Opposition Brief — Ford Motor Credit Co. v. Michigan Department of Treasury

_ Supreme Court, U.S.

; FILED

ve e Y ” DEC 13 2010

oO, -

In The

Supreme Court of the United States

eee

FORD MOTOR CREDIT COMPANY,

Petitioner,

U.

DEPARTMENT OF TREASURY, TREASURER FOR THE

DEPARTMENT OF TREASURY, AND STATE OF

MICHIGAN,

Respondents

ON PETITION FOR A WRIT OF CERTIORARI

TO THE MICHIGAN COURT OF APPEALS

BRIEF IN OPPOSITION

Michael A. Cox

Attorney General!

B. Eric Restuccia

Michigan Solicitor General

Counsel of Record

P.O. Box 30212

Lansing, Michigan 48909

restucciac@michigan. gov

(517) 373-1124

Heidi [, Johnson Mehne \

Bruce C. Johnson

Assistant Attorneys General

Revenue and Collections Divisio

Attorneys for Respondents

QUESTIONS PRESENTED

Should this Court grant certiorari to

review the decision of a Michigan

court that atfirmed A curative

tatutory amendment where the

amendment did not retroactive

hange the law

1 Should this Court grant certiorar) t

clarify when a State may retroactively

change it tax law 1n a case where no

retroactive change in tax aw

occurred and where the ni}

retroactive change sought was by a

taxpayer who ougnt Lo retroactlvel\

apply an incorrect court aecision I

order to requ I 1 refund

PARTIES TO THE PROCEEDING

Petitioner is Ford Motor Credit Company

Respondents are Department of Treasury, Treasure:

ror thie ey partms rt yf | reasury ind State oft Mi ie ar ’

TABLE OF CONTENTS

QUESTIONS PRESENTED

PARTIES TO THE PROCEEDING

TABLE OF CONTENTS

TABLE OF AUTHORITIES

OPINIONS BELOW

JURISDICTION

CONSTITUTIONAL, STATUTORY, AND

REGULATORY PROVISIONS INVOLVED

INTRODUCTION

STATEMENT OF THE CASE

\. The nature of the dispute

B. Michigan sales tax statute governing th

had debt dedu tion

C. Ford's business and its refund claim

. The DaimlerChrysler decision and thi

Michigan Legislature's correction

ly Proces ding In the Mi higan court

REASONS FOR DENYING THE PETITION

lord ls eeking review of a State law

question that is not within this Court

jury) diction to review

| The peculiar factual circum tances ot thi

case would make this case a poor vehicle fo

considering retroactive cl anges to tax law

lll. Kven if this Court were to determine that

there was a retroactive chanve in the

Michigan tax law, anv such change is not

ae) ‘ :

