Graphic Packaging Corporation v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas ( 2015 )

ACCEPTED
03-14-00197-CV
5431694
THIRD COURT OF APPEALS
AUSTIN, TEXAS
5/27/2015 12:14:14 PM
JEFFREY D. KYLE
CLERK
NO. 03-14-00197-CV
_________________________________________
RECEIVED IN
IN THE COURT OF APPEALS 3rd COURT OF APPEALS
AUSTIN, TEXAS
THIRD JUDICIAL DISTRICT OF TEXAS5/27/2015 12:14:14 PM
AT AUSTIN JEFFREY D. KYLE
_____________________________ Clerk
GRAPHIC PACKAGING, INC.,
Appellant
v.
SUSAN COMBS, COMPTROLLER OF PUBLIC ACCOUNTS OF THE
STATE OF TEXAS; AND GREG ABBOTT, ATTORNEY GENERAL OF
THE STATE OF TEXAS,
Appellees
__________________________________________________________________
FROM THE DISTRICT COURT OF TRAVIS, 353RD JUDICIAL DISTRICT,
CAUSE NO. D-1-GN-003038,
THE HONORABLE DARLENE BYRNE PRESIDING
_________________________________________________________________
BRIEF OF AMICUS CURIAE MULTISTATE TAX COMMISSION
IN SUPPORT OF TEXAS COMPTROLLER OF PUBLIC
ACCOUNTS AND TEXAS ATTORNEY GENERAL
________________________________________________________________
Joe Huddleston
Executive Director
Sheldon Laskin
Counsel
444 N. Capitol St., N.W., Ste. 425
Washington, D.C. 20001
202-650-0300
slaskin@mtc.gov
Attorneys for Amicus Curiae
Multistate Tax Commission
TABLE OF CONTENTS
TABLE OF AUTHORITIES .................................................................................... ii
INTEREST OF THE AMICUS CURIAE ...................................................................1
INTRODUCTION .....................................................................................................4
ARGUMENT ...........................................................................................................14
I. Articles III.1 and IV of the Multistate Tax Compact do not
prevent the Texas legislature from requiring the use of a
receipts factor to apportion the franchise margin base because
the Compact is not a binding interstate compact, but is instead
an advisory compact containing a uniform law.............................................14
A. The Multistate Tax Compact has none of the indicia of a
binding interstate compact. .................................................................17
(1) The Compact does not contain a requirement of
reciprocation.
(2) The Compact does not establish a joint regulatory
body. ...........................................................................................22
(3) The Compact does not prohibit unilateral
modification or repeal. ...............................................................24
B. The Compact is an advisory compact incorporating into
Article IV, and by extension Article III.1, a uniform
law. ......................................................................................................26
II. Even if the Compact were a binding compact, its terms do not
prohibit modification of Article III.1 or IV and therefore this
Court must look to the compact member states’ course of
conduct in determining whether the Compact allows
modification of those apportionment provisions. ..........................................31
CONCLUSION ........................................................................................................37
APPENDIX
i
TABLE OF AUTHORITIES
Cases
Alabama v. North Carolina,
130 S. Ct. 2295 (2010) ................................................................................... 32, 33
Com. of Penn. v. Wheeling & Belmont Bridge Co.,
54 U.S. 518 (1851) ...............................................................................................14
Comptroller of Treasury of Md. v. Wynne,
135 S. Ct. 1787 (2015) ..........................................................................................21
Emco Enterprises, Inc. v. Dep’t of Treasury,
Case No. 12- 000152- MT (Mich. Ct. Cl. April 21, 2015) ..................................30
Ex parte Ervin,
187 S.W.3d 386 (Tex. Crim. App. 2005) ..............................................................25
In re Myrick,
624 A.2d 1222 (D.C. 1993) ..................................................................................19
Ingram Micro, Inc. v. Department of Treasury,
Case No. 11- 000035- MT (Mich. Ct. Cl. December 19, 2014) ..........................30
International Shoe Co. v. Fonternot,
359 U.S. 984 (1959) ...............................................................................................7
Int’l Bus. Machines Corp. v. Dep’t of Treasury,
852 N.W.2d 865 (Mich. 2014) ....................................................................... 13, 15
Lane v. Travelers Indem. Co.,
391 S.W.2d 399 (Tex. 1965) .................................................................................25
McComb v. Wambaugh,
934 F.2d 474 (3d Cir. 1991) .......................................................................... 15, 19
Moorman Mfg. Co. v. Bair,
437 U.S. 267 (1978) ...................................................................................... 12, 21
ii
Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co.,
105 S. Ct. 1441 (1985) .........................................................................................11
Northeast Bancorp, Inc. v. Bd. of Governors of Fed. Reserve Sys.,
472 U.S. 159 (1985) .................................................................................... passim
New Jersey v. Delaware,
552 U.S. 597 (2008) ...................................................................................... 20, 33
Northwestern States Portland Cement Co. v. Minnesota,
358 U.S. 450 (1959) ...............................................................................................6
Oklahoma Tax Com’n v. Jefferson Lines, Inc.,
514 U.S. 175 (1995) ...............................................................................................7
Phillips v. Com., Dept. of Transp., Bureau of Driver Licensing,
80 A.3d 561 (Pa. 2013) ........................................................................................19
Scripto, Inc. v. Carson,
362 U.S. 207 (1960) ...............................................................................................8
Seattle Master Builders Ass’n v. Pac. Nw. Elec.
Power & Conservation Planning Council,
786 F.2d 1359 (9th Cir. 1986) ..............................................................................17
Tarrant Reg’l Water Dist. v. Herrmann,
133 S. Ct. 2120 (2013) ............................................................................. 20, 26, 34
U.S. Steel Corp. v. Multistate Tax Comm’n,
434 U.S. 452 (1978) ..................................................................................... passim
Yaskawa America, Inc. v. Department of Treasury,
Case No. 11-000077-MT (Mich. Ct. Cl. December 19, 2014) ............................30
Constitutional Provisions, Statutes, and Rules
U.S. Const., art. I, § 10, cl. 3....................................................................................18
U.S. Const., art. I, § 10.............................................................................................15
iii
Tex. Const. art. I, § 16..............................................................................................15
Pub. L. No. 86-272,
73 Stat. 555 (1959) ..................................................................................... 7, 9, 10
ALA. CODE § 434 40-27-1.........................................................................................36
ARK. CODE ANN. § 26-5-101 ....................................................................................36
CAL. REV. & TAX CODE § 25128(a) .........................................................................36
COLO. REV. STAT. § 39-22-303 ................................................................................35
IDAHO CODE ANN. § 63-3027(i) ...............................................................................36
MICH. COMP. LAWS § 205.581 .................................................................................35
MINN. STAT. § 290.171 .............................................................................................35
MO. REV. STAT. § 32.200 .................................................................................. 14, 36
OR. REV. STAT. § 314.606 ........................................................................................36
TEX. BUS. & COM. CODE ANN. § 1.303 ............................................................. 32, 33
TEX. EDUC. CODE ANN. § 161.01 .............................................................................28
TEX. FAM. CODE ANN. § 162.102 .............................................................................19
TEX. HEALTH & SAFETY CODE ANN. § 612.001.......................................................19
TEX. TAX CODE ANN. § 141.001 ................................................................................1
TEX. TRANSP. CODE ANN. § 523.001 .......................................................................19
UTAH CODE ANN. § 59-1-801.IV.9 ..........................................................................36
Other Authorities
2013 Or. Laws Ch. 407 ............................................................................................13
iv
2013 Utah Laws, Ch. 462 ........................................................................................13
Brief of Multistate Tax Commission in
United States Steel Corporation v. Multistate Tax Commission,
United States Supreme Court No. 76-635, 1977 WL 189138 .............................27
Bylaws of the Multistate Tax Commission,
Bylaw 7: Hearings and Procedures for Uniformity Recommendations,
http://www.mtc.gov/The-Commission/Bylaws .....................................................3
CA Stats. 2012, c. 37 (S.B.1015), § 3 ......................................................................36
Caroline N. Broun, Michael L. Buenger, Michael H. McCabe &
Richard L. Masters,
The Evolving Use and the Changing Role of Interstate Compacts:
A Practitioner’s Guide (ABA, 2006) ................................................ 16, 26, 27, 30
Charles Conlon, The Report of the Special Subcommittee:
A Preliminary Appraisal,
Proceedings of the Fifty-Seventh Annual Conference on Taxation,
Pittsburgh: National Tax Association, 1964 ..........................................................8
Charter of the MTC Uniformity Committee,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Unifo
rmity/About_Uniformity/Charter%20for%20the%20Uniformity%20Co
mmittee.pdf...........................................................................................................12
Council on State Governments –National Center for Interstate Compacts,
Interstate Compacts vs. Uniform Laws;
http://cglg.org/media/1302/compacts_vs_uniform_laws-csgncic.pdf .................16
D.C. Act 20-130, July 30, 2013 ...............................................................................13
H.R. 11798, 89th Congress (1965) ...........................................................................10
H.R. 16491, 89th Congress (1966) ...........................................................................10
H.R. 2158, 90th Congress (1967) .............................................................................10
v
Jerome R. Hellerstein and Walter Hellerstein,
STATE TAXATION, (3d ed. 2015).........................................................................6, 8
Michael T. Fatale, Common Sense: Implicit Constitutional Limitations on
Congressional Preemptions of State Tax,
2012 Mich. St. L. Rev. 41 ....................................................................................10
Mich. Pub. Acts 2011, No. 40 (H.B. 4479) .............................................................35
Mich. Pub. Acts 2014, No. 282 (S.B. 156) ..............................................................13
Minn. Laws 2013, c. 143, art. 13, § 24 ....................................................................39
MTC Annual Report, FY 67-68,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re
sources/Archives/Annual_Reports/FY67-68.pdf ...........................................11, 29
MTC Annual Report, FY 68-69,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re
sources/Archives/Annual_Reports/FY68-69.pdf .................................................29
MTC Annual Report, FY 70-71,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re
sources/Archives/Annual_Reports/FY70-71.pdf .................................................29
MTC Annual Report, FY 71-
72, http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commissio
n/Resources/Archives/Annual_Reports/FY71-72.pdf .........................................29
MTC Annual Report, FY 72-73,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re
sources/Archives/Annual_Reports/FY72-73.pdf .................................................29
MTC Annual Report, FY 73-74
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re
sources/Archives/Annual_Reports/FY73-74.pdf .................................................29
Multistate Tax Commission, Public Participation Policy,
http://www.mtc.gov/The-Commission/Public-Participation-Policy ......................3
vi
Multistate Tax Compact ................................................................................... passim
Murray Drabkin, The Report of the Special Subcommittee:
A Preliminary Appraisal,
Proceedings of the Fifty-Seventh Annual Conference on Taxation,
Pittsburgh: National Tax Association, 1964 ..........................................................9
Special Subcomm. of the House Comm. on the Judiciary,
State Taxation of Interstate Commerce,
H. Rep. No. 952, 89th Congress, 1st Sess. (1965) .................................. 7, 8, 9, 10
Texas Letter Ruling 20107003L ..............................................................................36
U.C.C. §2-208 ................................................................................................... 32, 33
Uniform Division of Income for Tax Purposes Act,
7A U.L.A. 155 (2002) .................................................................................. passim
vii
INTEREST OF THE AMICUS CURIAE
Amicus curiae Multistate Tax Commission (the Commission) respectfully
submits this brief in support of the Texas Comptroller of Public Accounts. 1
The Commission was established by the Multistate Tax Compact, the subject
of this case. 2 The Compact became effective in 1967 when the minimum number
of states (seven) enacted it by statute, 3 and the validity of the Compact was upheld
in U.S. Steel Corp. v. Multistate Tax Comm’n, 434 U.S. 452 (1978). The
Commission is uniquely qualified to speak to the Compact’s proper interpretation
and to the course of performance of its members.
The Commission is composed of one member from each state that has
enacted the Compact. 4 That member is the head of the respective state agency
charged with administration of taxes. 5 In addition to Texas, fourteen other states
and the District of Columbia are compact member states. Thirty-one other states
regularly participate in Commission activities, including in the Commission’s
Uniformity Committee, as sovereignty or associate members. 6
1
No counsel for any party authored this brief in whole or in part. Only amicus curiae Multistate
Tax Commission made any monetary contribution to the preparation or submission of this
brief. This brief is filed by the Commission, not on behalf of any member state.
2
Multistate Tax Compact, Art. X.1. See the Compact as enacted by Texas. TEX. TAX CODE ANN.
§ 141.001
3
Id. Art.VI.
4
Id. Art. VI.1.
5
Id.
6
Compact Members: Alabama, Alaska, Arkansas, Colorado, District of Columbia, Hawaii,
Idaho, Kansas, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and
The stated purposes of the Compact are to: (1) facilitate proper
determination of state and local tax liability of multistate taxpayers, including
equitable apportionment of tax bases and settlement of apportionment disputes, (2)
promote uniformity or compatibility in significant components of state tax systems,
(3) facilitate taxpayer convenience and compliance in the filing of tax returns and
in other phases of state tax administration, and (4) avoid duplicative taxation.7
Under the Compact, the Commission has the power to: (1) study state and
local tax systems and particular types of state and local taxes; (2) develop and
recommend proposals for an increase in uniformity or compatibility of state and
local tax laws with a view toward encouraging the simplification and improvement
of state and local tax law and administration; (3) compile and publish such
information as would, in its judgment, assist the party states in implementation of
the compact and taxpayers in complying with state and local tax laws; and (4) do
all things necessary and incidental to the administration of its functions pursuant to
the Compact.8
The Commission has established standing committees supporting its
programs and functions in which states, including non-compact states, may choose
Washington. Sovereignty Members: Georgia, Kentucky, Louisiana, Michigan, Minnesota, New
Jersey, and West Virginia. Associate Members: Arizona, California, Connecticut, Florida,
Illinois, Iowa, Indiana, Maine, Maryland, Massachusetts, Mississippi, Nebraska, New
Hampshire, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South
Carolina, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming.
