base. Similarly, © 9(4)(e) requires
the taxpayer to add to its tax base any tangible assets de-
preciation deductions which had been subtracted in arriv
ing at federal taxable income. Thus compensation ex
42¢
Exhibit 9—Trinova
penses and an amount equal to depreciation deductions
previously taken become part of the adjusted tax base. In
order to determine what portion of the adjusted tax base
of a corporation like plaintiff, which conducts business
within and without Michigan, is taxable as Michigan busi-
ness activity, a three-factor apportionment formula is
applied. Seetion 45 of the Act provides:
All of the tax base, other than the tax base de-
rived principally from transportation, financial, or
insurance carrier services or specifically allocated,
shall be apportioned to this state by multiplying the
tax base by a fraction, the numerator of which is the
property factor mlus the payroll factor plus the sales
factor, and the denominator of which is 3.
Application of this apportionment formula is designed to
produce a reasonable approximation of that share of a
multi-state taxpayer's business activity which is attribut-
able to Michigan. Because the resultant approximation
may be more or less accurate, depending on taxpayer-spe-
cifie circumstances, relief from the apportionment formula
is sometimes available under § 69 of the Act:
(1) If the apportionment provisions of this act
do not fairly represent the extent of the taxpayer's
business activity in this state, the taxpayer may peti-
tion for or the commission [sic] may require, in re-
spect to all of any part of the taxpayer’s business ac-
tivity, if reasonable:
(a) Separate accounting.
(b) The exelusion of any | or more of the fac-
tors.
43e
Exhibit 9—Trinova
(c) The inelusion of 1 or more additional factors
which will fairly represent the taxpayer’s business ae-
tivity in this state.
(d) The employment of any other method to
effectuate an equitable allocation and apportionment
of the taxpayer’s tax base.
(2) An alternate method will be effective only
if it is approved by the commissicner.
Plaintiff attempted to take advantage of this , 69 re-
lief by filing an amended return which incorporated a two-
step apportionment/allocation method. This method in-
cludes allocation of actual Michigan compensation ex-
penses and actual Michigan depreciation amounts, rather
than estimation thereof through apportionment. In other
words, plaintiff excluded compensation and depreciation
amounts from its preapportionment adjusted tax base, con-
trary to 69. The apportionment formula was applied to
plaintiff’s adjusted tax base less compensation and de-
preciation. Then, the known amounts of plaintiff’s Mich-
igan compensation and depreciation were added to the
apportionment product to yield that portion of plaintiff’s
total business activity attributable to Michigan. The De-
partment refused to ~vprove this alternate two-step meth-
od even though the Tax Tribunal and the Court of Appeals
had previously recognized it as legitimate and appropriate
under similar circumstances. See Jones & Laughlin Steel
Corp v Dep't of Treasury, 145 Mich App 405; 377 NW2d
397 (1985), lv den 424 Mich 894 (1986).
In defense of its decision, the Department contends
the Jones & Laughlin ruling is not a binding precedent.
44e
Exhibit 9—Trinova
The Department presents arguments based on other au-
thorities which were largely rejected by the Jones € Laugh-
lin court. Adjudication of plaintiff's claim depends al-
most exelusively upon the force and effect of Jones &
Laughlin.
The Jones & Laughlin Steel Corporation and Wilson
Foods Corporation filed single business tax returns for
tax vears 1976, 1977 and 1978, using the above-deseribed
two-step method. The Department refused to approve the
method. The Tax Tribunal overruled the Department,
holding (1) that the statutory apportionment formula
failed to aceurately represent the taxpayers’ Michigan
business activity; and (2) that the alternate two-step meth-
od vielded a substantially more aceurate result. Jones &
Laughlin Steel Corp v Dep't of Treasury, MTT Docket
Nos. 57892 and 57893, Opinion & Judgement dated Septem-
her 5, 1984. The Court of Appeals affirmed the Tax
Tribunal judgment. Thus, the Court of Appeals’ Jones
¢& Laughlin ruling does not establish a broad rule of gen-
eral applicability. It is merely an affirmance of the Tax
Tribunal’s treatment of two taxpayers under the Single
Business Tax Act. Yet, while it may be inaccurate to
characterize Jones & Laughlin as ‘binding preeedent,”’
to the extent the instant fact situation is materially indis-
tinguishable from the one treated in Jones & Lauahlin,
the Court of Appeals’ reasoning certainly represents per-
suasive authority.
soth the Tax Tribunal’s and the Court of Appeals’
determination that application of the statutory apportion-
ment formula vielded inaccurate results as to Jones &
45e
Exhibit 9—Trinova
Laughlin Steel and Wilson Foods rested essentially upon
two findings:
(1) that each taxpayer’s actual compensation
expenses attributable to Michigan was a known
amount; and
(2) that application of the statutory apportion-
ment formula to each taxpayer’s total compensation
expenses yielded an apportioned compensation ap-
proximation more than 50° greater than each tax-
payer's actual Michigan compensation expenses for
each tax vear.