contrary to this Court's decision in Carlton. ..... 17

fee Le NO oe ee yeh 20

TABLE OF AUTHORITIES

Page

Cases

Boyer-Campbell v. Fry,

271 Mich. 282; 260 N.W. 165 (1935) ................03. 13

DaimlerChrysler Services N.A., LLC v. Dep't of

Treasury,

271 Mich. App. 625; 723 N.W.2d 569 (2006) .... 4, 6

DaimlerChrysler Services N.A., LLC vu. Dep't of

Treasury,

477 Mich. 1043; 728 N.W.2d 228 (2007)............... 7

Detroit Edison Co. v. Department of Revenue,

320 Mich. 506; 31 N.W.2d 809 (1948).......0.000..... 14

Erie R.R. v. Tompkins,

SR Me ae I I eva os an ds cee ecento ence ee 15

Ford Motor Credit Co. v. Dep't of Treasury,

486 Mich. 962; 782 N.W.2d 771 (2010)................. fe)

GMAC, L.L.C. v. Dep't of Treasury,

286 Mich. App. 365; 781 N.W.2d 310 (2009) ..8, 11

Gregory vu. Ashcroft,

BOL U.S. 452 (1991) ooccccccccccsscccsccesseessceesscesece sees: 15

Harper v. Progressive Casualty Ins. Co.,

79 Mich. App. 764; 263 N.W.2d 1 (1977) ............ 14

Harris v. Reed,

i eR Me SL”, Ree ae er ee 16

Highland Farms Dairy, Inc. v. Agnew,

re ee ornciesisse en oe ccs oe 15

In re Oswalt,

444 Fa B24 (6th Cis. GOOG) nec cin de iedesscdeccccaseee. 14

-vi-

Macomb County Prof Deputies Ass'n v. Macomb

County,

182 Mich. App. 724; 452 N.W.2d 902 (1990) ...... tz

Mich. Comp. Laws § 205.541(2) 2.0.0... eceeeec eee eee 13

Nat'l Bank of Detroit v. Dep't of Revenue,

334 Mich. 132; 54 N.W.2d 278 (1952)................. 13

People v. Berg,

85 Mich. App. 639; 272 N.W.2d 167 (1978) ........ 14

Priest v. Canada Life Assur Co,

179 Mich. App. 731; 446 N.W.2d 352 (1989)...... iZ

SBC Mich. v. PSC (In re Complaint of Rovas),

482 Mich. 90; 754 N.W.2d 259 (2008)................. 3

Sweezy v. New Hampshire,

SO4 US. SOO CI aD vvsnsvicscntacivstcstereencet ee 1S

United States v. Carlton,

549 0.8. 96 (OOD) cnseescscdacca ee 2,11,12

Uphaus v. Wyman,

S60 U.S. 72 (IGG. caves L5

Statutes

Bt FP TOD nsiniiccworriasneee eee 7, 8, 9

BG ALG.C.. © TSO FE cardiecascccsanci eee ]

Mich. Comp. Liaaws § 205.51 «...<.cc<<c<ccscecexvavsessvecsvens 8,

Mich. Comp. Lawe § 906.6100 WA) oicicccccccedisseecrecctcas 13

Mich. Comp. Laws § 206.541..........cscscccacocececesss 1,6, 17

Mich. Comp. Laws § 205.54i(1)(e) ......... cece eee eee 5,13

Other Authorities

1 Sutherland Statutory Construction (3d Ed.

1943), p. 418, § 193] -cccccccce. nn

Rules

Mich. Ct. Rule 2.116(C)(8).............. ceeeeee &

OPINIONS BELOW

The Department of Treasury, Treasurer for the

Department of Treasury, and State of Michigan ("State

of Michigan" or "Treasury") accept Ford Motor Credit

Company's ("Ford") statement of the opinions below.

JURISDICTION

Petitioner invokes this Court's jurisdiction under

28 U.S.C. § 1257(a). The decision of the Michigan Court

of Appeals below, however, was based on independent

and adequate grounds under State law. Consequently,

this Court lacks jurisdiction.

CONSTITUTIONAL, STATUTORY, AND

REGULATORY PROVISIONS INVOLVED

The statute at issue in this case 1s Mich. Comp.

Laws § 205.541. Pet. App. 15-24.

Ss

INTRODUCTION

The question presented by the Petitioner did not

form the basis for the decision by the State court below.

The State court resolved the issue by concluding

that the Michigan Legislature provided a legislative

correction to the proper understanding of the original

act — it did not retroactively apply a revised statute.

Thus, this case was resolved on independent and

adequate State grounds, and review by this Court is

not warranted.

Here, the Michigan Legislature amended the

General Sales Tax Act, Mich. Comp. Laws § 205.51 et.

seq. (G.S-1.A.), following a decision from the Michigan

Court of Appeals that — contrary to legislative intent -

extended "bad debt” sales-tax deductions to automobile

finance companies.

After the Michigan Legislature amended the

G.S.T.A. to give effect to its original intent, the

Michigz.:: Court of Appeals decided that Ford was not

‘led to the tax deduction because the statute — once

«..cified by the Legislature — was a matter of

interpretation of the original act. As such, the case

presents only the Michigan Legislature's correction of

the State judiciary's misinterpretation of State law

not the case of a retroactive application of a statutery

amendment. Accordingly, the State court decision from

vshich Petitioner seeks review does not implicate this

Court's retroactive application analysis as expressed in

United States v. Carlton.

| United States v. Carlton, 512 U.S. 26 (1994).

