# Opposition Brief — Thiokol Corp. v. Revenue Division, Department of Treasury of Michigan > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386002_1394%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1997 - **Citation:** 520 U.S. 1271 ## Text October Term, 1995 THIOKOL CORPORATION, et al., Petitioners, v. ‘ | ne eel Oe 5 tt ee HA Iw Rete d REVENUE DIVISION, DEPARTMENT OF TREASURY, STATE OF MICHIGAN; DOUGLAS B. ROBERTS, in his official capacity as Treasurer of the State of Michigan; and THOMAS M. HOATLIN, in his official capacity as Commissioner of Revenue of the State of Michigan, Respondents. On Petition For Writ Of Certiorari To The United States Court of Appeals For The Sixth Circuit BRIEF FOR RESPONDENTS IN OPPOSITION FRANK J. KELLEY Attorney General Thomas L. Casey Solicitor General Counsel of Record P. O. Box 30212 Lansing, Michigan 48909 (517) 373-1124 Daniel M. Greenberg Michael R. Bell Assistant Attorneys General Attorneys for Respondents June 28, 1996 ihe QUESTIONS PRESENTED The Michigan Single Business Tax ("SBT"), Mich. Comp. Laws § 208.1 et seq. is a value-added tax using an addition method of calculating value added. It requires taxpayers doing business in Michigan to include in their tax base “compensation”, including payments to employee benefit plans covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 ef Seq. Another Michigan statute, Mich. Comp. Laws § 205.27a(6), imposes a statute of limitations and requires taxpayers seeking refunds on the ground that the tax violates the federal constitution to file such claims within 90 days after the date set for filing a return. Specifically the issues presented in this case are: |. Whether ERISA § 514(a) pre-empts the Michigan SBT. Il. Whether ERISA § 514(a) pre-empts the statute of limitation in Mich. Comp. Laws § 205.27a(6). Ill. Whether the federal courts have jurisdiction to consider a declaratory judgment seeking declaration that the statute of limitations in Mich. Comp. Laws §205.27a(6) violates the Due Process and Equal Protection Clauses of the United States Constitution. TABLE OF CONTENTS QUESTIONS PRESENT Bi iiiicicsisccinsicin een TABLE OF AUTHORIT Tos ict canitionsonmamnsans OPTIONS GELOW ..adicnciiinicenaeame COUNTERSTATEMENT OF THE CASE................... A. Parties and Nature of the Issue.............0.. cee Sei iis cas dexeissrcsdsianetetaieantanes C. The Single Business Tax ACt...........:ccccsrssscssreeees REASONS FOR DENYING THE WRIT...............0008 A. The Court of Appeals correctly decided that Michigan's value-added SBT is not pre-empted because it affects ERISA plans in too tenuous, remote, or peripheral a manmet...............0:::ccc0008 1. The Court of Appeals properly recognized the principles of ERISA pre-emption announced by this Court... ho The Court of Appeals properly applied this Court's principles of ERISA pre- emption when concluding that Michigan's value-added SBT is not pre-empted............... B. The Court of Appeals properly rejected Petitioners’ challenges to Michigan's Statute OE FAUT iii gai ister sac eich hanks canes 1. ERISA does not pre-empt the Michigan Statute of Limitations governing tax refunds 2. Federal Courts lack jurisdiction to address the constitutionality of Michigan's Statute Po MEF, SRR RENT SAREE MRNAS ast exe rare aduals 3 C. Petitioner's arguments improperly elevate form over substance and were appropriately rejected Or I RN ci cee ceencasosmosnn 16 1. There is no basis for the claim that the SBT affects employee plans...........0.ccccccccccccceeen. 16 2. The SBT is not a tax on employer ett to LOLS RATT ARE 18 3. Cases relied on by Petitioners are distinguishable and irrelevant.............................. 19 D. There are no compelling reasons to grant I adecenbibidctatdlatwlde ladies ied alec eel ca apo 21 1. There is no conflict with decisions of NCI poe i a ee ae 21 2. Petitioners grossly overstate the policy concerns inherent in this case................... SO anes 22 ss ES te St eet ee ee 24 -IV- TABLE OF AUTHORITIES Pages Cases Akzo America, Inc. v. Revenue Division, Case No. 4:93-CV-101, 1995 U.S. Dist. LEXIS 1784, 1995 WL 44043 (W.D. Mich. Jan. 13, 1995)................ 12,14 The District of Columbia and Sharon Pratt Kelley, Mayor v. Greater Washington Board of Trade, 506 U.S. 125; 113 S. Ct. 580; 121 L. Ed. 2d 513 (1992).......... 7,8,11,12,13 Firestone Tire & Rubber Co. v. Neuser, gf 8 Fg Ja He - : Wma erenece 13,14 Green v. Mansour, 474 U.S. 64; 106 S. Ct. 423; 6 L. Ed. 26 371 (196S).........0:.cccccesrscconss: 16 McLeod v. ]. E. Dilworth Co., 322 U.S. 327; GOS. Ch Bae Be BB. - Se Br ave vacivvetecticserexncecesees 20 New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., __ U.S. _; 115 S. Ct. 1671; 131 L. Ed. 2d 695 (1995). Selicenisanotnes passim Oklahoma Tax Comm. v. Jefferson Lines, Inc., _._ U.S. _; 115 S. Ct. 1331; 131 L. Ed. 2d 261 (1995).....20 Shaw v. Delta Airlines, Inc., 463 U.S. 85; 103 S. Ct. 2890; 77 L. Ed. 2d 490 (1983).................. passim Thiokol Corp. v. Roberts, 76 F.3d 751 ORS Ge I a iaitrtcei whlesditaiicineepnclintesdiacennes 1,4,5,13 Thiokol Corp. v. Roberts, 858 F. Supp. 674 COE. Bas: DE A Ab isdsdnicicseineeuletbccutehodbasdebsiuceta' passim Thiokol Corp. v. Roberts, Case No. 4:90-CV-12, 1994 U.S. Dist. LEXIS 1864 COE. Ea TR IR Fi a cite nierrciteiicciadioniies 1,15,16 Thiokol Corp. v. Dep't. of Treasury, SEZ F.20 SFO (GA Cit, TOR) cccccsecevccssnsscsenesisoscsseveenes 13,33 Travelers Insurance v. Cuomo, 14 F.38 FOR Gand Che. WIG Trinova Corp. v. Michigan Dep't. of Treasury, 498 U.S. 358; 111 S. Ct. 818; ee Sar SR, Oe CAP aa United Wire v. Morristown Memorial Hospital, 99S F.2d 1179 (3rd Cir. 1993).......ccccccccccocecococscss: Statutes 29 U.S.C. TO On ee OR Oe tie cds ee Pe OM ae ee Rev. Stat. § 3701, 31 U.S.C. § 742.................. Mich. Comp. Laws § 205.1 ef Se0...cccccccccccccssessseoe Mich. Comp. Laws § TN eo Mich. Comp. Laws § 208.1 ef S@9....ccccccccscscesseessse. Mich. Comp. Laws § 208.3(3).....ccccccccecccccscesesese. Mich. Comp. Laws § 