Where these two circumstances coincided, it was deter-
mined that application of the statutory apportionment
formula was unfair, justifying © 69 relief,
Based on the pleadings, it appears both cireumstances
are present in the instant case as well, as to both compen-
sation and depreciation. Plaintiff's 1980 apportioned
Michigan compensation is approximately 40 times greater
than actual compensation ($20,308,006 vs $511,774), while
apportioned Michigan depreciation is approximately 1000
times greater than actual depreciation ($2,087,078 vs
$2,152).
The Department has suggested no viable grounds for
distinguishing Jones & Laughlin from plaintiff's case. In-
stead, the Department argues simply the Jones & Laugh-
lin reasoning is defective and should be ignored. Contrary
to Jones & Laughlin, the Department maintains it is not
enough to show that one or even two elements of a tax-
payer's business activity are over-estimated by application
of the Aet’s formula. Rather, the Department argues, the
46¢
E.xchibit 9—Trinova
Act’s formula should be departed from only if its appli-
eation results in unfairly high or unfairly low taxation.
The Jones & Laughlin court addressed this argument
directly as follows:
The inquiry does not turn on the end result, Le., tax
liability. Rather, it turns on whether the basis for
computing tax liability is fair, ie., is the business ac-
tivity subject to taxation accurately reflected by appil-
cation of the three factor formula? 145 Mich App 412.
The Court of Appeals went on to hold that where even
just one element of business activity is shown, by clear and
convineing evidence, to be inaccurately represented by
application of the apportionment formula, § 69 relief is
available.
Whether this Court agrees entirely with this ruling is
immaterial. It is this Court’s function to interpret and
apply the Single Business Tax Act in accordance with leg-
islative intent and the pronouncements of the state’s
higher courts. Accordingly, the Court believes the Court
of Appeals’ Jones & McLaughlin decision is entitled to
more respect than the Department is willing to acknowl-
edge. The Court hereby adopts the reasoning employed
therein and holds as a matter of law based on the plead-
ings that the Act’s apportionment formula fails to ac-
eurately represent plaintiff’s Michigan business activity.
i
It follows that plaintiff is entitled to § 69 relief. How-
ever, an alternate method of calculating plaintiff’s tax
base is effective only if approved by the Department. It
47¢
Exhibit 9—Trinova
appears the Department never passed upon the appropri-
atencss of plaintiff's proposed alternate two-step method
heeause it believed the Act’s formula was suitable. When
confronted with this situation in Jones & Laughlin, the
Tax Tribunal noted the Department had not promulgated
procedural rules whereby a proposed alternate method
could be evaluated. The Tax Tribunal proceeded to estab-
lish and apply its own standard. It determined that a
proposed method ought to be approved if it provides a
‘‘snbstantially more accurate representation’’ of the tax-
payer’s Michigan business activity. The Tax Tribunal de-
termined in Jones & Laughlin that the two-step method
varied from the Act’s apportionment formula in one re-
spect only: its treatment of Michigan’s compensation ex-
penses. Since the two-step method substituted a known
retual amount for an estimated inaccurate amount, the
Tax Tribunal concluded the two-step method represented
the taxpayer’s Michigan business activity with substan-
tially more accuracy than the Act’s apportionment form-
ula. Thus, the taxpayers were permitted to use the two-
step method over the Department’s objection. The Court
of Appeals affirmed this result.
Here, the pleadings suggest similar treatment is justi-
fied. Applying the standard established in Jones &
Laughlin, it is clear the Department should have approved
plaintiff’s proposed two-step method. It represents plain-
iff’s Michigan compensation and depreciation with sub-
stantially more accuracy than the Act’s apportionment
formula and does not further distort any other element
of plaintiff’s business activity. The Department has not
48¢
Exhibit 9—Trinova
disputed this fact, but objects to the resultant reduction in
plaintiff’s tax liability. Consistent with the Court of Ap-
peals’ rejection of this arguinent, the Court concludes the
Department has failed to state a valid defense. Plaintiff’s
unrefuted allegation that the two-step method represents
two elements of its business activity with substantialiy
more accuracy than the apportionment formula justifies
summary declaration in plaintiff's favor. Whether plain.
tiff is entitled to refund or tax paid, however, is a ques-
tron which depends in part upon resolution of the Depart
ment’s counterelaim.