‘The case would also be a poor vehicle to address

this Court's retroactivity jurisprudence, since the

Michigan Court of Appeals did not decide the case on

that basis. And the case is strangely postured because

Ford never relied on the prior understanding of the

statutory scheme. Ford had already filed its tax

returns and sought to change the tax treatment it had

claimed in those past years. Ford is therefore in effect

retroactively seeking a refund — a refund it did not

believe it was entitled to at the time the returns were

filed. It 1s not a case where Ford faced new tax

abilities long after the corresponding tax period

ended.

Finally, contrary to Ford's claim, there is no

need for this Court to revisit its opinion in Carlton.

Even if this Court were to review this issue as a

retroactive change to Michigan's tax law, Michigan's

legislative change meets constitutional standards

established by Carlton.

-4-

STATEMENT OF THE CASE

A. The nature of the dispute.

This case is a dispute over the power, under

Michigan law, of the Michigan Legislature to clarify

the circumstances under which "bad debt" deductions

may be claimed under Michigan's General Sales Tax

Act, Mich. Comp. Laws § 205.51 et. seq., following a

decision of the Michiga~ Court of Appeals that created

confusion on the subject.

In 2006, in DaimlerChrysler Services N.A., LLC

v. Dep't of Treasury, the Michigan Court of Appeals

extended eligibility for "bad debt" sales-tax deductions

to automobile finance companies.? ‘The automobile

finance companies were not legally lable for paying

sales tax and did not themselves remit sales tax

payments. Rather, they merely provided financing for

automobile purchases, for which financing incidentally

included reimbursement to dealers for sales tax paid

vy the dealers. Only months after the decision became

final, on October 1, 2007, the Michigan Legislature

clarified the meaning of the statute. The Legislature

was carefu! to state that it was "expressing the original

intent of the Legislature," and that the act was

"curative," meant to correct the misinterpretation of

the bad-debt statute of the Michigan Court of Appeals

in DaimlerChrysler. Pet. App. 21-22.

Ford challenged the statutory amendment, and

the Michigan Court of Appeals ultimately upheld the

statutory amendment. Pet. App. 1, 43.

2 DaimlerChrysler Services N.A., LLC v. Dep't of Treasury, 271

Mich. App. 625; 723 N.W.2d 569 (2006).

B. Michigan sales tax statute governing the

bad-debt deduction.

The curative amendment to the statute dealt

with the definition of "taxpayer." The 2007 amendment

added a definition of "taxpayer" in Mich. Comp. Laws §

205.541(1)(e) that makes clear that the entity entitled

to the deduction is the taxpayer who is responsible for

paying the tax on the sale. The amendment provides

that, for periods prior to September 30, 2009,

"taxpayer" does not include finance companies, such as

Ford, here. The enacting language of the statutory

amendment makes clear that Treasury's longstanding

application of the previous statute was consistent with

this clarifying definition, and that the Michigan Court

of Appeals erred in 2006 when it decided that a finance

company was entitled to the deduction.

C. Ford's business and its refund claims.

Ford is an automobile financing company. In

each year at issue, Ford provided financing for motor

vehicle purchases by consumers from dealers in

Michigan, under retail installment sales contracts.

Ford paid the dealers the entire contract price,

including the money the dealers owed for sales tax. In

turn, Ford received a security interest in the vehicles,

including the right to repossess in case of default.

Sales tax owed on the vehicles was remitted to

the Michigan Department of Treasury by the

automobile dealers — not by Ford. Subsequently, some

of the motor vehicle purchasers defaulted on the

payment contracts. Ford filed refund claims with the

Department of Treasury under Mich. Comp. Laws §

205.541 on December 16, 2006, December 28, 2007, and

April 21, 2008, for tax periods April 1, 2002 through

May 31, 2006; April 1, 2006 through December 28,

2007; and April 1, 2002 through March 31, 2006,

respectively. Ford claimed that, as lenders with

uncollectible debts, they were entitled to a "bad debt"

deduction under the Act. Treasury denied the claims

because Ford was not the taxpayer legally responsible

to pay the sales tax, and, therefore, was not entitled to

a refund under the language of the statute, as

amended.