7
Multistate Tax Compact, Art. I.
8
Id., Art. VI.
2
to participate. Those committees include Uniformity, Audit, Nexus, and Litigation
and are headed up by representatives from state tax agencies. 9 Meetings of the
committees — except when dealing with confidential information — are open to
the public and public participation, especially in the Uniformity Committee, is
encouraged.10
Compact members are responsible for appropriating funds for the
Commission’s budget in accordance with Article VI.4. Other states that participate
in audit or nexus programs pay fees for those programs. Representatives of the
compact member states in their role on the Commission approve certain actions of
the executive director and the standing committees. In particular, the Commission
approves any recommendations of model laws developed by the Uniformity
Committee, after those models go through a development and hearing process.11
Representatives of the compact member states may also serve on the Executive
Committee of the Commission, which has the power to oversee and direct the
activities of the executive director and the staff of the Commission and provide
oversight and direction to the standing committees. 12
9
Information on these committees and the programs they support is on the Multistate Tax
Commission’s website at: http://www.mtc.gov/Home.
10
See the Commission’s Public Participation Policy, http://www.mtc.gov/The-
Commission/Public-Participation-Policy.
11
Multistate Tax Compact, Art. VII. See also Bylaws of the Multistate Tax Commission, Bylaw
7: Hearings and Procedures for Uniformity Recommendations, http://www.mtc.gov/The-
Commission/Bylaws.
12
Multistate Tax Compact, Art. VI.2.(a).
3
INTRODUCTION
This brief addresses whether the Texas legislature was precluded by the
Multistate Tax Compact from requiring that taxpayers apportion their franchise tax
margin base using a single gross receipts apportionment formula, rather than the
formula contained in Article IV of the Multistate Tax Compact. The Commission
agrees with the Texas Comptroller that Compact Article IV and the related election
in Article III.1 (the apportionment provisions) do not apply to the Texas franchise
tax, but assumes that they do for purposes of this brief. Even if the Compact’s
apportionment provisions apply to the franchise tax, those provisions do not
preclude the legislature from requiring that taxpayers use a gross receipts-based
apportionment formula instead. The Compact and the apportionment provisions do
not create a binding interstate agreement and therefore do not restrict state
lawmakers authority to unilaterally amend, modify, or supersede those provisions,
once enacted. Even if the Compact were a binding compact, its terms do not
prohibit modification of Article III.1 or IV and the compact member states’ course
of conduct demonstrates their understanding that those provisions may be
modified. Nor is allowing those provisions to be modified inconsistent with the
Compact’s purpose of promoting uniformity or compatibility in state tax laws.
Because the Appellant in this case sets much store by the history
surrounding the Compact, this brief considers that history as well before turning to
4
our arguments. Many of the historical facts are not in dispute. There were
advocates for the Compact at the time of its original adoption who believed that it
was necessary for the states to demonstrate to Congress that they could achieve a
higher degree of uniformity in the taxation of multistate income in order to avoid
federal preemption. There were also those who believed the states would not act
and that Congress should. But the Appellant reads into this history both too much
and too little. The Appellant posits that the Compact was enacted “in response to a
demand by Congress,” and that the “party states . . . intended to satisfy the federal
government” by adopting the Compact. See Brief for Appellant, pp. 1,7 (emphasis
added). According to this theory, the history surrounding the compact proves the
subjective intent, not just of those who debated or promoted the Compact, but of
various state legislative bodies, to enter into a binding contract in satisfaction of an
unspecified demand by an entity that was not a party to that agreement, namely
Congress. This is something the history simply cannot prove. Not only were the
states slow to join the Compact (with many never joining), but as the Commission
asserts below, the Compact imposed no requirement of reciprocation under its
terms and allowed members to withdraw at any time, for any reason. If Congress’s
demand for state uniformity was as certain and serious as the Appellant portrays it,
this response would hardly have satisfied it.
5
The important historical facts can be briefly summarized. Prior to the
1960’s, states used different methods to determine their respective taxable shares
of the earnings of multistate enterprises. Some used separate geographic
accounting while others applied formulary apportionment. Formulary
apportionment uses ratios or “factors” representing the instate percentages of
certain verifiable business activities to determine the state’s share of multistate
earnings. At that time, formulas used by the states were not uniform or consistent.
In 1957, the Uniform Law Commission promulgated the model Uniform
Division of Income for Tax Purposes Act (UDITPA). 13 That model used an
apportionment formula calculated by taking the equally weighted average of three
factors—property, payroll and sales. 14 In the decade following its promulgation,
only a handful of states adopted UDITPA. See Jerome R. Hellerstein and Walter
Hellerstein, STATE TAXATION, ¶ 9.01 (3d ed. 2015).
In 1959, in Northwestern States Portland Cement Co. v. Minnesota, the U.S.
Supreme Court held that a state had jurisdiction to impose corporate income tax on
a corporation that had an office and a small sales force in the state. 358 U.S. 450
(1959). Shortly afterward, the Court refused to review a state court decision
upholding state jurisdiction to impose tax on a business that merely solicited sales
13
Uniform Division of Income for Tax Purposes Act, § 2, 7A U.L.A. 155 (2002) available at:
http://www.uniformlaws.org/Act.aspx?title=Division%20of%20Income%20for%20Tax%20Purp
oses (last visited May 25, 2015)
14
Id.
6
in the state. International Shoe Co. v. Fonternot, 359 U.S. 984 (1959), denying
cert. in 236 La. 279, 107 So. 2d 640 (1958). The Supreme Court has never
renounced the reasoning in Northwestern States.15 But within seven months,
businesses and industry groups were able to convince Congress to step in and
preempt the state’s jurisdiction to impose business income taxes where a business
limits its activities to the solicitation of sales in a state. See Pub. Law No. 86-272,
73 Stat. 555 (1959) (later codified at 15 U.S.C.A. § 318, et. seq.) (hereafter P.L.
86-272). Rather than taking any action to mandate one method of apportionment,
however, the legislation created a Special Subcommittee on State Taxation of
Interstate Commerce of the House Committee on the Judiciary — the Willis
Committee — to study the issue and make a report to Congress. P.L. 86-272 at
556.
The Willis Committee studied the matter for over three years and issued its
final report on September 2, 1965. Special Subcomm. of the House Comm. on the
Judiciary, State Taxation of Interstate Commerce, H. Rep. No. 952, 89th Congress,
1st Sess. (1965) (hereafter the Willis Report). The Willis Report analyzed state
15
See Oklahoma Tax Com’n v. Jefferson Lines, Inc., 514 U.S. 175, 183-184 (1995)(describing
the Court’s struggle with an “old absolutism that proscribed all taxation formally levied upon
interstate commerce” prior to Northwestern States, and the eventual adoption of the Complete
Auto substantial nexus standard, consistent with the holding in that case, that overturned that
older doctrine once and for all).
7
business income taxes imposed in thirty-eight states, not including Texas.16 The
Willis Report recommended federal legislation that would have required states to
use formulary apportionment and employ a formula “composed of property and
payroll factors, without the use of a sales factor.” Id., Vol. 4, p. 1144.
State tax officials criticized the Willis Report for omitting a sales factor from
its recommended apportionment formula since most states and the model UDITPA
had formulas that included a sales factor. The executive secretary of the National
Association of Tax Administrators, Charles Conlon, noted that: “The argument [in
the Willis Report] against the concept of the receipts factor is the familiar one
based on input-output analysis . . . [but] the division of the unitary income base
among the several states is an entirely different problem . . . and where the unitary
tax base is income, the source of gross receipts is a relevant factor and has widely
been accepted as such.” 17
Before, during, and after the period over which the Willis Committee was
deliberating, states were beginning to adopt the model UDITPA formula as part of
16
See the Willis Report, Vol. 1, pp. 99-103. Texas’s franchise tax was included in the Willis
Committee report’s section on Capital Stock Taxes. Id. Vol. 3, pp. 903-917. The Willis
Committee’s charge was expanded to looking at other state taxes imposed on multistate
businesses after the U.S. Supreme Court’s decision in Scripto, Inc. v. Carson, 362 U.S. 207
(1960) and the report eventually made recommendations as to other taxes besides income
taxes—including the use of a uniform apportionment formula for capital stock taxes. See the
Willis Report Vol. 1, p.9 and Vol. 4, p. 1169-1171.
17
Charles Conlon, The Report of the Special Subcommittee: A Preliminary Appraisal, pp. 537-8,
Proceedings of the Fifty-Seventh Annual Conference on Taxation, Pittsburgh: National Tax
Association, 1964.
8
their state business income tax systems. Hellerstein, supra. Some also enacted the
Multistate Tax Compact, Article IV of which incorporates the model UDITPA
nearly word for word. Id. And some did both. Id.
At the annual meeting of the National Tax Association in 1964, Murray
Drabkin, chief counsel of the Willis Committee, summarized the results and the
recommendations of the Committee and said: “[T]he conclusion is clear from the
Subcommittee’s report that Congress will be asked to act in this area. I know there
are those who will question some of the particulars of this report, but even those
people seem to be in agreement that something has to be done. The difference is
only that they say, ‘Let the states do it.’” Then, in response to those who advised
congressional restraint for that reason, the chief counsel for the Willis Committee
expressed his skepticism that the states would “do it,” and concluded that, “It
hasn’t been done and there is no reason to believe that salvation is on the way.”
The Report of the Special Subcommittee: A Preliminary Appraisal, p. 528,
Proceedings of the Fifty-Seventh Annual Conference on Taxation, Pittsburgh:
National Tax Association, 1964.
Federal legislation to mandate a standard apportionment formula was indeed
introduced at least three times after passage of P.L. 86-272, but prior to the
9
adoption of the Compact in 1967. H.R. 11798, 89th Congress (1965),18 H.R. 16491,
89th Congress (1966), H.R. 2158, 90th Congress (1967).19 But it also soon became
apparent that Congress would leave in place P.L. 86-272’s limitation on taxing
jurisdiction, first proposed as a temporary or “stop-gap” measure.20
Given this history, some state officials may have believed that, having
restricted state taxing jurisdiction under Pub. L. 86-272 (effectively reversing the
Supreme Court case that created the issue in the first place), Congress’s “demands”
were already effectively “satisfied”—or at least that Congress would not move
beyond restricting state taxation to actually regulating it. The cynical among them
might even have viewed the creation of a committee to study the problem as a sign
that there was no congressional consensus to take further action. Of course, some
state officials no doubt believed that the Willis Report‘s unfavorable description of
state taxing schemes, and the perception that the states would not act, would
compel Congress to mandate a nationwide income tax apportionment system. But
had Congress been so compelled, it is difficult to understand how it would have
been satisfied by a few states enacting a voluntary interstate compact. 21
18
This is the bill that accompanied the Willis Committee Report. H.R. Rep. No. 952, 89th Cong.,
1st Sess. (1965).
19
Congress would also fail to ratify the Compact on numerous occasions. U.S. Steel Corp. v.
Multistate Tax Commission, 434 U.S. 452 (1978), at 458 n. 8.
20
Michael T. Fatale, Common Sense: Implicit Constitutional Limitations on Congressional
Preemptions of State Tax, 2012 Mich. St. L. Rev. 41.
21
As of its initial meeting in October 1967, the Commission noted that there were ten members
of the Compact: Florida, Illinois, Kansas, Missouri, Nebraska, Nevada, New Mexico, Oregon,
10
Even if each legislature enacting the Compact in 1967 made the same
political calculation that doing so might forestall federal preemption, this cannot
form the basis for a legally-enforceable obligation. Congress was not a party to the
Compact, nor did the states obligate themselves contractually to each other or
anyone else in exchange for Congress’s agreement not to act. See, e.g., Nat’l R.R.
Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 105 S. Ct. 1441 at 1451
(1985) (“[T]he presumption is that ‘a law is not intended to create private
contractual or vested rights but merely declares a policy to be pursued until the
legislature shall ordain otherwise.’ … [T]he principal function of a legislature is
not to make contracts, but to make laws that establish the policy of the state.”
(Internal citations omitted.))
Nor does this suggest that states that enacted the Compact did so only on a
pretense of concern over the problems created by disuniformity. As noted above,
one of the Compact’s purposes is to “promote uniformity or compatibility in
significant components of state tax systems.” The Compact accomplishes this
purpose through Art. VII, which provides that: “Whenever any two or more party
States or subdivisions have uniform or similar provisions of law relating to an
income tax . . . the Commission may adopt uniform regulations . . .” for
Texas and Washington. MTC Annual Report, FY 67-68 (First Annual Report), p. 3. A copy of
the annual report is available on the Commission’s website, at
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY67-68.pdf
11
consideration by the states. 22 The Executive Committee of the Commission
established the Uniformity Committee in which any state and members of the
public may participate. 23 This created a dedicated forum for the continuing study of
the kinds of multistate tax issues that had been taken up by the Uniform Law
Commission and the Willis Committee. In its 48 years, the Commission has
analyzed, developed and ultimately recommended approximately 40 model laws.24
While these models are advisory only, 25 they and the process by which they are
adopted contribute to greater uniformity and compatibility in state laws. This
approach to uniformity, unlike binding contractual obligations or federal
legislation, allows state laws to adapt as necessary, in recognition that such
adaptation will always be required.
One such adaptation that states have made involves the emphasis placed on
the sales factor in apportionment formulas used to divide multistate income. By
1978, the U.S. Supreme Court noted that the UDITPA equally-weighted formula
had become “the prevalent practice.” Moorman Mfg. Co. v. Bair, 437 U.S. 267,
279 (1978). Moorman involved the choice by Iowa lawmakers to use a single
sales-factor formula. The Court recognized that “political and economic
22
Compact, Article VII. See also Compact, Article VI (3)(b).
23
Charter of the MTC Uniformity Committee,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Uniformity/About_Uniformity/
Charter%20for%20the%20Uniformity%20Committee.pdf
24
For a compilation of the Commission’s completed model laws, see:
http://www.mtc.gov/Uniformity.aspx?id=524.
25
Compact, Articles VI.3(b) and VII.