Although the Department, in defending against plain-
tiff’s claim, contends the Act's formula does fairly repre
sent plaintiff's 1980 Michigan business activity, its count:
erclaim asserts the contrary position. The Department
alleges therein that application of the Act’s formula fails
to fairly represent (1) ‘the extent of Plaintiff's use of
the State of Michigan as a market for its products ;’* and
(2) “the signifieant amount of receipts which Plaintiff
derives from its business activities in Michigan.’ The
Department proposes an alternate method based solely
upon plaintift’s Michigan sales. This method, too, is said
to represent plaintiff's Michigan business activity sub
stantially more accurately than the Act's apportionment
formula. Asserting plaintiff has stated no valid defense
to the claim, the Department moves for summary dispost-
tion in its favor.
Plaintiff admits its actual 1980) Michigan ‘*sales,”
(gross receipts obtained in consideration for transfer of
inventory to eustomers in the ordinary course of
business and for performance of services), amounted to
49e
Exhibit 9—Trinova
$103,981,354. Using the Act's formula, Michigan sales
were estimated to be only $35,196,000. While admitting
this circumstance may justify departure from the Act’s
formula, plaintiff contends the Departinent’s proposed
alternate method is not substantially more accurate. In
fact, both parties acknowledge that use of the Depart-
ment’s proposed one-factor formula results in even more
extreme exaggerations of plaintiff’s Michigan compensa-
tion and depreciation than use of the Aet’s formula. (Stip-
ulated Facts, pp 6, 7.) The very evil which the Tax Tri-
bunal and Court of Appeals sought to avoid in Jones &
Laughlm, taxation of extra-territorial business activity,
ix thus compounded by use of the Department's proposed
formula. This cannot be permitted. The Court must con-
clude the Department’s proposed one-factor method does
not represent plaintiff’s business activity with substan-
tially more accuracy than the <Act’s apportionment
formula.
It must be remembered that the Act’s apportionment
formula has been recognized as the ‘‘preferred method
established by the Legislature for determining the extent
of a taxpayer's business activity in Michigan.’’ Payne &
Dolan of Wisconsin, Ine v Dep't of Treasury, 138 Mich
App 418, 424; 560 NWead 20s (1984). The two-step method
proposed by plaintiff, sv#pra, pays deference to this preter
ence by departing therefrom minimally. Tt apples the
Act’s apportionment formula to all elements of plaintiff's
tax base except compensation and depreciation. It further
ensures that plaintiff's compensation and depreeiation are
even more accuratels represented hy allocating the actual
amounts. While plaintiff’. two step method does not cor
50¢
Exhibit 9—Trinova
rect the under-estimation of plaintiff’s Michigan sales
caused by use of the Act’s formula, neither does it com-
pound the distortion. Plaintiff’s method does not repre-
sent its business activity with perfect exactitude, but it is
superior to the Act’s formula.
On the other hand, the Department’s prossed alter-
nate method represents a profound departure from the
Act’s formula. It replaces the legislatively preferred
three-factor formula with a one-factor (sales) formula,
eliminating the payroll and property factors from the
equation. Not only does it appear to attach inordinate
importance to plaintiff's sales, but it greatly distorts
plaintiff's compensation and depreciation expenses. It is
anything but an improvement upon the Act’s formula.
The Court finds that plaintiff has stated a valid de-
fense to the counterclaim. The Department’s motion for
summary disposition must be denied. Furthermore, the
pleadings compel the conclusion that, as to the Depart-
ment’s counterclaim, there is no genuine issue of material
fact. As a matter of law, the Court holds the Depart-
ment’s proposed alternate method is not substantially
more accurate than the Act’s formula. The Department
is not entitled under $69 of the Act to employ its pro-
posed one-factor formula in determining plaintiff’s single
business tax. Plaintiff is entitled to summary disposition
under MCR 2.116(1) (1).
Based on the premises, the Department’s counterclaim
is hereby dismissed. Further, plaintiff is awarded sum-
mary disposition as to its claim under MCR 2.116(C)(9).
The Department is hereby directed to accept and process
dle
Exhibit 9—Trinova
plaintiff’s amended single business tax returns for tax
year 1980, refunding any overpayment and interest to
which plaintiff is entitled.
IT IS SO ORDERED.
Dated: May 5, 1987
/s/ Robert Holmes Bell
ROBERT HOLMES BELL
CIRCUIT JUDGE sitting in ©
the Court of Claims
ee a es
= ———EE OEE _ — eee ee ree Sr en ee ae
52e
Rahibit 10—Penton
STATE OF MICHIGAN
IN THE COURT OF CLAIMS
ee —____ - i SS
PENTON INDUSTRIAL
PUBLISHING CO. INC,
Plaintiff,
File 86-10231-CM
A, 5
HON. ROBERT
STATE OF MICHIGAN, HOLMES BELL
DEPARTMENT OF TREASURY,
REVENUE DIVISION,
Defendant.