D. The DaimlerChrysler decision and the

Michigan Legislature's correction.

Several years before Ford filed its refund claims,

DaimlerChrysler claimed a bad-debt deduction on the

same basis Ford is now claiming. DaimlerChrysler's

claim was denied by Treasury on the ground that the

finance company was not the taxpayer responsible for

the tax and had not remitted the sales tax to Treasury.

DaimlerChrysler challenged the denial of its refund

claim in court.

In July 2006, the Michigan Court of Appeals, in

DaimlerChrysler Services North America, L.L.C. v.

Dep't of Treasury decided in favor of DaimlerChrysler,

holding that lenders act as a unit along with the

dealers, and are therefore entitled to the bad-debt

deduction.? In March 2007, the Michigan Supreme

’ Daimler ( ‘hrysler, 271 Mich. App. 625; 723 N W.2d 569

Court denied Treasury's application for leave to appeal

the DaimlerChrysler decision.

Five months latey, in August 2007, the Michigan

Legislature began Considering a bill to correct the

DaimlerChrysler Court's misinterpretation of the

statute. The Michigan Legislature amended the statute

on October 1, 2007, by 2007 P.A. 105, clarifying its

original meaning that only those taxpayers required to

remit the tax could claim the deduction, and correcting

the contrary judicial interpretation of the statute:

Enacting section 1, This amendatory act

is curative ahd shall be retroactively

applied, expressing the original intent of

the [Ljegislature that a deduction for a

bad debt for a taxpayer under the general

sales tax act, 1933 PA 167, MCL 205.51

to 205.78, is available exclusively to those

persons with the legal liability to remit

the tax on the specific sale at retail for

which the had debt deduction is

recognized for federal income tax

purposes, and correcting any

misinterpretation of the meaning of the

term "taxpayer" that may have been

caused by the Michigan [Clourt of

[A]ppeals decision in Daimler Chrysler

[sic] Services North America LLC v

Department of Treasury, No. 264323.

However, this amendatory act is not

intended to affect a refund required by a

' DaimlerChrysler Services N.A., LLC v. Dep't of Treasury, 477

Mich. 1043; 728 N.W.2d 298 (2007)

final order of a court of competent

jurisdiction for which all rights of appeal

have been exhausted or have expired i

the refund is payable without interest

and after September 30, 2009 and before

November 1, 2009. [Pet. App. 34-35.|

ky. Proceedings in the Michigan courts.

ford filed a complaint challenging — th

constitutionality of 2007 P.A. 105 in the Michigan

Court of Claims ("trial court") on December 28, 200%

Both parties filed motions for summary disposition. On

November 19, 2008, after considering the argument

the trial court entered a nine-page order, in which it

considered at length the parties’ claims Pet App 3-12

The trial court decided that Ford's interpretation of th

statute was incorrect, and that its constitutional

challenge to the statute lacked merit. The trial court

therefore denied Ford's motion for summary

disposition, and entered summary disposition fo

Treasury pursuant to Mich. Ct. Rule 2.116(C)(8). Ai

order to this effect was entered on December 16, 2008

Ford appealed this order to the Michigan Court

of Appeals. This case was submitted for argument

together with GMAC, L.L.C. v. Dep't of Treasury

which was a virtually identical case in which General!