12
considerations vary from state to state” and might impact a state’s choice of
apportionment methods. Id. The Court concluded that the constitution permits
states to apply different apportionment formulas. Id., 281. While a number of states
have moved away from requiring an equally-weighted three-factor formula since
1978, they have consistently moved in the same direction—toward formulas that
emphasize the sales or receipts factor.
Today, 38 of the 47 states with some form of apportioned business tax use a
formula that gives at least double-weighting to the sales factor when used in
combination with property and payroll factors. 26 Only nine states exclusively
require an equally-weighted three-factor formula. 27 Among Compact members, the
movement is the same. Of the sixteen compact member states, only six continue to
require the equally-weighted three-factor apportionment formula. 28 Eight members
require at least a double-weighted sales factor. 29 None of these eight permits the
26
See Attachment A, State Apportionment of Corporate Income
27
Id.
28
Id. Alaska, Hawaii, Kansas, Montana, New Mexico, and North Dakota.
29
Id. Alabama, Arkansas, Colorado, Dist. of Columbia, Idaho, Oregon, Texas, and Utah. In
2013, Utah, Oregon, and the District of Columbia each repealed the Compact and enacted a
version without Articles III.1 and IV. 2013 Utah Laws, Ch. 462; 2013 Or. Laws Ch. 407 (SB
307); D.C. Act 20-130, July 30, 2013. Michigan repealed the Compact in its entirety in 2014.
Mich. Pub. Acts 2014, No. 282 (S.B. 156), retroactive to January 1, 2008. Both prior and
subsequent to the repeal, Michigan required taxpayers to apply a single sales factor
apportionment formula. Int’l Bus. Machines Corp. v. Dep’t of Treasury, 852 N.W.2d 865
(Mich. 2014).
13
apportionment election of Article III.1. 30 Only one Compact member explicitly
allows the election in Article III. 31
As their course of performance indicates, the Compact members do not
interpret the Multistate Tax Compact as prohibiting their state legislatures from
requiring heavier-weighted or single-sales-factor apportionment formulas for
apportioning income. As the Commission argues below, this interpretation and
course of performance is consistent also with the laws of statutory and contract
construction and is supported by the conclusions of the U.S. Supreme Court in U.S.
Steel. Further, this interpretation is consistent with the purposes of the Compact.
ARGUMENT
I. Articles III.1 and IV of the Multistate Tax Compact do not prevent the
Texas legislature from requiring the use of a receipts factor to apportion
the franchise margin base because the Compact is not a binding
interstate compact, but is instead an advisory compact containing a
uniform law.
Before analyzing whether the Multistate Tax Compact is a binding compact
or contains provisions that cannot be unilaterally modified, we would remind the
Court that the Compact was never approved by Congress. U.S. Steel, at 454.
Therefore, it does not have the force of federal law so as to require congressional
approval of any modifications. Com. of Penn. v. Wheeling & Belmont Bridge Co.,
30
Supra, n. 26.
31
MO. REV. STAT. § 32.200. Note, Colorado recognized the election until passage of H.B. 08-
1380, signed May 20, 2008, effective for tax years commencing on or after Jan. 1, 2009.
14
54 U.S. 518 (1851). The Court must therefore treat with great caution any cases
relied upon by the Appellant in support of its challenge which hold that a
Congressionally approved compact may not be modified unilaterally by state law
or that the provisions of such compacts take precedence over conflicting state law.
Moreover, whether there are “binding” compacts, outside those approved by
Congress, is debatable, 32 although the Commission does not assert that there are
none. Because it is clear that the Multistate Tax Compact does not have the
characteristics of a binding interstate agreement, this brief argues that this Court
may properly find for the Comptroller on that basis.
The Appellant recognizes that the Compact was not approved by Congress
but nevertheless claims that Articles III.1 and IV of the Compact cannot be
unilaterally modified. Brief for Appellant, p. 29. The Appellant also claims it is a
violation of the contracts clauses of both the federal and state constitutions 33 for
Texas to refuse to allow a taxpayer to elect the apportionment formula of Compact
Article IV. Id. at 46. Because the Appellant cannot rely on Congressional approval
32
The Michigan Supreme Court recently decided a case similar to this. There, a plurality made
its holding without reaching the question of whether the Compact was binding. Three justices,
however, would have reached that question. Writing for those three, Justice McCormack rejected
the contention that the Compact was binding and noted that a case relied upon by the taxpayer
there, as well as the Appellant here, “did not cite any authority for the above emphasized rule—
that compacts without congressional approval cannot be unilaterally amended and must take
precedent over conflicting state law—and I have found none.” Int’l Bus. Machines Corp. v.
Dep’t of Treasury, 852 N.W.2d at 887 (McCormack, J. dissenting, referring to McComb v.
Wambaugh, 934 F.2d 474 (3d Cir. 1991)).
33
U.S. Const., art. I, §10, Tex. Const. art. 1, §16.
15
for its challenge, it must show that the Compact has elements of a binding
interstate agreement. But the Compact lacks these elements. Instead, it is an
advisory compact containing a uniform law.
Interstate agreements may take different forms. Some are binding, in the
sense that some or all of their provisions may not be unilaterally modified. 34 Many,
however, are not binding—but may be advisory in nature, and do not prevent
unilateral modification of their terms. 35 States may also adopt model laws that
contain uniform language but lack any element of an agreement to maintain
uniform provisions. 36 Neither a model law nor an advisory compact constitutes a
contract. Both may be unilaterally modified. 37 Labels are not controlling and the
fact that something is labeled a “compact” does not determine whether its
provisions create binding obligations.
In analyzing whether the provisions of the Multistate Tax Compact are
binding, this Court should apply the “classic indicia of a compact” as set out by the
U.S. Supreme Court in Northeast Bancorp, Inc. v. Bd. of Governors of Fed.
Reserve Sys., 472 U.S. 159 (1985), and applied by 9th Circuit Court of Appeals’
34
Council on State Governments –National Center for Interstate Compacts, Interstate Compacts
vs. Uniform Laws
http://cglg.org/media/1302/compacts_vs_uniform_laws-csgncic.pdf (last visited May 25, 2015)
35
Caroline N. Broun, Michael L. Buenger, Michael H. McCabe & Richard L. Masters, The
Evolving Use and the Changing Role of Interstate Compacts: A Practitioner’s Guide 12, 14
(ABA, 2006).
36
Id.
37
Id., p. 17
16
analysis in Seattle Master Builders Ass’n v. Pac. Nw. Elec. Power & Conservation
Planning Council, 786 F.2d 1359 (9th Cir. 1986).
The three “classic indicia” in Northeast Bancorp (slightly restated in Seattle
Master Builders) may be summarized as:
(1) the requirement of reciprocation,
(2) the establishment of a joint regulatory body, and
(3) the prohibition of unilateral modification or repeal. 38
A. The Multistate Tax Compact has none of the indicia of a binding
interstate compact.
(1) The Compact does not contain a requirement of
reciprocation.
The requirement of reciprocation is the sine qua non of a binding interstate
compact as well as any binding provision of a compact. The U.S. Supreme Court
recognized this in Northeast Bancorp. In that case, federal law permitted states to
regulate in-state bank acquisitions by companies domiciled outside the state. A
group of states had enacted similar statutes allowing acquisitions on a reciprocal
basis. The statutes also imposed a regional limitation, which the Appellants in the
case claimed created an unconstitutional interstate compact, bringing challenges to
the statutes in two states. The Court observed:
38
Northeast Bancorp, supra, 472 U.S. at 175. Accord, Seattle Master Builders, supra, 786 F.2d
at p. 1363.
17
“Appellants maintain that the Massachusetts and Connecticut statutes
constitute a compact to exclude non-New England banking organizations
which violates the Compact Clause, U.S. Const., Art. I, § 10, cl. 3, because
Congress has not specifically approved it. We have some doubt as to
whether there is an agreement amounting to a compact. The two statutes are
similar in that they both require reciprocity and impose a regional limitation,
both legislatures favor the establishment of regional banking in New
England, and there is evidence of cooperation among legislators, officials,
bankers, and others in the two States in studying the idea and lobbying for
the statutes. But several of the classic indicia of a compact are missing. No
joint organization or body has been established to regulate regional banking
or for any other purpose. Neither statute is conditioned on action by the
other State, and each State is free to modify or repeal its law unilaterally.
Most importantly, neither statute requires a reciprocation of the regional
limitation. Bank holding companies based in Maine, which has no regional
limitation, and Rhode Island, which will drop the regional limitation in
1986, are permitted by the two statutes to acquire Massachusetts and
Connecticut banks. These two States are included in the ostensible compact
under Appellants’ theory, yet one does not impose the exclusion to which
Appellants so strenuously object and the other plans to drop it after two
years.”
472 at 175 (emphasis added).
While the issue in Bancorp ultimately did not turn on whether there was a
compact, the Court is clear that a uniform law is not sufficient, nor is an agreement
to cooperate in studying an issue or lobbying for the uniform provisions to be
enacted. Rather, the most important indicia of a compact is a requirement of
reciprocation. Such a requirement may be explicit or implicit.
In addition to citing cases involving compacts that have been
Congressionally approved, interstate compacts cited by the Appellant in support of
its case may be read as creating a requirement of reciprocation. For example:
18
• The Interstate Compact on the Placement of Children, TEX. FAM. CODE ANN.
§162.102 et. seq. Allows the authority of participating states to be extended
beyond their borders and provides procedures for the interstate placement of
children for foster care or as a preliminary to a possible adoption. After a
placement has been made, the sending state continues to have financial
responsibility for support and retains jurisdiction over the child. Also
provides: “No sending agency shall send, bring or cause to be sent or
brought into any other party state, any child for placement in foster care or
as a preliminary to a possible adoption unless the sending agency shall
comply with each and every requirement set forth in this article.” See
McComb v. Wambaugh, 934 F.2d at 480.
• The Drivers’ License Compact, TEX. TRANSP. CODE ANN. §523.001 et seq.
Requires reciprocal licenses suspension by member states. Members must
report driving offenses to other member states and suspend driving
privileges for offenses committed in another state. See Phillips v. Com.,
Dept. of Transp., Bureau of Driver Licensing, 80 A.3d 561, 567 (Pa. 2013).
• The Interstate Compact on Mental Health, TEX. HEALTH & SAFETY CODE
ANN. §612.001 et. seq. Among other things, ensures that a member may not
avoid financial responsibility by sending a mentally ill person to another
state without first obtaining the consent of the receiving state to accept that
patient. See In re Myrick, 624 A.2d 1222, 1226 (D.C. 1993).
States that enter into these kinds of compacts expect to derive a benefit not
just from sharing resources or from collective effort, but from the requirement of
reciprocation itself. They will only derive that benefit, however, if the reciprocal
requirement is respected by the other members. Compact provisions that depend on
reciprocation are obviously not susceptible to unilateral modification.
Compacts may contain requirements of reciprocation that mandate or
prohibit actions. For example, the Red River Compact, considered by the U.S.
Supreme Court in June 2013, established a detailed regulatory scheme for use of
19
water from the Red River which barred any member state from taking or diverting
water from within another state’s borders. Tarrant Reg’l Water Dist. v. Herrmann,
133 S. Ct. 2120 (2013). Similarly, the Compact of 1905 governing riparian rights
on the Delaware River bars any member from exercising exclusive jurisdiction
over those rights. New Jersey v. Delaware, 552 U.S. 597 (2008). Whether the
requirement is to do something, or not do something, cases that have held that
interstate compacts could not be unilaterally altered (apart from the requirement for
Congressional approval) have turned on the fact that the parties undertook mutual
obligations that were critical for the proper functioning of the compact.
In contrast, the Multistate Tax Compact imposes no requirement of
reciprocation on its members. Nor do the benefits of membership in the Compact
depend on reciprocation of the members. The Multistate Tax Compact allows each
Compact member state to fully exercise its sovereign power to tax independently
of any requirement of concurrence by the other members and with no delegation of
power to the Commission to bind the members. U.S. Steel, at 473. The
apportionment provisions of Articles III.1 and IV are no exception. No Compact
member state has a right to nor has any ever attempted to require another Compact
member state to refrain from modifying Article III.1 or Article IV of the Compact,
nor is it clear how a state might hope to benefit from doing so. Each state’s own
law determines the portion of multistate income subject to tax in that state. Even
20
assuming that one state’s law could control the portion of multistate income
taxable in another state, this would not benefit the first state. The portion of
income subject to tax in the first state is not determined by reference to what
portion any other state taxes. The Compact does not alter this reality nor is there
any indication the states ever intended it to do so.
That one state’s determination of the taxable share of multistate income does
not depend upon any other state’s determination of its taxable share has long been
recognized as a feature of our federal system of government. Moorman
Manufacturing Co. v. Bair, 437 U.S. at 274. This fundamental principle was very
recently affirmed by the U.S. Supreme Court. In Comptroller of Treasury of
Maryland v. Wynne, 135 S. Ct. 1787 (2015), 2015 WL 2340843, the Court held that
a state’s law taxing a share of interstate income is to be evaluated solely on the
“internal consistency” of that law. Specifically, the Court noted that it had chosen
to “distinguish between (1) tax schemes that inherently discriminate against
interstate commerce without regard to the tax policies of other States, and (2) tax
schemes that create disparate incentives . . . only as a result of the interaction of
two different but nondiscriminatory and internally consistent schemes … [because]
[t]he first category of taxes is typically unconstitutional; the second is not.” Wynne
at *13 (emphasis added).
21
Nor does any other provision of the Compact require or implicate this kind
of reciprocation with respect to application of the state apportionment rules in
Article III.1 and IV. For example, member states, acting in their role in the
Commission, may freely choose to vote for or against recommended uniform or
model regulations interpreting Article IV (or may even abstain from voting to
make such recommendations). Nor are the member states required to adopt any
recommended regulations or even to refrain from applying a contradictory
regulation or interpretation.
(2) The Compact does not establish a joint regulatory body.
The precise nature of the joint regulatory body to which the U.S. Supreme
Court referred in Northeast Bancorp is best understood in the context of the
particular requirement of reciprocation the Court was searching for in that case. As
noted, the challengers in that case took issue with the regional limitation. The U.S.