OPINION AND ORDER OF THE COURT
This is an action under MCL 2OS.88; MSA 7.558(88)
to recover taxes paid by plaintiff. Now before the Court
are cross-motions for summary disposition based upon the
pleadings.
Plaintiff, Penton Industrial Publishing Co., Ine., is a
Delaware Corporation whose principal office is in Cleve
land, Ohio. Plaintiff conducts business in Michigan, oper-
ating an advertising sales office and emploviug eight per-
sons. For the privilege of doing business in Michigan
during tax years 1980, 1981, 1982 and 1983, plaintiff paid
tax under the Single Business Tax Act (**Aet’’), MCL
208.1 ef seq: MSA 7.508(1) ef seq. Plaintiff's tax liability
for each vear Was computed through application of the
Se
Bahibit 10—Penton
Act’s © 45 apportionment formula. Plaintiff's requests to
use an alternate formula which would have vielded a
stmnaller tax liability for each vear, have been denied by
the Department of Treasury (**Department’’). The Court
is asked to rule that plaintiff is entitled to use the alter-
nate formula and to award a total tax refund of $28,275.
I
The Single Business Tax Act imposes a specifie tax
on the adjusted tax base of every person who conduets
business in Michigan. The *tadjusted tax base’? is essent-
ially federal taxable income, subject to certain additions
and subtractions enumerated at © 9 of the Aet. One of
these *tadjustments,’’ at © 9 (5), requires the taxpayer to
add compensation paid its emplovees to its taxable in-
come. Thus, compensation becomes a part of the adjusted
tax base. In order to determine what portion of the ad-
justed tax base of a corporation like plaintiff, which con-
duets business within and without Michigan, is taxable as
Michigan business activity, a three-factor apportionment
formula is applied. Section 45 of the Act provides:
All of the tax base, other than the tax base de-
rived principally from transportation, financial or
insurance Carrier serviees or specifically allocated,
shall be apportioned to this state by multiplying the
tax base by a fraction, the numerator of which is the
property factor plus the payroll factor plus the sales
factor, and the denominator of which is 5.
Application of this apportionment formula is designed to
produce a reasonable apprormmation of that share of a
multistate taxpaver’s business activity which is attribut-
o4+e
Exhibit 10—Penton
able to Michigan. Because the resultant approximation
tay be more or less accurate, depending on taxpayer-
specifie ciremmstances, relief from the apportionment
formula is sometimes available under $69 of the Act:
(1) If the apportionment provisions of this act
do not fairly represent the extent of the taxpayer's
business activity in this state, the taxpayer may pet
tion for or the commission [sie] may require, im re-
spect to all or any part of the tavnaver’s business
activity, if reasonable :
(a) Separate accounting.
(b) The exclusion of any 1 or more of the factors.
(c) The inelusion of 1 or more additional factors
which will fairly represent the taxpayer's busi-
ness activity in this state.
(d) The employment of any other method to ef-
fectuate an equitable allocation and apportion
ment of the taxpayer's tax base.
(2) An alternate method will be effective only
if it is approved by the commissioner.
Plaintiff attempted to take advantage of the relief
available under © 69 by filing returns which incorporated
a two-step apportionment allocation method. This method
includes allocation of plaintiff's actual Michigan compen
sation expenses, rather than estimation thereof through
apportionment. In other words, plaintiff excluded com
pensation from its pre-apportionment adjusted tax base,
ecoutrary to £905). The apportionment formula was ap
plied to plaintiff's adtusted! tax hase less compensation.
Then, the known amount of plaintiff’s Michigan compen
sation expenses was added to the apportionment produet
5dC
Exhibit 10—Penton
to yield that pertion of plaintiff's total business activity
attributable to Michigan. The Department refused to ap-
prove this alternate two-step method even though the Tax
Tribunal and the Court of Appeals had previously recog-
nized it as legitimate and appropriate under similar eir-
cumstances, See Jones & Laughlin Steel Corp + Dep't of
Treasury, 145 Mich App 405: 577 NWe2d 397 (1985), /e den
14 Mich 894 (1986).
In defense of its decision, the Department contends
the Jones & Laughlin ruling is not a binding precedent.