208.4(3).......cccccccccccccc---.... Mich. Comp. Laws § 208.9.0.......0.ccccccessescsssessesces Mich. Comp. Laws § 208.9(5).......cccccccccsesccsssessee Mich. Comp. Laws § 208.31...0.....c.cccccccscsescscoseese. Mich. Comp. Laws 2 3 |: SRIESE Rane aie Other Source Jenkins, State Taxation of Interstate Commerce, 27 Tenn. L. Rev. 239 RRS Dc). RRS aaeee creer ee EET ee iatiersakias 23 “hs OPINIONS BELOW In addition to the opinions cited by Petitioners and attached in their appendix, Respondents alert the Court to the March 5, 1993 decision of the Sixth Circuit Court of Appeals in Thiokol Corp. v. Dep't. of Treasury,' 987 F.2d 376 (6th Cir. 1993), which addressed jurisdictional issues involving the Tax Injunction Act, 28 U.S.C. § 1341, and the Eleventh Amendment of the United States Constitution. (Respondents' App. 9b). In their decision the Court of Appeals affirmed the District Court's dismissal of all claims for monetary damages against all of the Defendants as well as all claims against the Department of Treasury. The Court of Appeals reversed the District Court's dismissal of claims for injunctive and declaratory relief under ERISA as against the Respondent-officials acting in their official capacities and remanded for determination of those issues. Subsequently, the District Court denied Petitioner Thiokol Corporation's request to amend its complaint to seek declaratory relief with respect to the statute of limitations applicable to tax refunds. Thiokol Corp. v. Roberts, Case No. 4:90-CV-12, 1994 U.S. Dist. LEXIS 1864 (W. D. Mich. Jan. 28, 1994).’ (Respondents' App. 1b). "The complaints filed in this matter named as Defendants the Department of Treasury, State of Michigan, Revenue Division; the State Treasurer in his official capacity; and the Commissioner of Revenue in his official capacity. ’ This unpublished opinion of the District Court is referenced at footnote 6 in the Court of Appeals opinion on the merits in Thiokol Corp. v. Roberts, 76 F.3d 751 (6th Cir. 1996). (Petitioners' App. 26; By COUNTERSTATEMENT OF THE CASE A. Parties and Nature of the Issue Petitioners are corporate entities that by virtue of engaging in business activity in the State of Michigan are Michigan Single Business Tax taxpayers. Petitioners also act as sponsors and administrators of qualified employee benefit plans governed by ERISA. When engaged in certain activities specified at Section 3(21), 29 U.S.C. §1002(21)(A), of ERISA, Petitioners are fiduciaries with respect to the benefit plans that they sponsor and administer. Respondents are the Treasurer of the State of Michigan and the Commissioner of Revenue of the State of Michigan, both of whom are statutorily obligated to administer and implement the State's taxing laws, including the Single Business Tax Act, ("SBTA" or "SBT"), Mich. Comp. Laws § 208.1 et seq. Petitioners challenge the inclusion in the SBT tax base of “compensation” to the extent it ree gg contributions to employee benefit plans covered by ERISA. The statutory definition of “compensation”, with its detailed list of examples of taxpayer payments included within that definition, reads as follows: “Compensation” means all wages, sala- ries, fees, bonuses, commissions or other payments made in the taxable year on behalf of or for the benefit of employees, officers, or directors of the taxpayers and subject to or specifically exempt from withholding under section 3401 of the internal revenue code. includes, on a cash or accrual basis consistent with the taxpayer's method of accounting for federal income tax purposes, payments to state and federal unempioyment compensation funds, pay- ments under the federal insurance contri- bution act and similar social insurance programs, payments, including self-insurance, for workmen's compensation insurance, payments to individuals not currently 3. working, payments to dependents and heirs of individuals because of current or former labor services rendered by those individuals, payments to a pension, retirement, or profit sharing plan, and payments for insurance for which employees are the beneficiaries, includ- ing payments under health and welfare and noninsured benefit plans and payments of fees for the administration of health and welfare and noninsured benefit plans. Mich. Comp. Laws § 208.4(3)' (emphasis added). (Petitioners' App. 76-77). The language which Petitioners contend preempts the SBT is set forth at Section 514(a), 29 U.S.C. § 1144(a), of ERISA. That provision reads as follows: (a) Supersedure; effective date. Except as provided in subsection (b) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) [29 U.S.C.S. § 1003(a)} and not exempt under section 4(b) [29 U.S.C.S. § 1003(b)}. This section shall take effect on January 1, 1975. (Petitioners' App. 2). B. Jurisdicti Petitioners assert federal court jurisciction pursuant to 28 U.S.C. §§ 1331 and 2201, and also under 29 U.S.C. §1132(e)(1). (Petition p. 2). Respondents contend that jurisdiction is established by, and limited as set forth in, the Sixth Circuit Court of Appeals decision in Thiokol Corp. v. Dep't. of Treasury, 987 F.2d 376 (6th Cir. 1993). "1995 Mich. Pub. Acts, No. 285 effective January 9, 1996, amended this definition to exclude specified unemployment, federal insurance contribution act, and worker: compen- sation payments. . aie (Respendents’ App. 9b). Jurisdiction is premised solely upon 29 U.S.C. §§ 1132(e)(1) and 1132(a)(3). The general juris- dictional provision, 28 U.S.C. § 1331, is inapplicable because suits against states and their officers named in their official capacity are precluded by the Eleventh Amendment. The Declaratory Judgment Act, 28 U.S.C. § 2201, is inapplicable because 29 U.S.C. § 1132 of ERISA provides for all appropriate declaratory and injunctive relief. The federal courts lack jurisdiction over Petitioners’ challenge to the statute of limitations set forth at Mich. Comp. Laws § 205.27a(6), of the Michigan revenue act, Mich. Comp. Laws § 205.1 ef seq., for the reason that the action is barred by the