Supreme Court therefore questioned whether, in the statutes creating that
limitation, a “joint organization or body has been established to regulate regional
banking or for any other purpose.” 472 U.S. at 175.
The Multistate Tax Commission is not a regulatory body in that sense.
Indeed, that was one of the primary reasons the U.S. Supreme Court ruled that the
Compact did not require Congressional approval under the Compact Clause.
This pact does not purport to authorize the member States to exercise
any powers they could not exercise in its absence. Nor is there any
22
delegation of sovereign power to the Commission; each State retains
complete freedom to adopt or reject the rules and regulations of the
Commission.39
Further,
[I]ndividual member States retain complete control over all legislation
and administrative action affecting the rate of tax, the composition of
the tax base (including the determination of the components of taxable
income), and the means and methods of determining tax liability and
collecting any taxes determined to be due. 40
As the U.S. Supreme Court recognizes, the Commission was delegated no
sovereign power and cannot impose requirements on its member states to adopt or
apply regulations. In enacting the Compact, the members did not surrender any
aspect of state sovereignty. The Court’s descriptions of the powers of the
Commission confirm that they are strictly limited to an advisory and informational
role. 41
While the Commission, with the support of its staff, cooperates through its
various programs and activities and while the members benefit from those actions,
this is not enough to create a binding compact. If it were, then every organization
or association with state governmental members might be deemed to establish a
binding compact.
39
U.S. Steel Corp., supra, 434 U.S. at 473 (emphasis added).
40
Id. at 457.
41
In U.S. Steel, the U.S. Supreme Court described the powers of the Commission at 456-457.
23
For example, the Appellant notes that the Commission provides audit
services to compact member states and to other states that wish to contract with the
Commission for that purpose. U.S. Steel, of course was a challenge to the
Commission’s audits, and this did not alter the U.S. Supreme Court’s views of the
Commission’s authority. But it may also be useful to note that no Compact
member state is obligated to use the Commission’s audit services. And Texas does
not. 42 The audit program is overseen by the states that participate in it and the
Commission is authorized by each state that wishes to engage in a particular joint
audit to perform that audit on behalf of those states. The participating states select
taxpayers for audit and receive a report as a result of the audit with recommended
adjustments. It is up to each state whether or not to make any adjustments
recommended as a result of the audit, which are made based on each states’ own
laws, using that state’s own assessment procedures. 43
(3) The Compact does not prohibit unilateral modification or
repeal.
The third of the classic indicia of a compact noted by the Supreme Court in
Northeast Bancorp is whether the agreement prohibits unilateral modification or
repeal. The Multistate Tax Compact prohibits neither. It explicitly permits
42
See a list of states that participate in the Commission’s audit program at:
http://www.mtc.gov/Audit-Program/Member-States.
43
See information on the Commission’s audit program at: http://www.mtc.gov/Audit-Program.
24
unconditional, unilateral repeal. 44 The Compact is silent as to modification. But
where an interstate agreement creates neither any reciprocal obligations nor a
regulatory agency to enforce those obligations, and where that agreement also
provides for unilateral and unconditional repeal, without notice or delay, it is
difficult to understand in what way the agreement could possibly be “binding” so
that provisions might not be modified by its members. 45 Accordingly, it is not
determinative that the agreement does not explicitly address unilateral
modification. To hold otherwise would be a strained reading whether the
Compact is analyzed as a contract or as a statute. 46 Lane v. Travelers Indem. Co.,
391 S.W.2d 399, 402 (Tex. 1965); Ex parte Ervin, 187 S.W.3d 386, 388 (Tex.
Crim. App. 2005).
Nor can silence be construed against the compact member states in
determining whether they are precluded from modifying its provisions where
those provisions would otherwise constrain their ability to establish the states’
own tax rules. As pointed out recently by the U.S. Supreme Court, “States rarely
relinquish their sovereign powers, so when they do we would expect a clear
44
Multistate Tax Compact, Art. X.2.
45
Article X’s withdrawal provision is not “similar” to the withdrawal provisions cited in the
Brief for Appellant, at footnote 6. All those compacts require a state to give advance notice,
either to the other member states or to an interstate regulatory body, of its intent to withdraw as
much as two years before the withdrawal takes effect. All a member state need do to withdraw
from the Multistate Tax Compact is repeal it, without any advance notice to the other members.
This distinction underscores the binding nature of the compacts cited by The Appellant and the
advisory nature of the Multistate Tax Compact.
25
indication of such devolution, not inscrutable silence.” Tarrant Reg’l Water Dist.
v. Herrmann , 133 S. Ct. 2120 at 2133.
B. The Compact is an advisory compact incorporating into Article
IV, and by extension Article III.1, a uniform law.
The Multistate Tax Compact is not a binding interstate agreement requiring
reciprocation nor does anything in the Compact prohibit the unilateral modification
of the apportionment provisions of Article III.1 and IV. This conclusion puts to rest
the Appellant’s claims that the Texas legislature was precluded by the Compact
from requiring that franchise taxpayers use a single sales factor apportionment
formula. Implicit in the Appellant’s arguments, however, is the contention that the
Compact must be a binding interstate compact since it cannot be characterized as
anything else. We reject this contention, relying as it must on labels rather than
substance. To the extent is it necessary to label it, the Commission believes that the
Compact can best be described as an advisory compact, Articles III.1 and IV of
which are in the nature of uniform laws.
Advisory compacts are characterized as “lack[ing] formal enforcement
mechanisms and are designed not to actually resolve an interstate matter, but
simply to study such matters.” 47 In The Evolving Use and the Changing Role of
Interstate Compacts, the authors explain that “[b]y their very terms, advisory
47
Broun et al., supra n. 35, at 13 (citing the Delmarva Peninsula Advisory Council Compact as
an example of such a compact).
26
compacts cede no state sovereignty nor delegate any governing authority to a
compact-created agency.” 48 The Commission characterized the Compact in exactly
this way before the U.S. Supreme Court thirty-eight years ago, saying:
[The Compact] consists solely of uniform laws, an advisory
mechanism for the uniform interpretation and application of those
laws, and an advisory mechanism for otherwise developing uniformity
and compatibility in state and local taxation of multistate businesses.
Brief of Multistate Tax Commission in United States Steel Corporation v.
Multistate Tax Commission, U.S. Supreme Court No. 76-635, 1977 WL
189138 at *12.
The Court agreed, first citing the powers of the Commission as described in
Section 3 of Art. VI:
(i) to study state and local tax systems; (ii) to develop and recommend
proposals for an increase in uniformity and compatibility of state and
local tax laws in order to encourage simplicity and improvement in
state and local tax law and administration; (iii) to compile and publish
information that may assist member States in implementing the
Compact and taxpayers in complying with the tax laws; and (iv) to do
all things necessary and incidental to the administration of its
functions pursuant to the Compact.
U.S. Steel, 434 U.S. at 456-457, citing to Compact Art. VI. After which, the Court
discussed Articles VII and VIII, detailing more specific functions of the
48
Broun et al., supra n. 35, at 14. In view of Broun‘s clear description of advisory compacts as
“lack[ing] formal enforcement mechanisms” and that they “are not designed to actually resolve
an interstate matter, but simply to study such matters,” Appellant’s assertion that an advisory
compact is nevertheless binding is simply ignores everything except the Compact’s label.
Appellant’s Reply Brief at 13.
27
Commission. The Court’s description recognized that these functions do not
represent the exercise of any delegated sovereign authority:
Under Art. VII, the Commission may adopt uniform administrative
regulations in the event that two or more States have uniform
provisions relating to specified types of taxes. These regulations are
advisory only. Each member State has the power to reject, disregard,
amend, or modify any rules or regulations promulgated by the
Commission. They have no force in any member State until adopted
by that State in accordance with its own law. Article VIII applies only
in those States that specifically adopt it by statute. It authorizes any
member State or its subdivision to request that the Commission
perform an audit on its behalf. The Commission, as the State’s
auditing agent, may seek compulsory process in aid of its auditing
power in the courts of any State that has adopted Art. VIII.
Information obtained by the audit may be disclosed only in
accordance with the laws of the requesting State.
Id., at 457.
That state governments might enter into agreements to cooperate or to create
a joint organization to serve an advisory function (that is, advisory compacts), is
not a novel idea. Nor is it unheard of for those agreements to be labeled
“compacts.” For example, the Compact for Education 49 appears to be very similar
to the Multistate Tax Compact. It establishes an Educational Commission of the
states whose purpose and function is serve as a clearinghouse to exchange
information on best educational practices, to conduct research into improving those
practices and to recommend educational policies to further those best practices.
49
TEX. EDUC. CODE ANN. §161.01 et seq.
28
In addition to creating a means by which states could cooperate and engage
in collective study and analysis of tax matters, the Compact includes the model
UDITPA, promulgated by the Uniform Law Commission, in Article IV. Therefore,
Article IV, and by extension Article III.1, can best be described as the enactment of
uniform law. This has been the Multistate Tax Commission’s understanding of the
substance of the Compact since its beginning, more than forty years ago. The
Commission’s early annual reports regularly included a list of the states in which
“the Multistate Tax Compact has been enacted as a uniform law …” 50 And as far
back as thirty-eight years ago, in U.S. Steel, the Commission informed the U.S.
Supreme Court that both Article IV and Article III.1 are essentially uniform acts
that “could be adopted by any state independently of any compact ….” MTC U.S.
Steel Brief, pp. 8 and 12.
50
See MTC Annual Report, FY 67-68, p. 12,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY67-68.pdf (last visited May 25, 2015)
MTC Annual Report, FY 68-69, p. 25,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY68-69.pdf (last visited May 25, 2015)
MTC Annual Report, FY 70-71, p. 13,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY70-71.pdf (last visited May 25, 2015)
MTC Annual Report, FY 71-72, p. 14,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY71-72.pdf (last visited May 25, 2015)
MTC Annual Report, FY 72-73, p. 8,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY72-73.pdf (last visited May 25, 2015)
MTC Annual Report, FY 73-74, p. 26,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_
Reports/FY73-74.pdf (last visited May 25, 2015) (emphasis added).
29
Of course, uniform laws may be unilaterally modified. As the Broun treatise
on compacts explains, model uniform laws do not constitute a contract between the
states and thus, unlike contracts, are not binding:
Although legislatures are urged to adopt model uniform laws as
written, they are not required to do so and may make changes to fit
individual state needs. Uniform acts do not constitute a contract
between the states, even if adopted by all states in the same form, and
thus, unlike contracts, are not binding upon or enforceable against the
states. Each state retains complete authority to unilaterally amend or
change such codes to meet its unique circumstances. There is no
prohibition in uniform acts limiting the ability of state legislatures to
alter particular provisions as times change or to address the peculiar
domestic political circumstances in a state. 51
That the Compact has been properly viewed by its members as an advisory
compact or agreement incorporating in its apportionment provisions (Articles III.1
and IV) a uniform law is evident 52 As will be explained below, the members have
treated the apportionment provisions as subject to unilateral modification,
consistent with this view. Not only does this further demonstrate the understanding
of the members as to the fundamental nature of the Compact, but as the
Commission argues below, it establishes a course of conduct or performance that
this Court must consider in determining whether, even if the Compact is itself
51
Broun et al., supra n. 35, at 16.
52
Recently, the Michigan Court of Claims has held that the Multistate Tax Compact is an
advisory compact and not binding on its members. Yaskawa America, Inc. v. Department of
Treasury, Mich. Ct. Cl. Case No. 11 – 000077-MT (December 19, 2014); Ingram Micro, Inc. v.
Department of Treasury, Mich. Ct. Cl. Case No. 11 – 000035 – MT (December 19, 2014); Emco
Enterprises, Inc. v. Department of Treasury, Mich. Ct. Cl. Case No. 12 – 000152 – MT (April
21, 2015).Copies of Emco and Yaskawa are attached as C and D in the Appendix.
30
deemed to be a binding compact, the provisions at issue may nevertheless be
modified by state law.
II. Even if the Compact were a binding compact, its terms do not prohibit
modification of Article III.1 or IV and therefore this Court must look to
the compact member states’ course of conduct in determining whether
the Compact allows modification of those apportionment provisions.
The Commission asserts that the Multistate Tax Compact is not a binding
interstate compact. It imposes no requirement of reciprocity on its members, nor is
any such requirement embodied in Articles III.1 and IV. Consistent with this lack
of any requirement for reciprocity, it gives the members no grounds or procedures
for disputing unilateral modifications of its provisions. The organization created by
the Compact was not delegated any sovereign authority and cannot require the
compact member states to take any particular action related to taxation.
The provision at issue here is the incorporation of a uniform law and a
related election, and it is clear that uniform laws are, by their nature, subject to
unilateral modification. The Compact itself allows unconditional, unilateral
withdrawal by state enactment alone and it contains no explicit prohibition against
unilateral modification of any provision. Moreover, if any of its provisions were
found to violate a particular state’s constitution or were otherwise held invalid, that
31
Compact state’s membership is not voided but the invalid provision is deemed
severed. 53
These facts are sufficient to reject the Appellant’s claims that Texas cannot
require a different apportionment formula. But if this Court were to conclude that
the Compact is, in any way, a binding interstate agreement, then the fact that it is
silent with respect to the ability of states to modify the apportionment provisions of
Articles III.1 and IV would require this Court to consider the course of conduct or
performance of the compact member states.
In interpreting the obligations of the parties to a compact, courts have long
recognized that, as with contracts generally, the actual performance of a compact
by the parties has high probative value in determining the scope of those
obligations: “In determining [the meaning of a compact] the parties’ course of
conduct under the Compact is highly significant.” Alabama v. North Carolina, 130
S. Ct. 2295, 2309 (2010).
A basic premise of contract law, recognized as part of the Uniform
Commercial Code (UCC) is that “the parties [to the contract] themselves know
best what they have meant by their words of agreement and their action under that
agreement is the best indication of what that meaning was.”54 For instance, Section
53
Multistate Tax Compact, Article XII.