Motors advanced the same substantive argument a

Ford. On December 3, 2009, the Michigan Court of

Appeals affirmed the lower court's holding in this case

Its decision incorporated by reference its opinion tn

GMAC / At oer Dep't of Treasury eH Mic 1 | sf

N.W.2d 310 (2009)

GMAC L L Ct Dep't of freasur’ Pet \p] ; hord

decision): 25-44 (GMAC decision)

he Michigan Court of Appeals found no merit

to GMAC and Ford's claims that 2007 P.A. 105 violated

constitutional rights and ran afoul of the criteria of

C'arlton for when tax law may be chanved retroactively,

Rather. the court held that the statutory amendment

corrected the court »oOwn pri m iInterpretath n of the

tatute ind theretore ad) ! adeciae the case on the

basis of retroactivit

hi Vii ae ’ ( | Appr i 11S re ye ted

eral statutory interpret tion arguments desivyned t

nay ite that Ford wa entitled t the credit even if the

tatute were upheld kord ha not pre ented these

ue in it certiorari petitio! Ford then asked the

Michigan Supreme Court to grant leave for it to apps

the cas but the Michi preme Court denied

eave, Pet. App 14

Ford now asks tl rt

ertiorari in tnis case, ana to reverse tne aeci mn ¢ [

Michigan Court of Appeals that decided t!

Viichigan State iw eri

t? ry ; rod fate? at Tismel 7

lO

REASONS FOR DENYING THE PETITION

The issue in this case is whether Michigan's

Legislature is authorized by Michigan law to correct a

Michigan court's misinterpretation of a Michigan

statute. This issue is strictly a matter of State law.

and, therefore does not present a federal question that

is Within the jurisdiction of this Court

Moreover, the unique factual circumstances of

this case in which Ford was not asked to pay

additional taxes but instead retroactively seeks a

refund — would make this a poor vehicle for considering

the issue of retroactive changes in tax law

Finally, even if the statute here was deemed to

be a retroactive change in tax law, it satisfies the

C'arlton test for such statute:

I. Ford is seeking review of a State law question

that is not within this Court's jurisdiction to

review.

The Michigan Court of Appeals found that the

issue in this case is not a retroactive application of a

statutory amendment, but rather the Leyislature'’s

correction of a judicial misinterpretation of a statute

Ford's attempt to brush this key distinction aside in

footnote 2 to its certiorari petition is unavailing. Pet

14-15. In the GMAC opinion, which was incorporated

in the decision here, the Michigan Court of Appeal:

stated that Carlton was inapposite because it was

examining here a legislative correction to the prior

judicial] interpretation, not a correction to the statute

itself

1]

[Pylaintiffs’ rehance on the Carlton

decision is misplaced. Plaintiffs are not

challenging the retroactive amendment to

MCL 205.541; rather, plaintiffs are

challenging the Legislature's disapproval

and corrective action with regard to the

DaimlerChrysler decision. Indeed, in

their brief on appeal, — plaintiffs

acknowledge that the prior version. of

MCL 205.541 was not the impetus for this

lawsuit, but rather, "[plaintiffs] filed their

sales tax refund claims based on the

Court of Appeals' 2006) decision in

DaimlerChrysler|.]" However, it is. the

province of the Legislature to acquiesce in

the judicial interpretation of a statute or

to amend the legislation to obviate a

judicial interpretation. |[Pet. App. 43

(emphasis added; citations omitted). |

The key component of the decision of the

Michigan Court of Appeals pertains to the Michigan

Legislature's authority to do what it did here. In

acknowledging that this was the "province" of the

Legislature to amend the statute "to obviate a judicial

interpretation,” the court ruled reyvarding the

i GMAC, 286 Mich. App. at 8380781; N.W. 2d at 320. Karlier in the

GMAC decision, the Michigan Court of Appeals determined that

GMAC had no "vested" rights to a continuation of the tax law in

examining whether any retroactive application of the amended

version violated due process. Pet. App. 39-40. But this is only one

of the Carlton factors, Carlton, 512 U.S. at 33-34, a subsidiary

point, and the Michigan Court of Appeals went on to explain that

Carlton was inapplicable. Thus, insofar as this analysis of the

vesting of GMAC's rights ts relevant to Carlton, it is obiter dictum

because it is not the controlling: analysis

_)2.

controlling construction of the statute — the Legislature

may reject a judicial interpretation of a statute and

restore the correct interpretation, This 1s a question of

Michigan law, as a matter of statutory construction.