Tax Injunction Act, ("TIA"), 28 U.S.C. § 1341, the Eleventh Amendment of the United States Constitution, and application of the comity doctrine. C. The Single Business Tax Act The Michigan SBT is a value-added tax imposed on the privilege of engaging in business in Michigan. Mich. Comp. Laws § 208.31(3). Value added by definition represents the increase in the value of goods and services brought about by whatever a business does to them between the time of purchase and the time of sale. Trinova Corp. v. Michigan Dep't. of Treasury, 498 U.S. 358, 362; 111 S. Ct. 818; 112 L. Ed. 2d 884 (1991). A value-added tax is a tax on a bona fide non-divisible tax base which is a measure of business activity. Id. at 374-375. Value added can be determined by two equivalent means, i.e., the "subtractive" or the “additive” method. The additive method expresses value added as: the sum of the cosi of labor plus depreciation plus interest plus profit. The subtractive method expresses value added as: revenues less cost of materials. Each method provides an identical measurement of value added. Id. at 364-365. The SBT tax base, as statutorily prescribed, is calculated by the additive method. Id. at 367; Thiokol Corp. v. Roberts, 858 F. Supp. 674, 677 (W.D. Mich. 1994) (Petitioners' App. 40), and Thiokol Corp. v. Roberts, 76 F.3d 751, 755-756 (6th Cir. 1996) (Petitioners' App. 10). Michigan uses the additive method of calculating the tax base as a convenience to taxpayers for aaa -5- whom federal taxable income pruvides a familiar starting point. Trinova, 498 U.S. at 377, and Thiokol Corp., 76 F.3d at 755. (Petitioners' App. 11). For corporate taxpayers the calculation starts with business income (defined at Mich. Comp. Laws § 208.3(3) to mean federal taxable income) which is subjected to prescribed additions and subtractions. Mich. Comp. Laws § 208.9. The specific provision at issue (‘add back provision") requires the addition of “compensation”, as defined in Section 4 of the SBTA, to business income in the SBT tax base calculation. Mich. Comp. Laws § 208.9(5). In Trinova, this Court considered the constitutionality under both the Due Process and Commerce Clauses of the three-factor apportionment formula utilized by the SBTA. 498 U.S. at 361. The Trinova Court discussed in great detail the theoretical underpinnings as well as the operational mechanisms of value-added taxation and the Michigan SBT. This Court rejected Trinova's argument that the Michigan SBT can and should be analyzed as three separate and distinct taxes on the major components of the tax base, i.e., compensation, depreciation and income. 498 U.S. at 374- 375. The Trinova decision is important in the instant case because it: (1) underscores the value-added nature of the tax; (2) acknowledges the indivisibility of the tax base; and (3) establishes the equivalence of the addition and subtrac- tion methods of arriving at the tax base. This Court explicitly rejected the contentions of Trinova which were premised upon the additive method of the tax calculation: Trinova's attempted characterization is arguable only because Michigan calculates value added by the addition method. The addition and subtraction methods of calcula- ting value, however, are but two different paths to the same result. See n 2, supra. Had Michigan calculated the SBT tax base by the subtraction method, reporting total revenues minus total cost of materials, Trinova's char- acterization would collapse of its own weight. Id. at 376. In the present case, Petitioners’ claim for pre-emption is predicated wholly on the required add-back of the con- tributions to and fees associated with certain employee benefit plans. The gravamen of Petitioners’ case is the defi- nitional language defining “compensation” and establishing the tax base. This language arises as a result of Michigan's determination to utilize the additive, rather than the subtractive, method of calculating the base. REASONS FOR DENYING THE WRIT A. The Court of Appeals correctly decided that Michigan's value-added SBT is not pre- empted because it affects ERISA plans in too tenuous, remote, or peripheral a manner. 1. The Court of Appeals properly recog- nized the principles of ERISA pre-emption , Ss Section 514(a) of ERISA sets forth the statutory stan- dard applicable in ERISA preemption cases. That section provides that ERISA shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). The operative words "relate to" were defined in Shaw v. Delta Airlines, Inc., 463 U.S. 85; 103 S. Ct. 2890; 77 L. Ed. 2d 490 (1983), where the Court held that a state Human Rights Law which prohibited employers from structuring their employee benefit plans in a manner that discriminates on the basis of pregnancy and a Disability Benefits Law which required employers to pay employees specific benefits “relate[d] to” ERISA benefit plans. 463 US. at 97. In Shaw, the Court set forth what has become the standard in pre-emption cases. A law "relates to" an employee benefit plan, in the normal sense of the phrase, if it has a 7 connection with or reference to such a plan.!6 Id. at 96-97.' In reaching its conclusion, the Shaw Court stated that § 514(a) should not be read to "preempt only state laws specifically designed to affect employee benefit plans", nor should it be interpreted to preempt only state laws dealing with the subject matters covered by ERISA. /d. at 98. Additionally, the Court alluded to the legislative history discussing the scope of the preemption provision which reflects congressional concern with conflicting and incon- sistent state and local regulation which could impact negatively on employee benefit plans. Id. at 99. Importantly, the Court in Shaw at footnote 21, which immediately follows its holding on the “relates to" issue, indicated that some state actions may affect an employee benefit plan in "too tenuous, remote or peripheral” a way to warrant a finding that the state action "relates to" the plan: Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law “relates