54
U.C.C. §2-208 cmt. 1. Section 2-208 of the U.C.C. is codified, without substantive change, at
TEX. CODE ANN. BUS. & COM. § 1.303.
32
2-208 of the UCC provides that “course of performance” is relevant even if the
express terms of the contract seem clear on their face. The course of performance
doctrine has two material elements, both of which have been satisfied in this case.
As defined under the Uniform Commercial Code:
(a) A “course of performance” is a sequence of conduct between the parties
to a particular transaction that exists if:
(1) the agreement of the parties with respect to the transaction involves
repeated occasions for performance by a party; and
(2) the other party, with knowledge of the nature of the performance and
opportunity for objection to it, accepts the performance or acquiesces in it
without objection.55
The course of performance doctrine in interpreting modern compacts is
demonstrated by the U.S. Supreme Court’s reliance on the actions of the
compacting parties taken years or even decades after the compacts became
effective in order to ascertain the original understanding of those parties in entering
into the compact. For example, in New Jersey v. Delaware, 552 U.S. 597 (2008),
the Court relied on the parties’ course of performance which began more than 60
years after the compact was enacted to demonstrate that the parties to the compact
never intended either party to exercise exclusive jurisdiction over riparian rights on
the Delaware River.
In Alabama v. North Carolina, in concluding that no member state of the
Southeast Interstate Low-Level Radioactive Waste Management Commission was
55
TEX. CODE ANN. BUS. & COM. § 1.303.
33
obligated to continue meeting its licensing obligations under the compact if the
costs of doing so became prohibitively expensive, the Court relied on the parties’
course of performance over the eleven year period after Congress approved of the
interstate compact providing for the disposal of low-level radioactive waste.
In Tarrant Reg’l Water Dist. v. Herrmann, 133 S. Ct. 2120 (2013), the Water
District’s actions starting twenty-two years after Congress ratified the Red River
Compact in 1980 established that the compacting parties did not authorize any
member of the Compact to take or divert water from within another member’s
borders.
The members of the Multistate Tax Compact have demonstrated that a state
may unilaterally modify the apportionment provisions at issue. In 1971, the Florida
legislature: (1) repealed Articles III and IV of the Compact, (2) reenacted the
apportionment provisions of Article IV (§214.71, the “general method” of
apportionment) and (3) amended their business income tax to provide that: “In lieu
of the equally weighted three factor apportionment formula ... described in
§214.71, there shall be used for purposes of the tax imposed by this code [the
corporate income tax] an apportionment fraction composed of a sales factor
representing 50 percent of the fraction, a property factor representing 25% of the
fraction, and a payroll factor representing 25% of the fraction.”56 This change
56
See copies of the session laws attached to this brief.
34
became effective in January 1972, only five years after the Compact was initially
adopted.
At the Commission’s annual meeting that year, the compact member states,
acting through their representatives, unanimously passed a resolution upholding
Florida’s continued membership in the Compact and the Commission
notwithstanding that state’s unilateral repeal of Articles III and IV of the Compact
and its adoption of a mandatory double-weighting of the sales factor. Texas, a
member of the Compact since 1967, attended the meeting at which the resolution
was passed and voted in favor of Florida’s continued membership. 57
Other present or former compact members have varied from the
apportionment provisions in Article III. 1 and IV by some action modifying,
amending, repealing or otherwise superseding some or all of the formula or the
election set out in those provisions. The Appellant may take issue with the ability
of these states to do so, but there is no serious dispute that the states themselves
take the position that these changes were effective. Three present or former
Compact members eliminated or limited the election directly. 58 Three others
amended Article IV to be consistent with their statutory apportionment formula
57
A copy of the minutes of the Commission’s meeting of December 1, 1972 is appended to this
brief as Section B.
58
Colorado (COLO. REV. STAT. §§ 39-22-303.5 and 39-22-303.7), Michigan (as applied to the
Michigan Business Tax after January 1, 2008; (MICH. COMP. LAWS § 205.581); see also Mich.
Pub. Acts 2011, No. 40 (H.B. 4479)), Minnesota (MINN. STAT. § 290.171). Minnesota repealed
its version of the compact entirely in 2013. MN Laws 2013, c. 143, art. 13, § 24. Michigan did
so in 2014 Mich. Pub. Acts 2014, No. 282 (S.B. 156), retroactive to January 1, 2008.
35
that emphasizes the sales factor.59 And three states in addition to Texas indicated
by separate statute or other guidance that the compact election does not apply to
factor-weighting.60 Only one Compact member explicitly recognizes the election. 61
The remaining members require an equal-weighted formula, identical to Article IV
of their respective enacted compacts, such that the election is of no consequence
with respect to factor-weighting.62
The course of performance of the compact member states over a more than
forty-year period demonstrates that the apportionment provisions of Articles III.1
and IV are subject to unilateral modification. Nor is this inconsistent with the
Compact’s purpose of promoting “uniformity or compatibility in significant
components of state tax systems.” 63 The apportionment provisions contained in
Article IV are much more comprehensive than just the weighting given to the sales
factor. It would not have been reasonable to expect that that such a comprehensive
system of uniform apportionment rules enacted in 1967 would permanently
represent the policy views of state lawmakers or be responsive to an evolving
59
Alabama (ALA. CODE § 434 40-27-1), Arkansas (ARK. CODE ANN. § 26-5-101), Utah (UTAH
CODE ANN. § 59-1-801.IV.9). In 2013 Utah repealed the Compact and enacted a version that
does not contain either Articles III.1 or IV (Utah Senate Bill 247, effective June 30, 2013).
60
California (CAL. REV. & TAX CODE §25128(a)), Idaho (IDAHO CODE ANN. § 63-3027(i)),
Oregon (OR. REV. STAT. § 314.606). In 2013 Oregon repealed the Compact and enacted a
version that does not contain either Articles III.1 or IV. 2013 Oregon Laws Ch. 407 (S.B.
307).Texas (letter ruling 201007003L). California repealed its version of the compact entirely
in 2012. CA Stats. 2012, c. 37 (S.B.1015), § 3.
61
MO. REV. STAT. § 32.200.
62
Alaska, Hawaii, Kansas, Montana, New Mexico, North Dakota.
63
Multistate Tax Compact, Art. I.
36
economy or to the changing needs of the states. Nor has that been the case. Policies
have evolved. And it is clear that a number of states have felt the specific need to
modify the Compact’s apportionment provisions in a particular way—to give more
emphasis to the sales factor of the apportionment formula, and to make that
heavier-weighted sales factor formula the standard formula by which taxpayers
will apportion their income.
Had it been necessary for these states to withdraw from the Compact in
order to give effect to this particular change in policy, or had they been prevented
from joining the Compact on this account, there would have been much less reason
for them to adopt or maintain the other elements of the UDITPA formula which
help to create a more uniform system of state taxation. Had it been necessary for
all of the compact member states to agree on any changes to the standard
apportionment formula, a number of states would inevitably have had to withdraw.
CONCLUSION
The Commission urges this Court to respect the decision of the Texas
legislature, which is also in keeping with the legislative bodies in a number of
states, that Texas may be a member of the Multistate Tax Compact without ceding
authority over its own tax laws. The Commission maintains that it has always been
the case that state legislative bodies retained the authority to vary their tax rules
without fear that the Compact could impose some superior law that could not be
37
changed without the collective agreement of the Compact members—or without
the requirement that those members abandon the Compact and its worthwhile
purposes. This conclusion is in keeping with the plenary authority of legislatures
when it comes to taxes and with the legislative prerogative generally—and it
should not be contested without more compelling grounds than exist here. That the
questions at issue have only recently arisen is one more indication that they are not
well-founded. The Commission therefore believes that the right resolution is to
find that the Compact is not a binding interstate agreement, and that any question
as to whether states may modify its apportionment provisions should be resolved
on the basis of its members’ course of conduct.
Respectfully submitted this 26th day of May, 2015.
/s/ Joe Huddleston
Joe Huddleston
Executive Director
Sheldon Laskin
Counsel
444 N. Capitol St., N.W., Ste. 425
Washington, D.C. 20001
202-650-0300
slaskin@mtc.gov
Attorneys for Amicus Curiae
Multistate Tax Commission
38
CERTIFICATE OF COMPLIANCE
This brief complies with the typeface requirements Texas Rule of Appellate
Procedure 9.4(e) because it has been prepared in a conventional typeface no
smaller than 14-point for text and 12-point for footnotes. This document also
complies with the word-count limitation of Texas Rule of Appellate Procedure
9.4(i)(2)(B) because it contains 9,694 words, excluding the parts of the brief
exempted by Rule 9.4(i)(1).
/s/ Lila Disque
Lila Disque
39
CERTIFICATE OF SERVICE
I certify that the foregoing Brief of Amicus Curiae Multistate Tax Commission
In Support of Texas Comptroller of Public Accounts and Texas Attorney
General was electronically filed with the Clerk of the Court using the electronic
case filing system of the Court. I also certify that a true and correct copy of the
foregoing was served via e-service or e-mail on the following counsel of record on
May 26, 2015.
James F. Martens Rance Craft
jmartens@textaxlaw.com Assistant Solicitor General
Amanda G. Taylor Rance.craft@texasttorneygeneral.gov
ataylor@textaxlaw.com Cynthia A. Morales,
Lacy L. Leonard Assistant Attorney General
lleonard@textaxlaw.com Cynthia.morales@texasattorneygeneral.gov
Danielle Ahlrich OFFICE OF THE ATTORNEY
dahlrich@textaxlaw.com GENERAL
MARTENS, TODD, LEONARD & P.O. Box 12548 (MC 059)
TAYLOR Austin, Texas 78711-2548
301 Congress Avenue, Suite 1950 Tele: (512) 936-2872
Austin, Texas 78701 Fax: (512) 474-2697
Counsel for Appellant Counsel for Appellees
Amy L. Silverstein
asilverstein@sptaxlaw.com
SILVERSTEIN & POMERANTZ
LLP
12 Gough Street, Second Floor
San Francisco, California 94103
Counsel for Appellant
/s/ Lila Disque
Lila Disque
40
APPENDIX
APPENDIX TABLE OF CONTENTS
A. State Apportionment of Corporate Income
B. Minutes of MTC General Session, Dec. 1, 1972
C. Florida Session Laws, 1971
D. Emco Enterprises, Inc. v. Dep’t of Treasury,
Case No. 12- 000152- MT (Mich. Ct. Cl. April 21, 2015)
E. Yaskawa America, Inc. v. Department of Treasury,
Case No. 11-000077-MT (Mich. Ct. Cl. December 19, 2014)
2
A
3
STATE APPORTIONMENT OF
CORPORATE INCOME
(Formulas for tax year 2014 -- as of January 1, 2014)
ALABAMA * Double wtd Sales NEBRASKA Sales
ALASKA* 3 Factor NEVADA No State Income Tax
ARIZONA * Double wtd Sales/85% Sales, NEW HAMPSHIRE Double wtd Sales
7.5% Property & 7.5% Payroll NEW JERSEY Sales
ARKANSAS * Double wtd Sales NEW MEXICO * 3 Factor/Double wtd Sales (4)
CALIFORNIA * Sales NEW YORK Sales
COLORADO * Sales NORTH CAROLINA * Double wtd Sales
CONNECTICUT Double wtd Sales/Sales NORTH DAKOTA * 3 Factor
DELAWARE 3 Factor OHIO N/A (3)
FLORIDA Double wtd Sales OKLAHOMA 3 Factor
GEORGIA Sales OREGON Sales
HAWAII * 3 Factor PENNSYLVANIA Sales
IDAHO * Double wtd Sales RHODE ISLAND 3 Factor
ILLINOIS * Sales SOUTH CAROLINA Sales
INDIANA Sales SOUTH DAKOTA No State Income Tax
IOWA Sales TENNESSEE Double wtd Sales
KANSAS * 3 Factor TEXAS Sales
KENTUCKY * Double wtd Sales UTAH Sales
LOUISIANA 3 Factor VERMONT Double wtd Sales
MAINE * Sales VIRGINIA Double wtd Sales/Quadruple
MARYLAND Sales/Double wtd Sales wtd Sales (1)
MASSACHUSETTS Sales/Double wtd Sales WASHINGTON No State Income Tax
MICHIGAN Sales WEST VIRGINIA * Double wtd Sales
MINNESOTA Sales WISCONSIN * Sales
MISSISSIPPI Sales/Other (2) WYOMING No State Income Tax
MISSOURI * 3 Factor DIST. OF COLUMBIA Double wtd Sales
MONTANA * 3 Factor
Source: Compiled by FTA from state sources.
Notes:
The formulas listed are for general manufacturing businesses. Some industries have a special formula different
from the one shown.
* State has adopted substantial portions of the UDITPA (Uniform Division of Income Tax Purposes Act).
Slash (/) separating two formulas indicates taxpayer option or specified by state rules.
3 Factor = sales, property, and payroll equally weighted.
Double wtd Sales = 3 factors with sales double-weighted
Sales = single sales factor
(1) Virignia ( certain manufactures) are phasing in a single sales factor which will reach 100% for tax years
beginning after 7/1/2014.
(2) Mississippi provides different apportionment formulas based on specific type of business. A single sales factor
formula is
required if no specific business formula is specified.
(3) Ohio Tax Department publishes specific rules for situs of receipts under the CAT tax.
(4) New Mexcio is phasing in a single sales factor for manufacture business through 1/1/2018.
FEDERATION OF TAX ADMINISTRATORS -- JANUARY 2014
4
B
C
ADDENDUM
to
VOLUME 1
of
FLORIDA STATUTES, 1971
The Florida Legislature met in special session between November 29 and Decem,
her 9, 1971, and enacted a number of measures appropriate for inclusion in the
Florida Statutes. However, the printing of this 1971 edition had by then proceeded
too far to permit incorporation of these measures at th e appropriate places in
these volumes. Therefore, it has been decided to publish the product of the special
session as Addenda to volumes 1 and 2. However, entries reflecting the special
session have been inserted at the proper places in the tables of section changes,
tracing table, and alphabetical index.