Thus, the Michigan Court of Appeals found that the

issue of whether a statutory amendment. could be

retroactively applied = did = not arise since the

amendment was not a retroactive change in law but

rather was a clarification of an existing law. The

Import was that Michigan law had not changed.

The question whether Michigan law gives the

last word as to the meaning of a statute to the

Michigan Legislature or to the courts was disputed in

the appellate litigation of this case in Michigan. But

the Michigan courts ruled in favor the State of

Michigan on that question. It does not present a

federal question appropriate for review by this Court.

The Michigan courts have made it clear that this 1s

how authority to interpret statutes is distributed in

Michigan.§

There is a_ecritical distinction between a

legislative correction to a statute and a correction to a

judicial misinterpretation of a statute. This Court im

Carlton was examining a statutory provision that was

a correction to "a mistake in the original 1986

provision.” The decision here was examining a

correction to the judicial misinterpretation.

* Priest v,. Canada Life Assur Co, 179 Mich. App. 731, 735-7387; 446

N.W.2d 352, 354.355 (1989); Macomb County Prof Deputies Ass'n

v. Macomb County, 182 Mich. App. 724, 728 730; 452 N.W.2d 902,

903-905 (1990)

9 Carlton, 512 U.S. at 32

The definition of "taxpayer" in Mich. Comp.

Laws § 205.541(1)(e) was substantially consistent with

the proper construction of the prior statutory scheme

as well as with Treasury's longstanding interpretation

of who was eligible to claim this deduction under

§ 205.541. Under Michigan jurisprudence, "the

construction given to a statute by those charged with

the duty of executing it is always entitled to the most

respectful consideration and ought not to be overruled

without cogent reasons." In keeping with its original

intent and consistent with Treasury's longstanding

application, the Legislature corrected the Michigan

Court's misinterpretation. In this case, the "taxpayer"

is the person who must pay tax on the vehicle sale

the retailer. It ts well-established in Michigan law that

the sales tax is a tax on the privilege of engaging in

retail sales in the State.'! Only when the person has

retail sales for which it 1s responsible to remit a sales

tax-payment can the bad-debt deduction be sought

from gross proceeds.'!? Gross proceeds arise from a sale

at retail." Here, the retailer engaged in retail sales 1s

the dealer- not Ford.

The Michigan courts have recognized the

authority of the Legislature to engage in’ these

corrections they operate as ae "legislative

interpretation of the original act rather than a

10 SBC Mich. v. PSC (In re Complaint of Rovas), 482 Mich. 90,

103; 754 N.W.2d 259, 267 (2008), quoting: Boyer-Campbell v. Fry,

271 Mich. 282, 296-297, 260 N.W. 165, 170 (1935)(nternal quotes

omitted).

'! Nat'l Bank of Detrott v. Dep't of Revenue, 334 Mich. 132, 140; 54

N.W.2d 278, 282 (1952)

'2 Mich. Comp. Laws § 205.541(2)

Mich. Comp. Laws § 205.51(1)()

substantial change of it.""" , The U.S. Court of Appeals

for the Sixth Circuit also has recognized this aspect of

Michigan law previously.'’ Of course, courts are the

arbiters of the constitutionality of statutes, but this

does not. affect judicial deference to the Legislature's

right to have constitutional statutes that it enacts

interpreted as the Legislature intends.

Ford asserts in its petition that the Michigan

Court of Appeals in GMAC "held" that the statute's

retroactive application met the requirement of due

process. Pet. 3, 14. This is a misunderstanding of the

decision in GMAC. The Michigan Court of Appeals

specifically stated that the argument of the retroactive

’

application of the amendment was not raised in GMA¢

and did not resolve it. Pet. App. 48 ("Plaintiffs are not

challenging the retroactive amendment to MCI,

205.541"). The Michigan Court of Appeals did not

14 People v. Berg, 85 Mich. App. 639, 645, 272 N.W.2d 167, 169

(1978), citing Harper v. Proyresstue Casualty Ins. Co., 79 Mich

App. 764; 263 N.W.2d 1 (1977). See also Detroit Edison Co. v

Department of Revenue, 320 Mich. 506, 520; 31 N.W.2d 809, 816

(Mich. 1948)("If the amendment was enacted soon alter

controversies arose as to the interpretation of the original act, itis

logical to regard the amendment as a leyislative interpretation of

the onpinal act — a formal change - rebutting the presumption of

substantial change"), quoting 1 Sutherland = Statutory

Construction (3d Ed. 1943), p. 418, § 1931) Gnternal quotes

omitted).