The Department presents arguinents based on other autb-
orities Which were largely rejected by the Jones d& Laugi-
lim court. Adjudication of plaintiff’s claim depends almost
exclusively upon the force and effect of Jones & Lauchlin,
The Jones & Laughlin Steel Corporation and Wilson
Foods Corporation filed single business tax returns for
tax years 1976, 1977 and 1978, using the above-deseribed
two-step method. The Department refused to approve the
method. The Tax Tribunal overruled the Department,
holding (1) that the statutory apportionment formula
failed to accurately represent the taxpaver’s Michigan
business activity; and (2) that the alternate two-step
method. The Tax Tribunal overruled the Department,
Jones & Laughlin Steel Corp v Dep't of Treasury, MVT
Docket Nos. 57892 and 57893, Opinion & Judgment dated
September 5, 1984. The Court of Appeals affirmed the
Tax Tribunal judgment. Thus, the Court of Appeals’
Jones & Laughlin ruling does not establish a broad rule
of general applicability. [t is merely an affirmance of the
Tax Tribunal’s treatment of two taxpayers under the
Single Business Tax Aet. Yet, while it may be inaccurate
De
Exhibit 10—Penton
to characterize Jones d Laughlm as **bincing precedent,”
to the extent the instant fact situation is materially indis-
tinguishable from the one treated in Jones d& Laughlin, the
Court of Appeals* reasoning certainly represents persua
sive authority.
Both the Tax Tribunal’s and the Court of Appeats’
determination that application of the statutory apportion-
ment formula yielded) inaccurate results as to Jones &
Laughlin Steel and Wilson Foods rested essentially upon
two findings:
(1) that each taxpayer’s actual compensation
expenses attributable to Michigan was a known
amount; and
(2) that application of the statutory apportion-
ment formula to each taxpayer's total compensation
expenses vielded an apportioned compensation ap
proximation more than 50° greater than each tax-
payer's actual Michigan compensation expenses for
each tax year.
Where these two circumstances coincided, it was deter-
mined that application of the statutory apportionment
formula was unfair, justifving © 69 relief.
Plaintiff has alleged both circumstances are present
in the instant case as well, asserting its apportioned Mich-
igan compensation is more than 100% greater than actual
Michigan compensation for each tax year at issue. The
Department, in its answer, has admitted these allegations,
but maintains they are inconsequential. Unable to dis-
tinguish the present facets from those treated in Jones a
Laughlin, the Department argues simply the Jones &
Laughlin reasoning is defective and should be ignored.
d7Te
Rarhibit 10—Pe nton
Contrary to Jones & Lauahlin, the Department maintains
it is not enough to show that one element of a taxpayer's
business activity is over-estimated by application of the
Act’s formula. Rather, the Department argues, the Act's
formula should be departed from only if its application
results in unfairly high or unfairly low taxation,
The Jones & Laughlin court addressed this argument
directly, as follows:
The inquiry does not turn on the end result, ie, tax
liability. Rather, it turns on whether the basis for
computing tax liability is fair, ie. is the business ae-
tivity subject to taxation aceurately reflected by appli
cation of the three-faetor formula? 145 Mieh App 4i2.
The Court of Appeals went on to hold that where even just
one element of business aetivity is shown, by clear and
convineine evidence, to be inaccurately represented by
application of the apportionment formula, (69 relief is
available,
Whether this Court agrees entirely with this ruling
is immaterial. Tt is this Court’s funetion to interpret and
apply the Single Business Tax Aet in accordance with leg-
islative intent and the pronouncements of the state’s higher
courts. Accordingly, the Court believes the Court of Ap-
peals’ Jones & Laughlin decision is entitled to more re-
speet than the Department is willing to acknowledge. The
Court hereby adopts the reasoning emploved therein and
holds the Aet’s three-factor apportionment formula fails
to accurately represent the extent of plaintiff’s Michigan
business activity.
ose
Eehihit 10—Penton
II
It follows that plaintiff is entitled to * 69 relief. Tow-
ever, an alternate method of ealeulating plaintiff’s tax
base is effective only if approved by the Department. It
appears the Department never passed upon the appropri-
ateness of plaintiff"’s proposed alternate two-step method
heeause it believed the Act’s formula was suitable. When
confronted with this situation in Jones & Laughlin, the
Tax Tribunal noted the Department had not promulgated
procedural rules whereby a proposed alternate method
conld be evaluated. The Tax Tribunal proceeded to estab-
lish and apply its own standard. It determined that a pro-
posed method onzht to be approved if it provides a ‘*sub-
stantially more acenrate representation’? of the taxpayer's
Michigan business aetivity. The Tax Tribunal determined
in Jones & Lauahlin that the two-step method varied from
the Act’s apportionment formula in one respeet only: its
treatment of Michigan compensation expenses. Sinee the
two-step method substituted a known actual amount for
an estimated inaccurate amount, the Tax Tribunal con-
cluded the two-step method represented the taxpayer’s
Michigan business activity with substantially more ae-
curacy than the Act’s apportionment formula. Thus, the
taxpayers were permitted to employ the two-step method
over the Department's objection. The Court of Appeals
affirmed this result.