The format is the same as that used for the Supplement to the Florida Statutes,
1969. The full text of each section amended during the special session is published
in the Addendum to the volume in which it would otherwise have appeared.
Repealed sections are identified by catchline and bracketed note only. In order
to make the Addenda more noticeable, colored paper has been used.
§199.032 ADDENDUM §212.02
CHAPTER 199 or tra iler ca mps, as herein after defined in this
INTANGIBLE PERSONAL PROPERTY cha pter;
TAX ACT (c) The prod ucing, f ab ri cating, processing,
printing or imprinting of t a ngi ble perso nal
PART I p rope rty for a co ns iderati on f or co ns umers who
GENERAL PROVISIONS furni sh eith er direc tly or indirectl y th e ma-
te ri a ls use d in the produ cing, fabri cating, pro-
199.032 Levy . cess ing, printin g or imprinting ; a nd
*199.032 Lev;r.-There is hereby levied, to (d ) The furni shin g, preparing or serving
be assessed and collected as provided by this f or a cons ide ration of a ny t a ngible personal
chapter: property for consu mption on or off the prem-
ises of the per son furni shing, prepa ring, or
(1) An annual tax of one mill on the dollar serving s uch ta ng ible perso na l property w hich
of the just valua tion of a ll intangible personal in cludes the sa le of mea ls or prepared food by
property except money a s defined in §199.023 a n employe r t o hi s empl oyees .
(1)(a ), and except notes, bonds, and other
obligations for payment of money which are (e) A transaction whereby the possession of
secured by mortgage, deed of trust, or other property is tran sferred but th e sell er retains
tit!~ as security fo r the payment of the price.
lien upon real property situated in the sta te;
(2) A nonrecurring tax of two mills on the ( 3 ) (a ) " Retail sa le" or a "sale at r etail"
dollar of the just valuation of all notes, bonds, mea ns a sale t o a cons umer or to any person
and other obligations for payment of money, for any purpose other th a n for resale in the
which are secured by mortgage, deed of trust, or form of tangible personal property, and shall
other lien upon real property situated in the mea n a nd in clude a ll s uch tra nsactions that
state. may be ma de in li eu of reta il sales or sales at
r eta il. A re sa le mu st be in strict compliance
History.- §1, ch: 71-134 ; §1, ch. 71-987.
•Note.- Section , as amended, effective July 1, 1972. with rules a nd regulati ons a nd any dealer mak-
ing a sale f or re sa le whi ch is not in strict com-
pliance with rules a nd regulations shall him-
self be liable f or and pay the tax.
(b ) The terms "x:etail sales," "sales at re-
tail," "use," "storage," and "cons umption" shall
CHAPTER 212 include the sa le, use, storage or consumption
TAX ON SALES, of all tangible advertising materials imported
USE AND OTHER TRANSACTIONS or caused to be imported into this state.
Tangible advertising material shall include
212.02 Definitions. displays, display containers, brochures, cata-
212.03 Transient rentals tax; rate, procedure, logs, price lists, point of sale advertising and
enforcement, etc. technical manuals or any t a ngible personal
212.031 Lease or rental of real property. property whi ch does not accompany the prod-
212.08 Sales, rental, storage, use tax; specified uct t o the ultimate consumer.
(c) The terms "retail sales," "sale at retail,"
exemptions. " use," "storage," and "consumption" &hall not
include materials, containers, labels, sacks, or
212.02 Definitions.- The following terms bags intended to be used one time only for pack-
and phrases when used in this chapter, shall aging tangible personal property for sale, and
have the meaning ascribed to them in this shall not include the sale, use, storage, or con-
section, except where the context dearly indi- sumption of industrial materials for future pro-
cates a different meaning: cessing, manufacture, or conversion into articles
(1) "Person" includes any individual, firm, of tangible personal property for resale when
copartnership, joint adventure, association, cor- such industrial materials become a component
poration, estate, tru st, business trust, receiver, or ingredient of the finished product. However,
syndicate, or other group or combination acting said terms shall include the sale, use, storage, or
as a unit, and shall include any political sub- consumption of tangible personal property, in-
division, municipality, state agency, bureau or cluding fuels. used and dissipated in fabricat-
department, and the plural as well as the singu- ing, converting, or processing tangible personal
lar number. property for sale.
(2) "Sale" means and includes: (d ) The term "gross sales" means the sum
(a) Any transfer of title or possession, or total of all retail sales of tangible personal
both, exchange, barter, lease or rental , condi- property as defined herein, without any deduc-
tional or otherwise, in any manner or by any tion whatsoever of any kind or character, ex-
means whatsoever of tangible personal prop- cept as provided in this chapter.
erty for a consideration; (4) "Sales price" means the total amount
(b ) The r enta l of living quarters, sleeping paid f or tangible personal property, including
or hous ekeeping accommoda ti ons in hot els, any services that are a part of the sale, valued
apa rtment houses or r ooming houses, t our ist in money, whether pa id in mon ey or otherwise,
1966
§212.02 ADDENDUM §212.02
and includes any amount for which credit is (f) A "trailer camp" is a place where space
given to the purchaser by the seller, without is offered, with or without service facilities, by
any deduction therefrom on account of the cost any persons or municipality to the public for
of the property sold, the cost of materials used, the parking and accommodation of two or more
labor or service cost, interest charged, losses automobile trailers which are used for lodging,
or any other expense whatsoever. Sales price for either a direct money consideration or an
also includes the consideration for a transac- indirect benefit to the lessor or owner in con-
tion which requires both labor and material to nection with a related business, such space
alter, remodel, maintain, adjust or repair tan- being hereby defined as living quarters, and
gible personal property. Trade-ins or discounts the rental price thereof shall include all service
allowed and taken at the time of sale shall not charges paid to the lessor.
be included within the purview of this sub- (g) "Lease," "let" or "rental" also means
section. the leasing or rental of tangible personal prop-
(5) "Cost price" means the actual cost of
articles of tangible personal property without erty and the possession or use thereof by the
any deductions therefrom on account of the cost lessee or rentee for a consideration, without
of materials used, labor or service costs, trans- transfer of the title of such property, except
portation charges, or any expenses ·whatsoever. as expressly provided to the contrary herein.
(6) "Lease," "let," or "rental" means leas- Provided that, where two taxpayers, in con-
ing or renting of living quarters, sleeping or nection with the interchange of facilities, rent
housekeeping accommodations in hotels, apart- or lease property, each to the other, for use
ment houses, rooming houses, tourist or trailer in providing or furnishing any of the services
camps and real property, the same being de- mentioned in §167.431, the term lease or rental
fined as follows: shall mean only the net amount of rental in-
volved.
(a) Every building or other structure kept,
used, maintained, advertised as or held out to *(h) "Real property" means any interest in
the public to be a place where sleeping accom- the surface of real property unless said prop-
modations are supplied for pay to transient or erty is:
permanent guests or tenants, in which ten or 1. Assessed as agricultural property under
more rooms are furnished for the accommoda- ~ 193.461.
tion of s·uch guests, and having one or more 2. Used exclusively as dwelling units.
dining rooms or cafes where meals or lunches 3. Property subject to tax on parking,
are served to such transient or permanent docking or storage spaces under §212.03 ( 6).
guests, such sleeping accommodations and din- (7) "Storage" mear.s and includes any keep-
ing rooms or cafes being conducted in the· same ing or retention in this state of tangible per-
building or buildings in connection therewith, sonal property for use or consumption in this
shall, for the purpose of this chapter, be state, or for any purpose other than sale at re-
deemed a hotel. tail in the regular course of business.
(b) Any building or part thereof, where (8) "Use" means and includes the exercise
separate accommodations for two or more fam- of any right or power over tangible personal
ilies living independently of each other are property incident to the ownership thereof, or
supplied to transient or permanent guests or interest therein, except that it shall not include
tenants, shall for the purpose of this chapter the sale at retail of that property in the regular
be deemed an apartment house. course of business.
(c) Every house, boat, vehicle, motor court, (9) "Business" means any activity engaged
trailer court or other structure or any place or in by any person, or caused to be engaged in
location kept, used, maintained, advertised or by him, with the object of private or public
held out to the public to be a place where living gain, benefit, or advantage, either direct or in-
quarters, sleeping or housekeeping, accommo- direct. Except for sales of motor vehicles, the
dations are supplied for pay to transient or term "business" shall not be construed in this
permanent guests or tenants, whether in one chapter to include occasional or isolated sales
or adjoining buildings, shall for the purpose of or transactions involving tangible personal prop-
this chapter be deemed a rooming house. erty by a person who does not hold himself out
as engaged in business, but shall include other
(d) In all hotels, apartment houses and charges for the sale or rental of tangible per-
rooming houses within the meaning of this sonal property, sales of or charges of admis-
chapter, the parlor, dining room, sleeping sion, communication services, all rentals and
porches, kitchen, office and sample rooms shall leases of living quarters, other than low rent
be construed to mean rooms. housing operated under chapter 421, sleeping or
(e) A "tourist camp" is a place where housekeeping accommodations in hotels, apart-
two or more tents, tent houses, or camp cot- ment houses, rooming houses, tourist or trailer
tages are located and offered by a person or camps, and all rentals of real property, other
municipality for sleeping or eating accommoda- than low rent housing operated under chapter
tions, most generally to the transient public 421, all leases or rentals of parking lots or ga-
for either a direct money consideration or an rages for motor vehicles, docking or storage
indirect benefit to the lessor or owner in con- spaces for boats in boat docks or marinas as de-
nection with a related business. fined in this chapter and made subject to a tax
1967
§212.02 ADDENDUM §212.03
imposed by this chapter. Any tax on such sales, (17) "In this state" or "in the state" means
charges, rentals, admissions, or other transac- within the exterior limits of Florida and in-
tions made subject to the tax imposed by this cludes all territory within these limits owned
chapter shaH be collected by the state, county, by or ceded to the United States .
municipality, any political subdivision, agency, Hlstory.-f2, ch. 26318, IU4U ; Ul-3, ch. 26871, IUS!; fl, ch.
bureau or department or other state or local gov- 28883, 1855; !13, ch . SU-1 ; Ul-4, ch. 58-288; 13. ch. 61-274;
! 1, ch. 63 -526; !7, ch. 63-253 ; !11-3. ch. 65-328 ; §5, ch. 65-371;
ernmental instrumentality in the same manner 12. ch . 65-420 ; 11. ch . 67-180 ; If! , 2, ch . 68-27; 11. ch. 68-IIU;
as other dealers, unless specifically exempted by §§21, 35, eli . 69-106; §§1·3, ch. 69-222; §1, ch. 70·206; §1, ch. 71·360;
§47, ch . 71-377; §2, ch. 71·986.
this chapter. •Note.-Paragraph (h), as am ended, effective March 1, 1972.
(10 ) "Retailer" means and includes every
perso n engaged in the bu siness of making sales 212.03 Transient rentals tax; rate, pro-
at retail, or for distribution, or use, or con- cedure, enforcement, etc.-
sumption, or storage to be used or consumed in
this state. (1) It is hereby declared to be the legisla-
tive intent that every person is exercising a
(11) The term "department" means the taxable privilege who engages in the business
department of revenue. of renting, leasing or letting any living quar-
(12) " Tangible personal property" means ters, sleeping or housekeeping accommodations
and includes personal property which may be in, from, or a part of, or in connection with
seen, weighed, measured, or touched or is in any hotel, apartment house, rooming house,
any manner perceptible to the senses, including tourist or trailer camp, as hereinbefore defined
electric power or energy, boats, motor vehicles in this chapter. For the . exercise of said priv-
as defined in §320.01(1), aircraft as defined in ilege a tax is hereby levied as follows: in the
§330.01, and all other types of vehicles. The amount equal to four per cent of and on the
term "tangible personal property" shall not in- total rental charged for such living quarters,
clude stocks, bonds, notes, insurance, or other sleeping or housekeeping accommodations by
obligations or securities; intangibles as defined the person charging or collecting the rental;
by the intangible tax law of the state; or pari- provided that such tax shall apply to hotels,
mutuel tickets sold or issued under the racing apartment houses, rooming houses, tourist or
laws of the state. trailer camps, as hereinbefore defined in this
(13) The term "use tax" referred to in this chapter, whether or not there be in connection
chapter includes the use, the consumption, the with any of the same, any dining rooms, cafes
distribution, and the storage as herein defined. or other places where meals or lunches are sold
(14) The term "intoxicating" or "alcoholic or served to guests.
beverages" referred to in this chapter includes (2) The tax provided for herein shall be in
all such beverages as are so defined or may be addition to the total amount of the rental and
hereafter defined by the laws of the state. shall be charged by the lessor or person receiv-
(15 ) The terms "cigarettes" or "tobacco" ing the rent in and by said rental arrangement
or "tobacco products" referred to in this chap- to the lessee or person paying the rental, and
ter inc! ude all such products as are defined or shall be due and payable at the time of the re-
may be hereafter defined by the laws of the ceipt of such rental payment by the lessor or
state. person, as defined in this chapter, who receives
said rental or payment. The owner, lessor or
(16) The term "admissions" means and in- person receiving the rent shall remit the tax to
cludes the net sum of money after deduction the department at the times and in the manner
of any federal taxes for admitting a person hereinafter provided for dealers to remit taxes
or vehicle or persons to any place of amuse- under this chapter. The same duties imposed
ment, sport, or recreation or for the privilege by this chapter upon dealers in tangible per-
of entering or staying in any place of amuse- sonal property respecting the collection and re-
ment, sport or recreation, including but not mission of the tax, the making of returns, the
limited to theaters, outdoor theaters, shows, keeping of books, records and accounts and the
exhibitions, games, races or any place where compliance with the rules and regulations of
charge is made by way of sale of tickets, gate the department in the administration of this
charges, seat charges, box charges, season chapter shall apply to and be binding upon all
pass charges, cover charges, greens fees, par- persons who manage or operate hotels, apart-
ticipation fees, entrance fees or other fees or ment houses, rooming houses, tourist and
receipts of anything of value measured on an trailer camps, and to all persons who collect or
admission or entrance or length of stay or seat receive such rents on behalf of such owner or
box accommodations in any place where there lessor taxable under this chapter.