to" the plan. Cf. American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 121 (CA 2 1979) (state garnishment of a Spouse's pension income to enforce alimony and support orders is not pre-empted). The present litigation plainly does not present a borderline question, and we express no views about where it would be appropriate to draw the line. 463 U.S. at 101, n 21. (emphasis added). The standard enunciated in Shaw is reiterated in all of this Court's ERISA preemption cases that have been decided since. See, The District of Columbia and Sharon Pratt Kelley, “Footnote 16 in the above quotation sets forth Black's Law Dictionary's definition of "relate" as: "to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with." a aeneeneneeeeel -8- Mayor v. Greater Washington Board of Trade, 506 U.S. 125; 113 S. Ct. 580; 121 L. Ed. 2d 513 (1992), where this Court sets forth the standard established in Shaw and then cites to all of the Supreme Court cases subsequent to Shaw which utilize the standard. 506 U.S. at 129. The Greater Washington Board Court in its statement of the applicable standard paraphrases the Slaw exception to preemption at its footnote 1: Pre-emption does not occur, however, if the state law has only a “tenuous, remote, or peripheral” connection with covered plans, Shaw, 463 US, at 100, n 21, 77 L Ed 2d 490, 103 S Ct 2890, as is the case with many laws of general applicability, see Mackey, 486 US, at 830-838, and n 12, 100 L Ed 2d 836, 108 S Ct 2182; cf. Ingersoll-Rand, 498 US at 139, 112 L Ed 2d 474, 111 S Ct 478. 506 U.S. at 129. This Court's most recent pronouncement on ERISA pre- emption reiterated the S/aw standard and referred to the exception to preemption as expressed in Greater Washington Board. New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., _. U.S. __; 115 S. Ct. 1671; 131 L. Ed. 2d 695, 708-709 (1995). In Travelers, this Court upheld a statutory scheme which exacted surcharges from patients whose commercial insurance coverage was purchased by employee benefit-care plans governed by ERISA as well as patients whose health maintenance organization's fees were paid by an ERISA plan. In reaching its conclusion, this Court acknowledged that the phrase "relates to" constitutes words of limitation in spite of the extreme breadth that those words potentially convey. The Court explained: If "relate to" were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never run its course, for "[rJeally, universally, relations stop nowhere”, H. James, Roderick Hudson xli (New York ed, World's Classics 1980). But that, of course, would be to read I i, Congress's words of limitation as mere sham, and to read the presumption against pre- emption out of the law whenever Congress speaks to the matter with generality. That said, we have to recognize that our prior attempt to construe the phrase “relate to" does not give us much help drawing the line here. 131 L. Ed. 2d at 705. (emphasis added). The Court then set forth the Shaw definition of "relate to" as encompassing a "connection with or reference to" and states that the surcharge statute does not make "reference" to ERISA plans. In construing the "connection with" language of the standard the Court stated: [A]n uncritical literalism is no more help than in trying to construe "relate to." For the same reasons that infinite relations cannot be the unhelpful text and the frustrating difficulty of defining its key term, and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive. 131 L. Ed. 2d at 705. (emphasis added). Travelers emphasized the need to look to the objectives of the ERISA statute as a guide to the scope of the state laws that Congress understood would survive preemption. Id. at 705. In this regard the Travelers Court mentioned the need to minimize the administrative and financial burden of complying with conflicting state regulations in order to permit the nationally uniform administration of employee benefit plans. Id. at 706. The Court discussed its prior cases dealing with ERISA pre-emption to underscore the congressional intent to preclude state laws from mandating employee benefit structures, their administration, or alter- native enforcement mechanisms. 131 L. Ed. 2d at 706-707. -10- The Travelers Court went on to note that while the New York surcharge statute created an indirect economic effect on choices made by ERISA plans, this was not in itself sufficient to mandate pre-emption. If a law authorizing an indirect source of administrative cost [like the garnishment statute in Mackey] is not preempted, it should follow that a law [like New York's surcharge statutes] operating as an indirect source of merely economic influence on administrative decisions, as here, should not suffice to trigger pre-emption either. Id. at 709. 2. The Court of Appeals properly applied this Court's principles of ERISA pre- emption when concluding that Michigan's value-added SBT is not pre-empted The District Court, in Thiokol Corp., 858 F. Supp. at 676, understood its task to be that of "determin[ing] the precise relationship between a state law and an ERISA plan, specifically answering the question of whether the state law [at issue] affects an ERISA plan in too tenuous, remote or peripheral a manner to ‘relate to’ the plan.” (Citation omitted). (Petitioners' App. 46). Realizing that Michigan's SBT is a value-added tax, commonly utilized in Europe and Latin America but not the United States, the District Court in Thiokol Corp., supra, appropriately discussed at length the nature of value-added taxation. In doing so, the District Court referred to this Court's discussion of value-added precepts in Trinova v. Michigan Dep't. of Treasury, supra. The opinion set forth several findings regarding value- added taxation in general and the SBT in particular. Specifically, the District Court, in Thiokol Corp., supra, concluded that value added is a measure of the entire economic activity of a business which is defined as the increase in the value of goods and services brought about by Pre Sa rat a te ce eR ay ioe SY tt. whatever a business does to them between time of purchase and time of sale. 858 F. Supp. at 676. (Petitioners’ App. 46, 50). The District Court, in Thiokol Corp., supra, also stated that value added can be expressed by three different methods -- subtraction, addition, or credit, and that the method of calculation does not change the fundamental nature or the amount of tax. 858 F. Supp. at 677-678. (Petitioners’ App. 50). Further, the District Court specifically found that the SBT is not a tax on the individual components of the tax base and is not a tax on an employer's ERISA plan contributions. 