Here, plaintiff’s unrefuted allegations justify similar
treatment. Applying the standard established in Jones &
Lauahim, it is clear the Department should have approved
the two-step method. It represents plaintiff's Michigan
59e
Rahihit 10—Pent on
compensation expenses with substantially more acenraey
than the Act’s apportionment formula. The Department
has failed to state a valid defense to the claim.’ Consis-
tent with Jones & Lauahlin, therefore, the Court holds the
Department must accept and approve plaintiff's nse of the
alternate two-step method.
The Department's objection to this result is under-
standable. Indeed, the Act’s apportionment formula has
heen recoenized as the ‘preferred method established hy
the Legislature for determining the extent ofa taxpaver’s
business activity in Michigan.” Payne & Dolan of Wis-
cousin, Ine ve Dep't of Treasury, 138 Mich App 418, 424:
360 NW2d 208 (1984). Consistent with this preference,
the Department denied plaintiff's requests to depart there-
from. Now, based on Jones & Lanahlin and the pleadings
here presented, the Court has coneluded as a matter of
law (1) that application of the Aect’s formula is unfair,
(2) that plaintiff’s proposed alternate method is substan-
tially more accurate, and (3) that the Department must
approve plaintiff’s use of the alternate method. The De
partment arenes that even if these first two eonclusions
are assumed to be true, they do not compel the third con-
clusion. Rather, the Department contends, the first two
‘In paragraph 3 of its answer, the Department raised the
statute of limitations as a bar to plaintiff's claim for refund
of its alleged 1980 tax overpayment. Inasmuch as this defense
has not been incorporated as an affirmative defense under a
separate and distinct heading in the answer, as required by
MCR 2.111(3), and has not been advanced in support of the
Department's motion for summary disposition, it is deemed
waived.
60e
Exrhibit 10—Penton
conelnsions merely open the deor to an inquiry as to which
of potentially several alfernate methods would best repre-
sent the taxpayver’s Michigan business aetivity. This in
quiry is said to raise a question of faet which precludes
summary disposition based on the pleadings. The Court
disagrees,
The Department finds itself in what may be perceived
asa disadvantageous position due to its own neglect. Un-
der 104 of the Act, the Department is empowered and re-
quired to promulgate rules governing the Act's implemen-
tation. Tt appears, however, that no rules have been
promulgated to vovern the procedure whereby the up-
propriateness of © 69 relief is evaluated. In the absence
of such rules, the Tax Tribunal in Jowes Laughlin ere-
ated a determinative standard, discussed supra. The
standard does not provide for ascertainment of the ‘most
accurate method.’* It provides simply that if a proposed
alternate method is substantially more aceurate than the
Act’s apportionment formula, it should be approved. The
standard is not without its shorteomings. However, inas-
much as it represents the Tax Tribnnal’s reasonable at.
tempt to administer the Aet in a manner consistent with
legislative intent, it is entitled to this Court’s deference.
Moreover, the standard has been ratified by the Court of
Appeals. Under these cireumstances, and considering the
facts here alleged are materially indistinguishable from
those reviewed in Jones & Lanahlin, the Court does not
deem it proper to supplant the Jones & Laughlin standard
with the new one proffered by the Department.
6le
Exhibit 10—Penton
Ill
Accordingly, the Court holds as follows: (1) the De-
partment’s motion for summary disposition under MCR
ZAIG(C) CS) is denied; (2) plaintiff’s motion for summary
disposition under MCR 2.116(C)(9) is granted? and (3)
the Department shall accept and process plaintiff's single
business tax returns for tax years 1980, 1981, 1982 and
1983; employing the alternate two-step method, and re-
funding any overpayment and interest to which plaintiff
is entitled,
IT IS SO ORDERED.
/8/ Robert Holmes Bell
ROBERT HOLMES BELL
CIRCUIT JUDGE sitting in
the Court of Claim
Dated: May 22, 1987
*This holding renders the Department's pending motion
to compel answers to interrogatories moot. The motion is
denied without further consideration.
62e
Exhibit 11—-1987 Public Act 39
STATE OF MICHIGAN
S4th LEGISLATURE
REGULAR SESSION OF 1987
Introdueed by Reps. Jondahl, Bryant, Berman, Smith,
Brown, Weeks, Hickner, Hunter, Murphy, Browne, Trim
and Van Singel
ENROLLED HOUSE BILI NO. 43898
AN ACT to amend seetion 69 of Act No. 228 of the
Publie Aets of 1975, entitled “An aet te provide for the
position, levy, compntation, collection, assessment and
enforcement, by lien or otherwise. of taxes on certain com-
mercial, business, and financial activities: to preséribe the
manner and times of making certain reports and paying
faxes: to preseribe the powers and duties of public officers
and state departments: to permit the inspection of reeords
of taxpavers; to provide for interest and penalties on un-
paid taxes; to provide exemptions, credits, and refunds;
to provide penalties; to provide for the disposition of
funds; to provide for the interrelation of this act with
other acts; and to provide an appropriation,’’ being see-
tion 208.69 of the Michigan Compiled Laws.