is any exhibition, entertainment, including
admissions to performances of philharmonic (3) Where rentals are received by way of
associations, opera guilds, little theaters, and property, goods, wares, merchandise, services
similar organizations, amusement, sport or or other things of value, the tax shall be at
recreation, and all dues paid to private clubs the rate of four per cent of the value of said
providing recreational facilities, including but property, services or other things of value.
not limited to golf, tennis, swimming, yachting ( 4) The tax levied by this section shall not
and boating facilities. apply to, be imposed upon, or collected from
1968
§212.03 ADDENDUM §212.031
any person who shall reside continuously longer 212.031 Lease or rental of real property.-
than twelve months . at any one hotel, apartment (l)*(a) It is declared to be the legislative
house, rooming house, tourist or trailer camp, intent that every person is exercising a taxable
and shall have paid the tax levied by this privilege who engages in the business of rent-
section for twelve months of residence in any ing, leasing, or letting any real property unless
on~ hotel, rooming house, apartment house,
such property is:
tourist or trailer camp. Notwithstanding other
provisions of this chapter, no tax shall be im- 1. Assessed as agricultural property under
posed upon rooms provided guests when there § 193.461.
is no consideration involved between guest and 2. Used exclusively as dwelling units.
the public lodging establishment. 3. Property subject to tax on parking, dock-
(5.) The tax imposed by this section shall ing or storage spaces under §212.03(6).
constitute a lien on the property of the lessee *(b) When a lease involves multiple use of
or rentee of any sleeping accommodations in the real property wherein a part of the real prop-
same manner as and shall be collectible as are erty is subject to the commercial rental tax
liens authorized and imposed by §§713.68 and herein, and a part of the property would be
713.69. excluded from the tax under subparagraphs
(6) It is the legislative intent that every 1., 2., qr 3. of this subsection, the depart-
person is engaging in a taxable privilege who ment shall determine from the lease and such
leases or rents parking or storage spaces for other information as may be available, that
motor vehicles in parking lots or garages or portion of the total rental charge which is
who leases or rents docking or storage spaces exempt from the tax imposed by this section.
for boats in boat docks or marinas. For the (c) For the exercise of such privilege a
exercise of this privilege a tax is hereby levied tax is levied in the amount equal to four per
at the rate of four per cent on the total rental cent of and on the total rent charged for such
charged. real property by the person charging or col-
*(7)(a) The tax levied by this section shall lecting the rental.
not apply to or be imposed upon or collected (d) Where the rental of any such real
on the basis of rentals to any person who resides property is paid by way of property, goods,
in any building or group of buildings intended wares, merchandise, services or other thing of
primarily for lease or rent to persons as their value, the tax shall be at the rate of four
permanent or principal place of residence. per cent of the value of the property, servi'ces
(b) It is the intent of the legislature that this or other things of value.
subsection provide tax relief for persons who (2) (a) The tenant actually occupying, using
rent living accommodations rather than own or entitled to the use of any property the
their homes, while still providing a tax on the rental from which is subject to taxation under
rental of lodging facilities that primarily serve this section shall pay the tax to his immediate
transient guests. landlord or other person granting the right
(c) The rental of facilities, including to such tenant to occupy or use such real
trailer lots, which are intended primarily for property.
rental as a principal or permanent place of (b) It is the further intent of this legis-
residence is exempt from the tax imposed by lature that only one tax be collected on the
this chapter. The rental of facilities that pri- rental payable for the occupancy or use of
marily serve transient guests is not exempt by any such property and that the tax so col-
this subsection. In the application of this law, or lected shall not be pyramided by a progression
in making any determination against the of transactions and further that the amount
exemption, the department shall consider and of the tax due the state shall not be decreased
be guided by, among other things: by any such progression of transactions.
1. Whether or not a facility caters pri- (3) The tax imposed by this section shall
marily to the traveling public; be in addition to the total amount of the rental
2. Whether less than half of its tenants and shall be charged by the lessor or person
have a continuous residence in excess of three receiving the rent in and by a rental arrange-
months; and ment with the lessee or person paying the
rental and shall be due and payable at the
3. The nature of the advertising of the time of the receipt of such rental payment by
facility involved. the lessor or other person who receives said
(d) The provisions of this subsection shall rental or payment. The owner, lessor or person
become effective March 1, 1972, but shall not receiving the rent shall remit the tax to the
be construed to exempt taxes on rentals paid, department at the times and in the manner
or for services received, prior to March 1, 1972. hereinafter provided for dealers to remit taxes
Hlstory.-§3. ch. 2631D, 194D; H. ch. 26871, 1951; 1§2, 3, ch.
under this chapter. The same duties imposed
29883, 1955; §§2, 7, ch. 63-526; 17. ch. 63-253; §5, ch. 65-371; 12. by this chapter upon dealers in tangible per-
ch. 65-420; §3, ch. 68-27; §2. ch . 68-119; §§4, 5, ch. 69-222; §15, ch . sonal property respecting the collection and
69-353; §§21, 35, ch . 69-106; §1 , ch. 71 -986.
•Note.-Effective Mar. 1, 1972. remission of the tax, the making of returns,
cf. -Ch. 85 Enforcement of statutory liens. the keeping of books, records and accounts
1969
§212.031 ADDENDUM §212.08
and the compliance with the rules and regula- and funerals. Funeral directors shall pay tax
tions of the department in the administration on all tangible personal property used by them
of this chapter shall apply to and be binding in their business. This subsection shall be
upon all persons who manage any leases or strictly construed and enforced.
operate real property, hotels, apartment houses, (3) EXEMPTIONS, PARTIAL; CERTAIN
rooming houses, tourist and trailer camps, and FARM EQUIPMENT.-There shall be taxable
to all persons who collect or receive such rents at the rate of three percent the sale, use, con-
on behalf of such owner or lessor taxable sumption, or storage for use in this state of
under this chapter. self-propelled or power-drawn farm equipment
(4) The tax imposed by this section shall used exclusively by a farmer on a farm owned,
constitute a lien on the property of the lessee leased, or sharecropped by him in plowing,
of any real estate in the same manner as, and planting, cultivating, or harvesting crops. The
shall be collectible as are liens authorized and rental of self-propelled or power-drawn farm
imposed by §§713.68 and 713.69. equipment shall be taxed at the rate of four
History.-§6, ch. 69-222; §§2I, 35, ch. 69-Hl6; §3, ch. 71-986.
*Note.-As amended, paragraphs (a) and (b) of subsection (I) percent.
are effective March I , I972. (4) EXEMPTIONS, ITEMS BEARING
OTHER EXCISE TAXES, ETC.-Also ~xempt
212.08 Sales, rental, storage, use tax; speci- are water (not exempting mineral water or
fied exemptions.-The sale at retail, the rental, carbonated water); all fuels used by a public or
the use, the consumption, the distribution and private utility, including municipal corporations
the storage to be used or consumed in this and rural electric cooperative associations, in the
state, of the following tangible personal prop- generation of electric power or energy for sale;
erty, are hereby specifically exempt from the and motor fuels and special fuels on which a
tax imposed by this chapter. tax is imposed by ·chapter 206. All other fuels
(1) EXEMPTIONS; GENERAL GROCER- are taxable, except th~t those used to transport
IES.-There shall be exempt from the tax im- persons or property in interstate or foreign
posed by this chapter foods and drinks for human commerce are taxable only to the extent provid-
consumption and candy, but only when the price ed herein. The basis of the tax shall be the ratio
at which said candy is sold is twenty-five cents or of intrastate mileage to interstate or foreign
less. Unless the exemption provided by sub- mileage traveled by the carrier, during the pre-
section (7)(b) for school lunches pertains, none vious fiscal year of the carrier, such ratio to be
of such items of food and drink shall mean: determined at the close of the carrier's fiscal
(a) Foods and drinks served, prepared, or year. This ratio shall be applied each month to
sold in or by restaurants, drugstores, lunch the total purchases made in this state by the
counters, cafeterias, hotels, or other like places carrier of gasoline and other fuels to establish
of business or by any business or place required that portion of the total used and consumed in
by law to be licensed by the division of hotels and intrastate movement and subject to tax under
restaurants of the department of business this chapter. Alcoholic beverages and malt bev-
regulation; erages are not exempt. The terms "alcoholic bev-
(b) Foods and drinks sold ready for im- erages" and "malt beverages" as used in this
mediate consumption from *vending machines, subsection shall have the same meaning ascribed
pushcarts, motor vehicles, or any other form to them in §561.01(3) and (7), respectively. It is
of vehicle; determined by the legislature that the classifica-
(c) Soft drinks; or tion of alcoholic beverages made in this sub-
(d) Foods cooked and prepare~ on .the section for the purpose of extending the tax im-
seller's premises and sold ready for Imme~Iate posed by this chapter is reasonable and just, and
consumption either on or off the premises. it is intended that such tax be separate from,
(2) EXEMPTIONS, MEDICAL.-There shall and in addition to, any other tax imposed on a!
be exempt from the tax imposed by this chap- coholic beverages.
ter medicine compounded in a retail establish- (5) EXEMPTIONS; ACCOUNT OF USE.-
ment by a pharmacist licensed by the state There shall be exempt from the tax imposed
according to a n indiYidual prescription or pre- by this chapter nets designed and used exclu-
scriptions written by a practitioner of the sively by commercial fisheries; feeds for rais-
healing arts licensed by the state, and common ing poultry and livestock on farms and for
hou sehold remedies recommended and gener- feeding dairy cows; fertilizers, insecticides and
ally sold for the relief of pain, ailments, dis- fungicides used for application on crops or
tress or disorders of the human body, accord- groves; portable containers used for processing
ing to a list prescribed and approved by the farm products; field and garden seeds; nurs-
division of health of the department of health ery stock, seedlings, cuttings or other pro-
and rehabilitative services, which said list shall pagative material purchased for growing on
be certified to the department of revenue from or growing stock; cloth, plastic, and other
time to time and be included in the rules pro- similar materials used for shade, mulch, pro-
mulgated by the department; artifi~ial eyes tection from frost or insects on a farm; pro-
and limbs, eyeglasses, dentures, ~eanng_ aids, vided that such exemption shall not be allowed
crutches, prosthetic and orthopedic apphances unless the purchaser or lessee signs a certifi-
1970
§212.08 ADDENDUM §212.08
cate stating that the item to be exempted is 2. Educational institutions shall mean state
for the exclusive use designated herein. tax supported or parochial, church and non-
(6) EXEMPTIONS; POLITICAL SUBDI-
profit private schools, colleges or universities
conducting regular classes and courses of study
VISIONS, COMMUNICATIONS.-There shall required for accreditation by or membership
also be exempt from the tax imposed by this in the southern association of colleges and sec-
chapter sales made to the United States gov- ondary schools, department of education or
ernment, the state, or any county, municipality or the Florida council of independent schools.
political subdivision of this state; provided this Nonprofit libraries, art galleries and museums
exemption shall not include sales of tangible open to the public are defined as educational
personal property made to contractors employed institutions and eligible for exemption.
either directly or· as agents of any such govern- 3. Charitable institutions shall mean only
ment or political subdivision thereof when such nonprofit corporations operating physical fa-
tangible personal property goes into or becomes cilities in Florida at which are provided char-
a part of public works owned by such govern- itable services, a reasonable percentage of
ment or politicru subdivision thereof, except which shall be without cost to those unable to
public works in progress or for which bonds or pay.
revenue certificates have been validated on or (d) Hospital meals and room.s.-Aiso ex-
before August 1, 1959; and further provided this empt from payment of the tax imposed by
exemption shall not include sales, rental, use, this chapter on rentals and meals are patients
consumption, or storage for use in any political and inmates of any hospital or other physical
subdivision or municipality in this state of ma- plant or facility designed and operated pri-
chines and equipment and parts and accessories marily for the care of persons who are ill,
therefor used in the generation, transmission, or aged, infirm, mentally or physically incapaci-
distribution of electrical energy by systems tated or otherwise dependent on special care
owned and operated by a political subdivision in or attention.
this state except sales, rental, use, consumption (e) P1·ojessional services.-
or storage for which bonds or revenue certifi- 1. Also exempted are professional, insurance
cates are validated on or before January 1, 1973, or personal service transactions which involve
for transmission or distribution expansion. Like- sales as inconsequential elements for which no
wise exempt are newspapers, film rentals, when separate charges are made.
an admission is charged for viewing such film, 2. The above exempted personal service
and charges for services rendered by radio and transactions do not exempt the sale of infor-
television stations, including line charges, talent mation services involving the furnishii1g of
fees or license fees and charges for films, video printed, mimeographed, multigraphed matter
tapes, and transcriptions used in producing radio or matter duplicating written or printed matter
or television broadcasts. in any other manner, other than professional
(7) MISCELLANEOUS EXEMPTJONS.- services and services of employees, agents or
(a) Religious, charitable and educational.- other persons acting in a representative or fidu-
There shall be exempt from the tax imposed by ciary capacity or information services furnished
this chapter articles of tangible personal prop- to newspapers and radio and television sta-
erty sold or leased direct to or by churches or tions. Information services shall mean and in-
sold or leased to, nonprofit religious, nonprofit clude the services of collecting, compiling or
educational, or nonprofit charitable institutions analyzing information of any kind or nature
and used by such institutions in carrying on and furnishing reports thereof to other
their customary nonprofit religious, nonprofit persons.
educational, or nonprofit charitable activities, (f) Magazines.-There shall likewise be ex-
including church cemeteries. empt from the tax imposed by this chapter sub-
tb) School books and school lunches.-This scriptions to magazines entered as second class
exemption shall apply to school books used in mail sold for an annual or longer period of
regularly prescribed courses of study, and school time.
lunches served to students, in public, parochial (g) Volunteer fire; departments.-Also ex-
or nonprofit schools operated for and attended empt are fire fighting and rescue service
by pupils of grades one through twelve. School equipment and supplies purchased by volunteer
books and food sold or served at junior colleges fire departments, duly chartered under the
and other institutions of higher learning are Florida Statutes as corporations not for profit.
taxable. (h) Guide dogs for the blind.-Also exempt
(c) Restrictive definitions.-The provisions are the sale or rental of guide dogs for the blind,
of this section authorizing exemptions from tax commonly referred to as "seeing-eye dogs,"
shall be strictly define<.i, limited and applied in and the sale of food or other items for said guide
each category as follows: dogs or for consumption or use by such dogs.
