Defendant appeals by right a Court of Claims order granting plaintiffs motion for summary disposition under MCR 2.116(0(10) and closing the case pursuant to MCR 2.602(A)(3) in this tax dispute involving the Single Business Tax Act (SBTA), MCL 208.1 et seq., repealed by
Plaintiff is a Delaware manufacturing corporation with its principal office located in Southfield, Michigan. Plaintiff manufactures and sells systems for automotive
Plaintiff incurred $205,000,000 of deductible R&E expenditures, which it elected to amortize over a period of 10 years pursuant to § 59(e) of the Internal Revenue Code, 26 USC 59(e). In other words, plaintiff deducted only a portion of the total amount in the years at issue in this case. Because Michigan’s SBTA did not have a provision equivalent to § 59(e), plaintiff used identical calculations to prepare its single business tax (SBT) and its federal tax returns for the years at issue. Plaintiff continued to use a ratable deduction for its federal tax returns. But after the SBTA was repealed, plaintiff sought to go back and amend its SBT returns, deducting the entire $205,000,000 in the year in which the R&E expenditures were incurred.
On only two prior occasions had defendant dealt with corporations that reported discrepant income between their SBT returns and federal returns. Defendant’s first encounter was with General Motors Corporation (GM). After GM, defendant adopted an internal policy that prohibited a taxpayer from calculating its business income by taking an immediate deduction of R&E for the tax year if that taxpayer had also made a § 59(e) election for federal tax purposes. The second occasion involved Delphi Corporation (Delphi). In that case, a federal bankruptcy court independently allowed Delphi to treat its SBT returns differently from its federal returns.
Plaintiff sought, through its amended SBT returns, a refund, which defendant denied. Plaintiff subsequently filed a motion for summary disposition under MCR 2.116(C)(10), which was granted by the Court of Claims. A final order was issued by the Court of Claims
For the first time, a Michigan court is being asked to consider whether a C corporation can elect to amortize R&E expenditures over 10 years under § 59(e), while at the same time deducting the entire amount for the year in which it was incurred for purposes of the SBT. Defendant’s argument on appeal is twofold. First, defendant maintains that plaintiff must report the same taxable income for both its SBT returns and its federal returns. Because plaintiffs SBT returns and federal returns do not match, plaintiff is not entitled to a refund for the R&E expenditures it incurred. Second, defendant maintains that disparate federal and SBT returns due to a § 59(e) election have occurred in only two prior cases. Those cases were isolated and involved circumstances not analogous to plaintiffs circumstances here. Therefore, defendant argues, it did not violate plaintiffs constitutional rights when it denied plaintiffs refund.
This Court reviews de novo decisions regarding summary disposition and issues of statutory interpretation. Midwest Bus Corp v Dep’t of Treasury,
Issues of statutory interpretation are questions of law that this Court reviews de novo. Sturrus v Dep’t of Treasury,
The SBTA contained no ambiguities regarding whether a C corporation was required to report its R&E expenditures in the same manner as they were on its federal returns. Rather, it was silent on this issue. The SBTA unambiguously stated that “[tax base] means business income” and “[business income] means federal taxable income.” MCL 208.9(1); MCL 208.3(3). Because the SBTA used clear and unambiguous language, plaintiffs tax base must reflect its federal taxable income, including its election to amortize its R&E expenditures under § 59(e). Therefore, plaintiff should have used the amortized amount as a starting point to determine its SBT tax base for each year in issue.
Plaintiff erroneously relies on three cases from this Court to argue that it is acceptable for its amended SBT
In response to plaintiffs argument that it suffered disparate treatment as compared to GM and Delphi, defendant maintains that its denial of plaintiffs refund was not a violation of plaintiffs constitutional rights because GM and Delphi were isolated cases, involving different circumstances than in the case at bar.
To comply with the Equal Protection Clause of the United States Constitution, US Const, Am XIV and the Uniformity of Taxation Clause of the Michigan Constitution, Const 1963, art 9, § 3, defendant is required to exercise “equal treatment of similarly situated taxpayers.” Armco Steel Corp v Dep’t of Treasury,
Plaintiff fails to show that defendant’s disparate treatment of GM and Delphi was intentional and knowing. In Delphi’s case, specifically, the decision to allow disparate treatment was made by the bankruptcy court, not by defendant. See In re Delphi Corp, Case No. 05-44481,
In short, plaintiff made the choice to amortize its R&E expenditures on both its federal returns and its SBT returns. When it did this, plaintiff was not guaranteed that it would realize its full deduction under the SBTA. The SBTA required plaintiff to use its federal taxable income as a starting point to determine its tax base for its SBT returns. While the SBTA may have authorized or required adjustments to be made, the only adjustments that can be made are those that were authorized or required by the SBTA. Because the SBTA
We conclude that plaintiff has failed to establish that no genuine issue of material fact exists as to (1) the proper treatment of its R&E expenditures for purposes of the SBT and (2) the alleged disparate treatment by defendant in violation of plaintiffs constitutional rights.
Reversed and remanded for entry of an order denying plaintiffs motion for summary disposition. We do not retain jurisdiction. Defendant may tax costs.