The People of the State of Michigan enact:
Section 1. Section 69 of Act No. 228 of the Publie
Acts of 1975, being section 208.69 of the Michigan Com-
piled Laws, is amended to read as follows:
Sec. 69.(1) Lf the apportionment provisions of this
act do not fairly represent the extent of the taxpayer’s
business activity in this state, the taxpayer may petition
O3e
Erhilit 11-~-1987 Public Act 39
for or the commissioner may require the following, in re-
spect to allor a part of the taxpayer's business activity, if
reasonable:
(a) Separate accounting.
(bh) The exelusion of 1 or more of the factors,
(¢) The inelusion of 1 or more additionai factors
which will fairly represent the taxpayver’s business activity
in this state.
(d) The emplovment of any other method to effee-
tuate an equitable alloeation and apportionment of the tax-
paver’s tax base.
(2) An alternate method will be effective only if it
ic approved by the commissioner,
(3) The apportionment provisions of this aet shall
fairly represent the business activity attributed to the tax-
paver in this state, taken as a whole and without a sep-
arate examination of the specific elements of the tax base
such as depreciation, compensation, or income, unless it
can be demonstrated that the business activity attributed
to the taxpayer in this state is out of all appropriate pro-
portion to the actual business transacted in this state and
leads to a grossly distorted result. A taxpayer's business
activity shall be presumed to be fairly represented if the
adjusted tax base computed without regard to the reduce
tion based upon ross receipts permitted by section 31(2)
is not greater than the adjusted tax base computed after
application of the reduction based upon gross receipts per-
mitted by section 31(2) or if the adjusted tax base is not
bte 65e
Exhibit 11— 1987 Public Act 39 Bahibit 11—1987 Public Act 39
ereater than the adjusted tax base which wonld result /8/ David IT. Evans
from an apportioned tax base computed by using the ap- | : Clerk of the House of Representatives.
portionment formnla prescribed for a corporate income /8/ Mlegible
tax or franchise tax in the taxpaver’s business domicile. | Secretary of the Senate.
The taxpayer's business domicile is the state in which the | IID ia vncitesmiciorisinataoamensaiinesioesacee:
sum of the fuxpaver’s navroll factor and property factor a noe rere edboseccouneeorents pieieneeebewsiatine a ~ ieteinainbeganiaiets —
' ie Governor.
is greatest. However, if the taxpayer fails to satisfy either
of these fests. the taxpaver’s business activity shall not :
he presumed to not be fairly represented.
(4) The filing of a return or an amended return °
shall not he considered a petition for the purposes of sub-
section (1).
(5) As used in this section, “adjusted tax base”
means that term as defined in section 31.
Section 2. This amendatory act is curative, express-
ing the original intent of the legislature that the single
business tax imposed under the single business tax act, Act
No, 228 of the Public Acts of 1975, being sections 208.1 to
208.145 of the Michigan Compiled Laws, is an indivisible
value added type of tax and not a combination or series of
several smaller taxes and that relief from formulary ap-
portionment should be granted only under extraordinary
circumstances. This amendatory act clarifies the existing
procedures and standards for granting relief under see-
tion 69 of the single business act, Aet No. 228 of the Pub-
lic Aets of 1975, being section 208.69 of the Michigan Com-
piled Laws,
This act is ordered to take immediate effect.
Hie
Kahihit 12—Conselidation Coal
STATE OF MICHIGAN
COURT OF CLALMS
CONSOLIDATION COAL COMPANY,
Plaintitf, Docket No. 82-8407
Vv HON. THOMAS L. BROWN
REVENUE DIVISION,
DEPARTMENT OF TREASURY,
STATE OF MICHIGAN,
Defendant.
Patrick R. Van Tiflin (P26119)
Attorney for Plaintitf
Foster, Swift, Collins & Coey, PLC.
313 South Washington Square
Lansing, Michigan 48955
Curtis G. Beek (P1600)
Assistant Attorney General
Attorney for Defendant
ORDER AND JUDGMENT
At a session of said Court held in the Cir-
euit Courtrooms in City Hall in the city
of Lansing, county of Ingham, state of
Michigan, on the 27th day of Ang., 19s7.