858 F. Supp. at 678- 679. (Petitioners’ App. 52). Following its discussion of the nature of the tax, the District Court, in Thiokol Corp., supra, undertook a thorough analysis of preemption jurisprudence and concluded that any effect or impact that the SBT may have on ERISA plans is incidental and that the effect is tenuous, remote and peripheral. 858 F. Supp. at 680. (Petitioners’ App. 57-59). The District Court then discussed and rejected Petitioners’ suggestion that this Court's decision in Greater Washington Board, supra, mandates a finding of preemption in all instances where a state statute makes a reference to an ERISA plan. 858 F. Supp. at 680-683. (Petitioners’ App. 59-65). In conclusion the District Court stated: After a thorough review, | conclude that the Michigan SBT is not preempted by ERISA. This conclusion is based on the following facts. (1) The SBT is a neutral tax of general application which does not single out ERISA plans for special treatment nor predicate rights or obligations on the existence of such plans. (2) The SBT does not regulate ERISA plans. (3) The SBT does not affect ERISA plans or the relationships between, or among, ERISA entities. 42. (4) The SBT is neither a direct nor indirect tax on employer contributions to ERISA plans. The SBT is a value added tax, akin to a sales tax, which merely does not allow a deduction for ERISA contributions made by an employer. (5) Any minimal effect the SBT may have on employer contributions to ERISA plans is incidental and unavoidable; such an effect could be found in nearly every state law which regulates business. This incidental effect is tenuous, remote and peripheral. (6) | have found no case that has held a state law "relates to" and is preempted by ERISA merely because it refers to ERISA. Likewise, | decline to so hold. 858 F. Supp. at 683-684. (Petitioners’ App. 66-67). In Akzo America, Inc. v. Revenue Division, Case No. 4:93-CV-101, 1995 U.S. Dist. LEXIS 1784, 1995 WL 44043 (W.D. Mich. Jan. 13, 1995), the District Court agreed with all of the conclusions of the Tiiokol court save one. (Petitioners' App. 32-33). The District Court, in Akzo America, supra, believed that the decision in Greater Washington Board man- dated pre-emption in all cases where a state statute makes a reference to an ERISA plan. (Petitioners' App. 36-37). The District Court, in Akzo America, supra, reached this con- clusion in spite of its finding that the SBT had no more than a tenuous, remote or peripheral effect on an ERISA plan. (Petitioners' App. 36). The District Court stated: Since the “tenuous, remote, or peripheral” exception does not apply to a state law which refers to an ERISA plan, it is of no effect, in this Court's estimation, that the SBT has merely a tenuous, remote, or peripheral effect on ERISA plans. (emphasis added). 1995 U.S. Dist. LEXIS 1784 ‘at 7. (Peti- tioners' App. 36). ane ere me The Court of Appeals concurred with the detailed analysis of Michigan's SBT in Thiokol Corp., supra, 76 F.3d at 755-756. (Petitioners’ App. 10-13). The appellate court noted specifically that the SBT is a tax on value added, and acknowledged that Michigan chose the addition method of calculating value added as an accommodation to taxpayers because it entailed easier calculations using as the starting point federal taxable income which is familiar to all corporate taxpayers. The Court of Appeals also concluded that a value-added tax is not a tax on the individual components that go into the calculation of value added. 76 F.3d at 755-756. (Petitioners’ App. 11-12). The Court of Appeals began its consideration of whether the SBT is preempted by acknowledging this Court's previous decisions indicating the conspicuous breadth of the ERISA preemption language used by Congress. Citing specifically to this Court's decision in Shaw, supra, the Court of Appeals noted that the Shaw decision carved out an exception to the ERISA pre-emption provision for those state laws that “affect employee benefit plans in too tenuous, remote or peripheral a manner to warrant a finding that the law ‘relates to’ the plan." The Court of Appeals determined that the S/uw exception has continuing viability as evidenced in this Court's decisions in Greater Washington Board, and Travelers. Thiokol Corp., 76 F.3d at 754. (Petitioners' App. 6-7). In reaching its conclusion to uphold the Michigan statutory provision the Court applied the three-part test enumerated by the Sixth Circuit in Firestone Tire & Rubber Co. -14- v. Neuser, 810 F.2d 550 (6th Cir. 1987). Application of the test resulted in a finding that the SBT provision is within the Shaw exception as a statute that has "at most, a tenuous, remote, or peripheral effect on an ERISA plan.” 76 F.3d at 754-755. (Petitioners’ App. 8). In its discussion of the Shaw test and the application of ERISA pre-emption, the Sixth Circuit emphasized that the preclusion of state laws creating a burdensome effect on ERISA plans is at the heart of the pre-emption doctrine. Congress sought to pre-empt State laws that have a burdensome effect on ERISA plans. When a state law has such an effect on a covered plan, it is pre-empted; when it does not, it is not pre-empted even if it actually refers to ERISA. 