> See, e.g., In re Oswalt, 444 F.3d 524, 528-529 (6th Ci

2006)(holding that the Michigan Legislature's amendment to the

Michigan Mobile Home Commission Act governed the attachment

of a security interest even though enacted after the rights in the

bankruptey estate accrued because the amendment “clarified the

legislature's intent that creditors have the option of perfecting

their security interests by the recording of traditional mortyage

liens.").

M5

decide the issue of retroactive application because it

resolved the question as a matter of statutory

construction. For this reason, the Michigan Court of

Appeals could rely on the same analysis in Ford. The

resolution of the issue did not require a due process

analysis.

This understanding of Michigan law as to

which the Michigan court is the final arbiter Is

consistent with previous decisions of this Court.'6 In

Irie RR. v. Tompkins, this Court held that "whether

the law of the State shall be declared by its Legislature

Ina statute or by its highest court in a decision is not a

matter of federal concern."'? Moreover, this Court has

repeatedly recognized the authority of a State to

distribute its functions of government among the

various branches as it sees fit, and not necessarily

according to an inflexible federal model.!5

While Ford may disagree with the decision of the

Michigan Court of Appeals regarding the meaning of

the Michigan statute, the question remains one of

Michigan law. Therefore, it 1s a question that is to be

decided by Michigan courts, not by the federal courts.

16 Mrie RR. v. Tompkins, 304 U.S. 64, 77 (1938)

"7 erie, 3804 U.S. at 78.

‘8 Uphaus v. Wyman, 360 U.S. 72, 77 (1959); Sweezy v. New

Hampshire, 354 U.S. 234, 256-57 (1957)(Frankfurter, J.,

concurring in result); Highland Farms Datury, Inc. v. Agnew, 300

U.S. 608, 612-18 (1987) (Cardozo, Jd.) ("How power shall be

distributed by a state among its governmental organs is

commonly, if not always, a question for the state itself."). See also

Gregory v, Ashcroft, 501 U.S. 452, 460 (1991)(Through the

structure of its vovernment, and the character of those who

exercise government authority, a State defines itself as a

sovereign")

-16-

As this Court. has said many times, "This Court long

has held that it will not consider an issue of federal law

on direct review from a judgment of a state court if

that judgment rests on a state-law ground that 1s both

‘independent' of the merits of the federal claim and an

‘'adequate' basis for the court's decision." Such is the

case here.

Il. The peculiar factual circumstances of this

case would make this case a poor vehicle

for considering retroactive changes to tax

law.

As already noted, the Michigan Court of Appeals

did not decide the question raised by Ford in its

petition for certiorari. Having decided that the issue

presented was not a retroactive change to tax law, but

rather a curative action by the Legislature as to the

meaning of an existing statute, it did not decide the

issue of retroactivity, and any discussion in the opinion

of vested rights and retroactivity is obiter dictum. This

fact alone makes this case an unsuitable one for this

Court to revisit the issue of retroactive tax statutes.

Even if this case was about retroactivity, it

would not present a situation in which Ford faced the

classic type of retroactive change in tax treatment that

is typical of retroactivity cases. The State of Michigan

never demanded that Ford pay mere taxes for past tax

years. Rather, it was Ford — which had already filed its

tax returns and paid its taxes consistent with the

State's understanding of the statute - that sought to

change the tax treatment it had claimed for itself in

19 Harris v. Reed, 489 U.S. 255, 260 (1989).

-17

past years. Moreover, this” situation is_ easily

distinguished from all of the cases relied on by Ford,

some of which do not deal with a tax question at all,

and none of which deals with a situation where a

taxpayer is retroactively seeking a refund based on its

belief that an incorrect court ruling changed its tax

liability.

