Taxpayer Victory in Michigan Provides Refund Opportunity
(July 2, 2013)
The Michigan Court of Claims in Anheuser-Busch, Inc. v. Michigan Department of Treasury held that the Multistate Tax Compact (MTC) “is a binding compact that cannot be repealed by a conflicting statute,” and a multistate taxpayer may elect to apportion its income tax using the MTC’s equally weighted three-factor formula. This decision provides refund opportunities for businesses (other than financial institutions and insurance companies) that would benefit from using the MTC apportionment methods.
Michigan long has been a member of the MTC, which obligates member states to offer multistate taxpayers the option of using either the MTC’s formula to apportion and allocate income for state income tax purposes or the state's own apportionment formula. The MTC formula is a three-factor formula with property, payroll, and sales weighted equally. Michigan’s apportionment factor under the Michigan Business Tax (MBT) used a single sales factor.
The MBT, which was in effect through Dec. 31, 2011, was composed of the business income tax (BIT), a tax based on net income, and the modified gross receipts tax (MGRT), a sales-subtracting value-added tax based on gross receipts less certain deductions. While the election under the MTC is available for the BIT component, the court held the MGRT was not an income tax under the MTC and, therefore, cannot be apportioned under the equally weighted three-factor method.
The Michigan Department of Treasury historically has taken the position that taxpayers were not able to use the MTC apportionment formula in lieu of the Michigan apportionment formula. Anheuser-Busch was one of many taxpayers that challenged this position, arguing that Michigan’s membership in the MTC entitled taxpayers to choose between the MTC and the state formula.
Michigan taxpayers should review all open years under the state’s statute of limitations to see if a protective refund opportunity exists based on the court’s ruling. Michigan is expected to appeal the decision to the state’s Court of Appeals, and the ultimate outcome is uncertain. Nevertheless, taxpayers will need to file refund claims prior to the expiration of the statute of limitations to obtain refunds if the resolution of this case is favorable to taxpayers.
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