76 F.3d at 757. (emphasis in the original). The Sixth Circuit went on to consider and reject Petitioners’ contention, accepted by the District Court, in Akzo America, that there is a per se rule of pre-emption in all cases where a state statute makes a reference to ERISA. In reaching its holding, the Court of Appeals concluded that "connection with" and "refers to" cases are not "analytically distinct" but rather are “approximations of the same test" Petitioners at page 14 of their Petition mischaracterize the method of analysis utilized by the Sixth Circuit in Firestone and in Tiuokol. The three-prong analysis in Firestone is not an analysis that is separate and distinct from the test enunciated in Shaw as suggested by Petitioners. Rather, the Firestone three-prong analysis is a methodology used to assist the Court in determining whether the effect of a state law is tenuous, remote or peripheral under the Shaw standard. Firestone, supra at 555: Although no single test has been for- mulated for determining when a state law falls within the "remote and peripheral” exception to section 1144, several factors have been used in the analysis. Set es ee -15- which looks to evaluate and determine if the statutes at issue have an "impermissible effect on a covered plan.” 76 F.3d at 758. (Petitioners’ App. 19). B. The Court of Appeals properly rejected Petitioners’ challenges to Michigan's Statute of Limitations. 1. ERISA does not pre-empt the Michigan Ss. Petitioners assert that ERISA pre-empts Michigan's statute of limitations for tax refunds. The Court of Appeals succinctly and correctly addressed this issue. The statute of limitations has no cognizable effect on employee benefit plans. At most the limitations provision has only a peripheral effect on ERISA-based challenges to Michigan's tax laws. The Court of Appeals correctly held that the statute of limitations provision is not pre-empted by ERISA. 76 F.3d at 761. (Petitioners’ App. 25-27). 2. Federal Courts lack jurisdiction to address the constitutionality of Michigan's Statute of Limitations. Petitioners try to portray their claim raising consti- tutional challenges to Michigan's statute of limitations provision,’ governing claims for tax refunds as “closely aligned” to their claim that a portion of the SBT tax base is pre-empted by ERISA. (Petition p. 29). The District Court, in Thiokol Corp. v. Roberts, Case No. 4:90-CV-12, 1994 U.S. Dist. LEXIS 1864 (W. D. Mich. Jan. 28, 1994) (Respondents' App. 1b), correctly perceived that Petitioners’ attack on the statute of limitations is not aligned with the ERISA action but is intertwined with their refund claims which are only appropriately addressed in the state courts. Thiokol Corp., supra. (Respondents' App. 6b-7b). As such the Tax Injunction Act and its underlying doctrine rooted in comity militate against the federal courts addressing these issues. This is precisely what the Sixth Circuit held in Thiokol Corp. v. Dep't. of Treasury, 987 F.2d 376 (6th Cir. 1993). (Respondents’ App. 9b). “Mich. Comp. Laws § 205.27a(6). “16- Additionally, Petitioners sought a federal court ruling in order to present it as res judicata on state refund claims brought in state courts.’ As pointed out in Tiuokol Corp. v. Roberts, Case No. 4:90-CV-12, 1994 U.S. Dist. LEXIS 1864, at *9 (W. D. Mich. Jan. 28, 1994) (Respondents' App. 7b), this is precluded by the rule of law announced in Green v. Mansour, 474 U.S. 64, 73; 106 S. Ct. 423; 88 L. Ed. 2d 371 (1985). C. Petitioners' arguments improperly ele- vate form over substance and were appro- priately rejected by the Court of Appeals. 1. There is no basis for the claim that the SBT affects employee plans. = The Third Amended Complaint filed by Thiokol Cor- poration in Thiokol Corp. v. Roberts, 858 F. Supp. 674 (W.D. Mich. 1994) (Petitioners’ App. 40), sets forth nine para- graphs of allegations purporting to detail how the SBT "relates to" ERISA benefit plans, burdens the "sponsoring employer as plan sponsor, administrator and fiduciary”, and “influences and affects” Thiokol Corporation and the plans. In response to Respondents’ interrogatories seeking to flesh out the factual basis supporting these claims, Thiokol Corporation presented a short statement which reads as follows: ** * The ability of Petitioners to fund its [sic] employee benefit plans is impacted not only “Petition p. 30: “a determination of the constitutionality of § 27a(6) made by this Court in the context of Petitioners’ related ERISA claims would have universal application, and would resolve the issue with precision, authority and finality.” (emphasis in original). of Fe by the direct cost of making the required contributions or paying the expenses incurred, but also by every other expense of doing business, which expenses exert a pressure against the ability to fund employee benefit plans. As the costs of doing business increase, a prudent manager will look for ways to hold total costs down. Some costs can be controlled - others cannot. ee Since the Michigan single business tax (SBT) is higher than it otherwise would be if the cost of employee benefits was not included in the tax base, it naturally follows that the SBT is one of the non-controllable costs that brings pressure on management to reduce the amount of employee benefits, a controllable cost. If management determines that benefit levels are not to be decreased, then in the face of other rising costs (including SBT) the cost of maintaining the same level of benefits is higher. Because the SBT base includes the cost of employee benefits, management can see a direct correlation between that particular tax and the cost of funding employee benefits. This cost relationship effect [sic] Petitioners in their capacities as business entities, employers, plan sponsors, plan administrators and fiduciaries. (emphasis added). As the foregoing response reveals, Petitioners assert nothing more than the obvious--the SBT is a tax and as such is another cost of doing business which results in a reduction in funds to the business-taxpayer who is responsible for paying the tax. While such a reduction in funds may influence what an employer can or is willing to pay in wages and employee benefits, it does so in precisely the same -18- manner as all other tax exactions and necessary expenses.” 