Thus, the facts of this case do not present the

circumstance in which a taxpayer relies on the

statutory language only to have a legislature change

the language of the act after the tax payer has relied

on the original language to its detriment.

Ill. Even if this Court were to determine that

there was a retroactive change in the

Michigan tax law, any such change is not

contrary to this Court's decision § in

Carlton.

Kven if the statute here was deemed to be a

retroactive change tn tax law, the decision sitisfies the

Carlton test for such statutes.

Ford's arguments about retroactivity miss the

mark. This is because Ford misapprehends the

rationale of this Court's cases and compounds that

error by discounting the underlying facts behind the

dispute over the retroactive amendment to Mich.

Comp. Laws § 205.541.

In its 2006 DaimlerChrysler decision, the

Michigan Court of Appeals changed a longstanding

interpretation of the bad-debt deduction in § 205.541, a

statute originally enacted in 1933. If that

-18

misinterpretation of the bad-debt deduction was not

immediately corrected, this error would have caused an

unanticipated $100,000,000 shortfall in an already

tenuous State budget.e Thus, when the Michigan

Legislature amended the statute to restore the original

meaning of the legislation, the Legislature had a

legitimate, rational basis for a statutory amendment.

There also was no detrimental reliance here.

Ford seeks deductions for tax periods extending back to

April 1, 2002. If it had already received these

deductions, and the State was asking Ford to repay the

deductions, perhaps Ford could claim that iis seitled-

expectations were being disturbed. But this is not what

happened.

During the time period in question, Ford never

sought a bad-debt deduction. It filed the claim for the

tax periods at issue, spanning the period between April

1, 2002 and December 28, 2007, for the most part after

the tax periods had ended, and after the initial

DaimlerChrysler decision indicated to Ford that it

might be entitled to a deduction to which it did not

previously seek a claim.?! From the time it filed the

claim, Ford was fully aware that the State was

contesting the propricty of the judicial interpretation

allowing the deduction, and that legislative action was

20 See Legislative Analysis, Sales and Use Taxes: Bad Debt

Deduction, State of Michigan's brief in the Michigan Court of

Appeals in Ford, filed March 6, 2009, Exhibit 2.

21 Ford's claim for October 1, 2007, through December 28, 2007,

was filed on December 28, 2007. This was after the curative

amendment was enacted. Therefore, the question of retroactive

application of the statutory amendment does not apply to this

time period.

1Y-

being contemplated to overrule the interpretation if it

was not overruled by the courts.

In short, Ford does not face new tax liabilities

that it will have to pay long after the periods in which

the habilities arose have ended. It does not even face

the loss of a deduction to which it previously believed it

was entitled. Ail it faces 1s the loss of a deduction it did

not think it was entitled to prior to the

DaimlerChrysler decision.

The period of retroactivity is also modest here.

Contrary to Petitioner's claim that there was "no limit"

to the amendment's retroactivity, Pet. 14, the

amendment's correction was limited 1n nature because

it does not affect final orders for which the rights of

appeal have expired. Petitioner fails to address the

limiting language placed in the amendatory language:

"this amendatory act is not intended to affect a refund

required by a final order of a court of competent

jurisdiction for which all rights of appeal have been

exhausted or have expired... ." Pet. App. 34-35.

In examining the factors under Car/ton, there

was no violation of Ford's rights under due process.

Dated:

CONCLUSION

The petition should be denied

December 2010

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Respectfully submitted,

Michael A. Cox

Attorney General

B. Eric Restuccia

Michigan Solicitor Genera!

Counsel of Record

P. O. Box 30212

Lansing, Michigan 48909

restucciae@michigan.gov

(517) 373-1124

Heidi L. Johnson-Mchney (?66178)

Bruce C. Johnson (?62645)

Assistant Attorneys General

Revenue and Collections Division

Attorneys for Respondents