PRESENT: Honorable Thomas L. Brown, presiding
This matter having come on for hearing on August
21, 19ST on Plaintiff’s Motion for Surmmary Disposition,
and the Court having reviewed the Stipulation of Facts
and Plaintiff's Motion, Brief and Affidavit in support of
O76
Koarhihit 12—C'onsolidation Coal
said) Motion, and the Court havine heard oral argument
thereon snd beine otherwise duly advised ino the prem
ses; NOW THEREFORE IT IS
ORDERED, that Plaintiff's Motion for Summary
Disposition is eranted for the reason that, pursuant. te
MOR 2.116(€00(9), the Defendant has friled to state a
valid defense to the eloim asserted avainst it by the Plain-
tiff, the Conrt finding that Defendant's asserted defense
of 19ST Poblie Net So is not appliesble to Plaintiff's elaim
for refund herein, and further, pursuant to MCR 2.116(C)
(10) for the reason that the result in thistease is governed
hy © 69 of the Single Business Tax Act as originally enact-
ed and as interpreted and applied by the Miehivan Court
of Appeals in Jowes & Lavahlin Steel Corporation v Michi-
aan Departmevt of Treasury. 145 Mich App 405, 377 NWed
B97 (1985). le den 424 Mich 895 (1986), wot for reconsid
den 424 Mich 895 (1986) and there is no vennine issue as
to any material fact and Yhe Plaintiff is entitled to judg-
ment as a matter of law in the amount of $1,427.532.00 to-
vether with interest thereon ealeulated in accordanee with
MCLA 205.30.
s° Thomas L. Brown
Honorable Thomas L. Brown
Court of Claims Judge
Approved as to form:
s Curtis G. Beek
Curtis G. Beck (P1T0060)
Attorney for Defendant
Entered on this 27 day of August, 1987,
= Dorrtise Willen
Ingham County Cireuit Court Clerk
68e
Exhibit 13—Digital
69e¢
Marhibit 13—Digital
STATE OF MICHIGAN
IN THE COURT OF CLAIMS Itis ORDERED, ADJUDGED AND DECREED that
defendant's motion for summary disposition is hereby de-
nied,
DIGITAL EQUIPMENT CORPORATION,
OPINION AND ORDER
DATED: November 2. 1087
Plaintiff, s/ James T. Kallman
- ile No. 86-10484-0M James T. Kallman
Court of Claims Judge
STATE OF MICHIGAN,
DEPARTMENT OF TREASURY.
REVENUE DIVISION,
Hon. James T. Kaliman
Defendant.
This Court, having heard oral arguments of counsel,
having reviewed the file and being fully advised in the
nremises, makes the following determinations:
This matter is before the Court of defendant's motion
for summary disposition. The motion is brought pursuant
to MCR 2116(C)(S8), failure to state a claim upon which
relief may be granted,
Plaintiff filed this claim for a tax refund under the
Single Business Tax Act as interpreted hy Jones v MDOT
145 Mich pp [sie] 405 (1985) Ivy den 424 Mieh 895 (1986)
reconsideration den 424 Mich 895 (1986). Defendant claims
1987 PA 39 effective June 9, 1987 applies to plaintiff's
claims. This court does not agree. This Court finds that
INST PA 39 is not applicable to plaintiff's claim for a re-
fund for the reasons stated by the defendant. Judge Brown
has already made a similar ruling in Consolidated Coal v
WDOT 82-8407-CM, order dated August 27, 1987.
70e
Eahibit 14—First Wisconsin
STATE OF MICHIGAN
IN THE COURT OF CLATMS
FIRST WISCONSIN FINANCIAL
CORPORATION,
Plaintiff, Docket No. 87-11152-CM
v. HON, CAROLYN STELL
REVENUE DIVISION, DEPARTMENT
OF TREASURY. STATE OF MICHIGAN,
Defendant,
Patrick R. Van Tiflin (P2619)
FOSTER. SWIFT, COLLINS & COBY, B.C.
Attorneys for Plaintiff
313 South Washington Square
Lansing, MI 48935
DIT 872-8050
Curtis G. Beek (P10600)
Assistant Attorney General
Attorney for Defendant
irst Floor, Treasury Building
Lansing, MI 48915
517 373-1142
ORDER AND JUDGMENT
At a session of said Court, held in the Cireuit
Courtrooms in Town Center, Lansing, Michigan,
on the 25th day of November, 1987.
PRESENT: HONORABLE CAROLYN STELL, Cireuit
Judes, Presiding
This matter having come on for hearing before this
Court on Wednesday, October 21, 1987, on Plaintiff's Mo-
ile
Rahihit 14—First Wisconsin
tion for Summary Disposition of its Complaint for Refund
of Single Business Tax, and the Court having reviewed
the pleadings filed by the respective parties in support of
and in opposition to Plaintiff's Motion, and the Court
having conducted a hearing and heard the oral argument of
counsel for the parties, and being otherwise duly advised
in the premises, and the Court finding as follows:
Defendant basically admits the factual paragraphs
of Plaintiff's motion. The Defendant’s response is that
first, Jones and Laughlin is clearly not a correct inter-
pretation of the original legislative intent and, two, that
the use of the statutory three-factor formu
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