2. The SBT is not a tax on employer contributions. The SBT is not a tax on plan contributions.” The SBT is not a tax on compensation or profits. It is a tax on value added. Because the SBT is not a tax on compensation, it cannot be a tax on any of the separately enumerated examples of compensaticn listed within the statutory definition at Mich. Comp. Laws § 208.4(3). This is most clearly evidenced by the fact that there is no direct correlation between contributions to employee benefit plans and SBT liability. To the extent that sums are retained as profit or otherwise consumed in the economic endeavor of the taxpayer the tax liability may not be impacted at all by a decision to lower contributions to a qualified plan. This was recognized by this Court in Trinova. If Trinova had paid an additional $100 million in compensation during 1980, there is no way of knowing whether, or to what extent, value added would have increased. In fact, value added would not have increased so long as revenues did not increase. These “Petitioners efforts to interject the “uncontraverted testimony” of John C. Hedley into this case should be scrutinized with care. The references cited do not support the broad contentions that Petitioners attribute to them in their Petition. (Petition pp. 3, 19). Rather, the deposition testimony confirms what Respondents elicited from Petitioner-Thiokol in its interrogatories. * The District Court was emphatic. “Plaintiffs assert that the SBT is a tax on contributions to ERISA plans. As such, Plaintiffs argue that the SBT relates to ERISA and should be preempted by ERISA. I am satisfied that Plaitniffs' argument fundamentally misinterprets the nature of the value added tax." 858 F. Supp. at 679. -19- elements of value added are inextricable, codependent variables. Trinova, 498 U.S. at 376. The decision in Trinova alerts to the need to determine precisely what is being subjected to tax. "A tax on sleeping measured by the number of pairs of shoes vou have in your closet is a tax on shoes.” Trinova, 498 US. at 374, quoting Jenkins, State Taxation of Interstate Commerce, 27 Tenn. L. Rev. 239, 242 (1960). The Michigan SBT is precisely what it purports to be: a generally applicable business tax on the privilege of engaging in business in Michigan. Mich. Comp. Laws § 208.31. When the SBT is understood for what it is, Petitioners’ contentions collapse. There is no "reversal" of federal tax deductions for plan contributions as suggested by Petitioners. (Petition p. 2). While federal taxable income is utilized as a convenient starting point to calculate the base," the SBT is unrelated to the federal income tax or any type of income tax. The SBT does not seek payment “for the privi- lege of sponsoring employee benefit plans”. (Petition p. 3). Rather, the SBT imposes a tax on the privilege of doing business measured by value added. 3. Cases relied on by Petitioners are distinguishable and irrelevant. In their petition seeking certiorari in this Court, Petitioners for the first time seek to rely on case law discussing a federal statutory exemption from state or local taxation for “all stocks, bonds, treasury notes, and other obligations of the United States." Rev. Stat. § 3701, 31 ™ Michigan chose the addition method of calculating value added as a convenience to taxpayers for whom federal taxable income provided an easy starting point. Trinova, 498 U.S. at 377. This point was recognized by the Court of Appeals, as well. 76 F.3d at 755. (Petitioners App. 11). -20- U.S.C. § 742. These cases are inapplicable to the issue of whether ERISA pre-empts state laws. There is an adequate body of case law concerning ERISA pre-emption, and Petitioners’ reference to bank share cases is an unnecessary and distracting digression. The test that is applicable to the determination of ERISA pre-emption does not look to the manner of calculation of a tax. Rather the “relates to" test as established by Shaw and its progeny, looks to the "effect" a state law has on ERISA-qualified plans. Petitioners also cite McLeod v. J. E. Dilworth Co., 322 U.S. 327; 64 S. Ct. 1023; 88 L. Ed. 1304 (1944), and Oklahoma Tax Comm. v. Jefferson Lines, Inc., _ U.S. __; 115 S. Ct. 1331; 131 L. Ed. 2d 261 (1995), to advance a claim that the District Court in Tiiokol and the Court of Appeals ignored the substance of the SBT by their refusal to find preemption of that portion of the "compensation" add- back provision which includes contributions to qualified plans. The cases cited do not support Petitioners’ contention. Rather, they support Respondents’ position. While the Court in Jefferson Lines acknowledged the complementary goals of the sales and use taxes, the opinion stressed the differences between the sales and use tax with regard to the underlying taxable event and who is responsible for the payment of the tax. Jefferson Lines, 131 L. Ed. 2d 280. The discussion in Jefferson Lines and McLeod fully recognized the differences in theory and application of the sales tax as contrasted with the use tax. In the present case there is only a value-added tax involved. The fact that there are several methods of calculation to arrive at the very same value-added tax base does not alter the theoretical, factual or economic effect of the tax. By beginning its analysis with a discussion of the SBT as a value-added tax and then acknowledging the equivalent calculation methods used to calculate its base, the courts below rejected Petitioners’ form over substance | Perera 91. contentions and fairly analyzed the substance of the SBT." D. There are no compelling reasons to grant Certiorari. 