Tad Malpass v. Department of Treasury
494 Mich. 237
| Mich. | 2013Background
- Malpass family owned East Jordan Iron Works (MI) and Ardmore Foundry (OK) as S-corporations; income was unitary in 2001–2003.
- Malpasses amended returns to group East Jordan’s profit with Ardmore’s loss and apportion the combined amount to Michigan.
- Wheeler family held Electro-Wire (MI), with TKG and EWG partnerships; income flowed to individuals via unitary structure in 1994–1995.
- Department of Treasury required separate-entity apportionment; tribunals and courts disagreed on whether combined reporting is allowed for individuals.
- This Michigan Supreme Court decision holds ITA permits combined reporting for unitary flow-throughs and applies to foreign entities for 1994–1995.
- Case consolidation addresses Malpass v. Dept. of Treasury and Wheeler Estate v. Dept. of Treasury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ITA permits combined reporting for unitary flow-through income | Malpass contends ITA allows combining income from unitary entities | Department argues ITA requires separate-entity or lacks authority for combined reporting for individuals | Yes; ITA permits combined reporting for individuals |
| Whether ITA applies formulary apportionment to foreign unitary entities (1994–1995) | Unitary foreign and domestic entities may be combined for apportionment | Department contends no geographic extent for combined apportionment | Yes; no geographic limitation; foreign unitary income may be apportioned |
Key Cases Cited
- Mobil Oil Corp v. Commissioner of Taxes of Vermont, 445 U.S. 425 (U.S. 1980) (unitary business and formulary apportionment underpin taxation)
- Container Corp. of America v. Franchise Tax Board, 463 U.S. 159 (U.S. 1983) (unitary approach and apportionment principles; broad factors)
- Holloway Sand & Gravel Co. v. Department of Treasury, 152 Mich. App. 823 (Mich. Ct. App. 1986) (six-factor framework for unitary analysis; totality of circumstances)
- Casco Twp v Secretary of State, 472 Mich. 566 (Mich. 2005) (statutory interpretation and apportionment framework)
- Sun Valley Foods Co. v. Ward, 460 Mich. 230 (Mich. 1999) (interpretive precedent on statutory construction and scope)
- Klooster v. City of Charlevoix, 488 Mich. 289 (Mich. 2011) (statutory interpretation and de novo review principles)
- In re Complaint of Rovas Against SBC Mich, 482 Mich. 90 (Mich. 2008) (statutory interpretation and tax methodology guidance)
- Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298 (U.S. 1994) (foreign unitary apportionment context; federal standard)
- F. W. Woolworth Co. v. Department of Revenue of New Mexico, 458 U.S. 354 (U.S. 1982) (apportionment principles in multistate taxation)