Watts Regulator Company v. Department of Treasury
887 N.W.2d 209
Mich. Ct. App.2016Background
- These consolidated appeals involve 23 taxpayers seeking Single Business Tax (SBT) refunds for tax years 2005–2007 by electing the Multistate Tax Compact’s (Compact) equally weighted three‑factor apportionment rather than Michigan’s SBT formula (which heavily weighted sales).
- The Michigan Compact (adopted 1969 statutory text) contains an Article III election allowing taxpayers subject to an income tax to elect either the state’s apportionment or the Compact’s Article IV equally weighted three‑factor formula.
- The SBTA (in force through 2007) contained mandatory apportionment language requiring taxpayers to apportion “as provided in this chapter,” and had shifted to a heavily sales‑weighted formula in the 1990s–2000s.
- The Court of Claims granted summary disposition to the Michigan Department of Treasury, ruling the SBTA impliedly repealed the Compact election and that the SBT qualified as an income tax under the Compact.
- The Court of Appeals reversed: it held the SBTA did not impliedly repeal the Compact election provision for the SBT years at issue, found the statutes can be read in pari materia, and remanded for further proceedings. Other constitutional and statutory challenges (including to 2014 PA 282) were addressed consistent with prior Gillette and IBM analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the SBTA impliedly repealed the Compact’s apportionment election for SBT years 2005–2007 | Compact election remained effective and permitted election of the equally weighted three‑factor formula | SBTA’s mandatory “shall apportion…as provided in this chapter” conflicts with the Compact and thus impliedly repeals the election | Court of Appeals: No implied repeal; statutes can be harmonized and read in pari materia, so Compact election remained available for SBT years in question |
| Whether the Compact is binding on subsequent legislatures or superior to state law | Compact created a binding obligation protecting taxpayers’ election rights | Compact is not a binding interstate compact that limits state legislative authority | Court: did not need to decide broader binding‑contract claims here; relied on Gillette that Compact was not a binding contract and is subject to state law when necessary |
| Whether the SBT qualifies as an “income tax” under the Compact definition | Taxpayers argued SBT was not an income tax and thus Compact election inapplicable | Treasury: under Compact’s broad definition, SBT is measured by net income (federal taxable income adjustments) and thus is an income tax | Court: SBT fits Compact’s broad definition of income tax (measured by amount after deducting expenses from gross income) |
| Whether 2014 PA 282’s retroactive repeal of the Compact bars SBT‑era elections/refunds | Plaintiffs: PA 282 cannot retroactively eliminate election rights for pre‑2008 SBT years | Treasury: PA 282 repealed Compact retroactively effective Jan 1, 2008 and bars later election attempts | Court: PA 282’s express repeal effective beginning Jan 1, 2008 does not reach tax years governed by the SBTA (pre‑2008); it does not bar SBT‑era elections for 2005–2007 |
Key Cases Cited
- International Business Machines Corp v. Dep’t of Treasury, 496 Mich 642 (Michigan Supreme Court) (analyzed interplay between state tax acts and Compact election; in pari materia reasoning)
- Trinova Corp v. Michigan Dep’t of Treasury, 498 U.S. 358 (U.S. Supreme Court) (characterizations of SBT and discussion of federal tax‑base concepts)
- United States Steel Corp v. Multistate Tax Comm’n, 434 U.S. 452 (U.S. Supreme Court) (upholding Compact against constitutional challenge and explaining state adoption/withdrawal dynamics)
- Jackson v. Michigan Corrections Comm’r, 313 Mich 352 (Michigan Supreme Court) (principles on implied repeal and later statute controlling when irreconcilable)
- Wayne Co. Prosecutor v. Dep’t of Corrections, 451 Mich 569 (Michigan Supreme Court) (presumption against repeal by implication; statutory harmonization principles)
- Mobil Oil Corp v. Dep’t of Treasury, 422 Mich 473 (Michigan Supreme Court) (treatment of federal taxable income and SBT base calculation)