1. There is no conflict with decisions of this Court. Petitioners contend that the Sixth Circuit Court of Appeals decision conflicts with relevant decisions of this Court. This is simply not true. The District Court, in Thiokol Corp., supra, 858 F. Supp. at 674 (Petitioners' App. 40), predicated its analysis on the specific and unique nature of the SBT as discussed in this Court's decision in Trinova. The Court of Appeals cited, and agreed with, the District Court's analysis, in Thiokol Corp., supra, as to the nature of value- added taxation. 76 F.3d at 755-756. (Petition App. 10-13). In determining whether the Michigan SBT provision should be pre-empted, both the District Court, in Thiokol Corp., and the Court of Appeals relied upon and applied the pre- emption standard set forth by this Court in Shaw. The Court of Appeals found that the applicable pre-emption test is the "relates to” test as expressed in Shaw which pre-empts state laws that have a “connection with or reference to” an ERISA- covered plan subject to the proviso that some state laws may affect a plan in a manner that is too tenuous, remote, or ™The Sixth Circuit stated as much at p. 756 of its opinion: Michigan would achieve the same results by simply defining compensation as all expen- ditures on behalf of employees, officers and directors or by replacing its addition method with a subtraction method of calculating a value added tax base. Paying proper heed to the Supreme Court's admonition that in tax matters courts should consider “substance not ... form," see Diedrich v Commissioner of Internal Revenue, 457 U.S. 191, 195, 102 S. Ct. 2414, 2417-2418, 72 L. Ed. 2d 777 (1982), it would appear that Michigan's SBT fits within the Shaw exception and is not pre-empted by §514(a)." Thiokol Corp., 76 F.3d 751 (6th Cir. 1996) (Petitioners’ App. 13). ~ x peripheral to mandate a finding of preemption. Specifically, the Court of Appeals rejected a bright line test for pre- emption predicated on the use of the "ERISA" word or a mere reference to ERISA-qualified plans because such a test failed to address the effect of a state law on a covered plan. 76 F.3d at 756-757. (Petitioners’ App. 17-20). Not only is this conclusion fully in keeping with Shaw, it is fully in accord with this Court's most recent expressions set forth in Travelers in which this Court rejected “an uncritical literalism" in favor of an analysis which looks to the objectives of the ERISA preemption statute and its intent to avoid a multiplicity of regulations impacting plan benefit levels, plan structure or plan administration. Travelers, 131 L. Ed. 2d at 705-707. The record in this case could not be clearer. The SBT does not regulate directly or indirectly any employee benefit plan. The SBT does not seek payment from a plan or trust, mandate benefits, or require action or involvement on the part of any plan, plan trust administrator or beneficiary. The tax is determined and paid by the business- -taxpayer with reference to its books and records only. A ruling in favor of the Petitioners and any ensuing refunds paid to Petitioners will not increase the assets of any plan or plan trust. Any impact or effect of the SBT on a qualified plan is at most tenuous, remote or peripheral within the terms of the Shaw exception to pre-emption. 2. Petitioners grossly overstate the policy Petitioners claim that allowing this case to stand "will be a clarion call to every state and local taxing jurisdiction... to descend upon employers with tax levies designed to capitalize upon an employer's plan contributions." This claim is utter nonsense. States and local tax authorities do not need to await the outcome of this case to impose a value-added tax upon employers. A subtractive type value- added tax patterned after Michigan's SBT would share its theoretical underpinnings and impact employers, plan sponsors and ERISA-qualified plans in the same tangential, remote and peripheral manner as the SBT. Since such a similarly patterned tax would not be pre-empted because it wool at nhs regen yA Abe 9 -23- would neither "refer" to ERISA plans nor affect such plans in more than a peripheral manner, logically the SBT should not be pre-empted. From the start Respondents’ position has been founded specifically on the nature of the SBT as a value-added tax which is capable of being calculated by use of either an additive or subtractive method to arrive at an equivalent measure. Respondents’ position as accepted by the courts below is specific to value-added taxes and is not susceptible to the broad application that Petitioners suggest. While this case is of extreme importance to the fiscal well being of the State of Michigan”, it is not a Case of national significance. Unlike the surcharge statutes in Travelers which exist in similar form in numerous states throughout the country, and divided the federal circuit courts” prior to this Court's decision in Travelers, no other state, besides Michigan, presently is utilizing a value-added tax. "The record includes the Affidavit of David Kirvan, Administrator for the Single Business Tax Division, Department of Treasury, State of Michigan which indicates that as of September 1995, there were 182 ERISA preemption cases seeking refunds in Michigan Courts fora total of $136,844,353.00. In addition, similar claims awaiting administrative decision totaled approximately $100,000,000.00. The annual reduction in single business tax receipts would amount to approximately $140,000,000.00. '’ See, United Wire v. Morristown Memorial Hospital, 995 F.2d 1179 (3rd Cir. 1993), and Travelers Insurance v. Cuomo, 14 F.3d 708 (2nd Cir. 1993). ) f : Respondents respectfully request that this Court deny -24- RELIEF SOUGHT the Petition for a Writ of Certiorari. June 28, 1996 cases/thiokol FRANK J. KELLEY Attorney General Thomas L. Casey Solicitor General Counsel of Record P. O. Box 30212 Lansing, Michigan 48909 (517) 373-1124 Daniel M. Greenberg Michael R. Bell Assistant Attorneys General Attorneys for Respondents ie Seeteths APPENDIX TABLE OF CONTENTS Page January 28, 1994 Opinion Re Appeal of Magistrate Judge's Order Granting Leave to File Third Amended Complaint ..............0...c..cccccceees Ib Sixth Circuit Court of Appeals Opinion Gated March. 5, 1993, No. 92-1611...W....0.-.