1. Religious institutions shall mean churches **(i) Also exempt from payment of the tax
and established physical places for worship in imposed by this chapter are sales of utilities
this state at which nonprofit religious services to residential households in this state by utility
and activities are re,crularly conducted and car- companies who pay the gross receipts tax
ried on. imposed under §203.01.
1971
§212.08 ADDENDUM §214.71
(8) PARTIAL EXEMPTIONS, VESSELS §§12-1 6, 19, ch. 69-222; §§2, 3, ch. 70-206; §2, ch. 70-373; §7, ch. 71-360;
§1 , ch. 71-985.
ENGAGED IN INTERSTATE OR FOREIGN •Note.-Th e tax on vending machin es ta kes effect October 1, 1971.
COMMERCE.-All vessels and parts thereof ••Note.- Effective March 1, 1972.
used to transport persons or property in inter-
state or foreign commerce shall be subject to
the taxes imposed in this chapter only to the
extent provided herein. The basis of the tax
shall be the ratio of intrastate mileage to in-
terstate or foreign mileage traveled by the CHAPTER 213
carrier during the previous fis cal year. The
ratio would be determined at the close of the STATE REVENUE LAWS; GENERALLY
carrier's fiscal year. This r ati o applied to the
total purchases by the carriers of vessels and PART II
parts thereof each month to establish that por- MULTISTATE TAX COMPACT
tion of the total used and co ns umed in intra-
state movement and subject to t ax at the 213.15 Multistate tax compact.
applicable rate. Vessels and parts thereof used
to transport persons or property in interstate
and foreign commerce are hereby determin ed 213.15 Multistate tax compact.-[Articles
to be susceptible to a distinct and sepa rate III and IV of compact repealed by §1 , ch. 71-980.]
classification for taxation under the provisions
of this chapter.
(9 ) PARTIAL EXEMPTIONS, VEHICLES
ENGAGED IN INTERSTATE OR FOREIGN
COMMERCE.-Vehicles and parts thereof used
to transport persons or property in interstate
or foreign commerce are subje ct to tax im-
posed in this chapter only to the extent pro-
vided herein. The basis of the tax shall be CHAPTER 214
the ratio of intrastate mileage to intersta te ADMINISTRATION OF DESIGNATED
or foreign mileage trav eled by the carrier NONPROPERTY TAXES
during the previous fiscal year of the carrier,
such ratio to be determined at the cl ose of PART IV
the carrier's fiscal year. This ratio shall be APPORTIONMENT
applied each month t o the total purchases by
the carriers of vehicles and parts thereof 214.71 Apportionment; general method.
which are used in Florida to establish tha t
portion of the total used and consumed in
intrastate movement and subject to tax under 214.71 Apportionment; general method.-
this chapter. Except as otherwise provided in §§214.72
(10 ) No transa ctions shall be exempt from and 214.73, the base upon which any tax made
the tax imposed by this chapter except those applicable to this chapter shall be apportioned
expressly exempted herein. Except for §423.02, shall be .d etermined by multiplying same by a
all special or general laws granting tax ex- fraction the numerator of which is the sum of the
emptions, t o the extent they may be incon- property factor , the payroll factor, and the sales
sistent or in conflict with t his chapter, includ- factor and the denominator of which is three. In
ing but not limited to the following designated the event any of the factors described in sub-
laws, shall yield to and be superseded by the sections (1), (2), or (3) has a denominator which
provisions of this subsection: §§153.76, 183.14, is zero or is determined by the department to be
184.17, 258.14, 315.11, 323.15 ( 6) ' 340.20, 348.122, insignificant, the denominator of the apportion-
348.65, 348.762, 349.13, 374.132, 616.07, 623.09, ment fraction shall be reduced by the number of
637.131, 637.151 , 637.291, and 637.311 and the such factors.
following Laws of Florida, acts of the yea r (1) The property factor is a fraction the
indicated: §31, ch. 30843, 1955; §19, ch. 30845, numerator of which is the average value of the
1955; §12, ch. 30927, 1955; §8, ch. 31179, 1955; taxpayer's real and tangible personal property
§15, ch. 31263, 1955; §13, ch. 31343, 1955; owned or rented and used in this state during
§16, ch. 59-1653; §13, ch. 59-1356; §12, ch. 61- the taxable year or period and the denominator
2261; §19, ch. 61 -2754; §10, ch. 61-2686; §11, of which is the average value of such property
ch. 63-1643; §11, ch. 65-1274; §16, ch. 67-1446;
and ~ 10, ch. 67-1681. owned or rented and used everywhere.
(a) Real and tangible personal property
Hlstory .-!8. ch. 26319, 1949; 1§1. 2, ch. 26323. 1949 ; §9, ch .
26871 . 19S1 ; 11, ch . 28082, 19S3 ; 1§ 7, 33, ch . 2961S, 19SS ; §1 6- 8,
owned by the taxpayer shall be valued at original
ch. 29883 , 19SS ; §1 , ch. S7-76; §1, ch. 57-398; §1, ch. 57-821; cost. Real and tangible personal property rented
§1. ch. 57-1968; §1, ch. 57-1971 ; §1, ch. 59-287; !1§1 , 2, ch.
59-402 ; §§1, 2 , ch . 59-448 ; 11. ch . 61 - 464 ; §2, ch. 61-276 ; §1,
by the taxpayer shall be valued at eight times
ch. 61 - 274 ; §7, ch. 63-2S3 ; i§ S, 6, ch. 63 -S26; fl, ch. 63 - S6S; the net annual rental rate paid by the taxpayer
!6, ch . 6S-190 ; §1, ch . 6S-3S8 ; 1§7-9, ch. 6S-329 ; 11. ch. 6S-331; less any annual rental rate received from sub-
§S, ch . 6S-371 ; ! 2. ch . 6S-420 ; ! 4, ch . 67- 180 ; U 8- 12, IS , ch .
68-27 ; §1 , ch . 69- 99 ; H I S, 16, 19, 21 , 24 , 3S, ch . 69-1 06; rentals.
1972
§214.71 ADDENDUM §220.02
(b) The average value of real and tangible without deduction of any costs incurred in carry-
personal property shall be determined by averag- ing such accounts; and
ing the value at the beginning and the end of the 5. Any other gross income resulting from
taxable year or period, unless the department the operation as a financial organization with
determines that an averaging of monthly values this state.
during the taxable year or period is reasonably (c) In computing the amounts referred to in
required to reflect properly the average value of this subsection, any amount received by a
the taxpayer's real and tangible personal prop- member of an affiliated group (determined
erty. under §1504(a) of the Internal Revenue Code,
(2) The payroll factor is a fraction the but without reference to whether any such cor-
numerator of which is the total amount paid in poration is an "includable corporation" under
this state during the taxable year or period by the §1504(b) of the Internal Revenue Code) from
taxpayer for compensation and the denominator another member of such group shall be included
of which is the total compensation paid every- only to the extent such amount exceeds ex-
where during the taxable year or period. penses of the recipient directly related thereto.
History.-§19, ch. 71-359; §2, ch . 71-980.
(a) The term "compensation" shall mean •Note.-Paragraph (a), as amended, effective Janua ry I , 1972.
wages, salaries, commissions, and any other
form of remuneration paid to employees for
personal services.
(b) Compensation is paid in this state if:
1. The employee's service is performed CHAPrER 220
entirely within the state; or
2. The employee's service is performed both INCOME TAX CODE
within and without the state, but the service per-
formed without the state is incidental to the
employee's service within the state; or PART I TITLE; DECLARATIONS OF
3. Some of the employee's service is per- INTENT; DEFINITIONS (§§220.01-220.03)
formed in the state and
a . The base of operations or, if there is no PART II TAX IMPOSED; APPORTION-
base of operations, the place from which the MENT (§§220.11-220.15)
service is directed or controlled is in the state, or
b. The base of operations or the place from PART III RETURNS; DECLARATIONS;
which the service is directed or controlled is not RECORDS (§§220.21-220.242)
in any state in which some part of the service is
performed and the employee's residence is in this PART IV PAYMENTS (§§220.31-220.34)
state.
PART V ACCOUNTING (§§220.41-220.44)
(3) The sales factor is a fraction the numer~­
tor of which is the total sales of the taxpayer m PART VI MISCELLANEOUS (§§220.51-
this state during the taxable year or period and 220.53)
the denominator of which is the total sales of the
taxpayer everywhere during the taxable year or
period. PART I
"'(a) Sales of tangible personal property are
in this state if the property is delivered or TITLE; DECLARATIONS OF INTENT;
shipped to a purchaser within this state, regard- DEFINITIONS
less of the f.o.b. point or other conditions of
the sale.
(b) Sales of a financial organization, in- 220.01 Short title. .
cluding, but not limited to, banking and savings 220.02 Legislative intent.
institutions, investment companies, real estate 220.03 Definitions.
investment trusts, and brokerage companies,
shall be in this state if derived from: 220.01 Short title.-This chapter shall be
1. Fees, commissions, or other compensa- known and may be cited as the "Florida Income
tion for financial services rendered within this Tax Code."
state; History.- §!, ch. 71-984.
2. Gross profits from trading in stocks,
bonds, or other securities managed within this 220.02 Legislative intent.-
state; (1) It is the intent of the legislature in
3. Interest and dividends received within enacting this code to impose a tax upon all
this state; corporations, organizations, associations , and
4. Interest charged to customers at places other artificial entities which derive from this
of business maintained within this state for state or from any other jurisdiction permanent
carrying debit balances of margin accounts , and inherent attributes not inherent in or avail-
1973
§220.02 ADDENDUM §220.03
able to natural persons, such as perpetual life, tax purposes after November 2, 1971 shall be
transferable ownership represented by shares or subject to taxation in full by this state and
certificates, and limited liability for all owners. It shall be taxed in the manner and to the extent
is the intent of the legislature to subject such provided in this code.
corporations and other entities to taxation here- History.-§!, ch. 71·984.
under for the privilege of conducting business,
deriving income, or existing within the state. 220.03 Definitions.-
This code is not intended to tax, and shall not be (!) SPECIFIC TERMS.-When used in this
construed so as to tax, natural persons who code, and when not otherwise distinctly ex-
engage in a trade or business or profession in this pressed or manifestly incompatible with the
state under their own or any fictitious name, intent thereof, the following terms shall have the
whether individually as proprietorships or in following meanings:
partnerships with others, estates of decedents or (a) "Affiliated group of corporations"
incompetents, or testamentary trusts. However, means two or more corporations which constitute
corporations or other taxable entities which are an affiliated group of corporations as defined in
or which become partners with one or more section 1504(a) of the Internal Revenue Code.
natural persons shall not, merely by reason of (b) "Corporation" includes all domestic
being a partner, exclude from their net income corporations; foreign corporations qualified to
subject to tax their respective share of partner- do business in this state or actually doing
ship net income. This statement of intent shall be business in this state; joint-stock companies;
given preeminent consideration in any construc- common law declarations of trust, under chapter
tion or interpretation of this code in order to 609; corporations not for profit, under chapter
avoid any conflict between this code and the 617; agricultural cooperative marketing as-
mandate in art. VII, §5 of the state constitution sociations, under chapter 618; professional
that no income tax shall be levied upon natural service corporations, under chapter 621; foreign
persons who are residents and citizens of this unincorporated associations, under chapter 622;
state. private school corporations, under chapter 623;
(2) It is the intent of the legislature that foreign corporations not for profit which are
the tax levied by this code shall be construed to carrying on their activities in this state; and all
be an excise or privilege tax measured by net other organizations, associations, legal entities,
income, and that said tax shall not be deemed or and artificial persons which are created by or
construed to be a property tax or a tax on pursuant to the statutes of this state, the United
property or a tax measured by the value of States, or any other state, territory, possession,
property for any purpose. or jurisdiction. The term "corporation" shall
(3) It is the intent of the legislature that not include proprietorships, even if using a ficti-
the income tax imposed by this code shall tious name; partnerships of any type, as such;
utilize, to the greatest extent possible, concepts state or public fairs or expositions, under
of law which have been developed in connection chapters 615 and 616; estates of decedents or
with the income tax laws of the United States, incompetents; testamentary trusts; or private
in order to: trusts.
(a) Minimize the expenses of the depart- (c) "Department" means the department of
ment of revenue and difficulties in administering revenue of this state.
this code; (d) "Director" means the executive director
(b) Minimize the costs and difficulties of of the department of revenue and, when there
taxpayer compliance; and has been an appropriate delegation of authority,
(c) Maximize, for both revenue and statisti- his delegate.
cal purposes, the sharing of information between (e) "Earned," "accrued," "paid," and
the state and the federal government.
(4) It is the intent of the legislature that "incurred" shall be construed according to the
the tax imposed by this code shall be prospective method of accounting upon the basis of which a
in effect only. Consistent with this intention and taxpayer's income is computed under this code.
the intent expressed in subsection (3), it is hereby (f) "Fiscal year" means an accounting
declared to be the intent of the legislature that: period of 12 months or less ending on the last
(a) "Income," for purposes of this code, day of any month other than December or, in
including gains from the sale, exchange, or other the case of a taxpayer with an annual accounting
disposition of property, shall be deemed to be period of 52-53 weeks under subsection 441(f)
created for Florida income tax purposes at such of the Internal Revenue Code, the period de-
time as said income is realized for federal income termined under that subsection.
tax purposes; (g) "Includes" and "including," when used
(b) No accretion of value, no accrual of in a definition contained in this code, shall not be
gain, and no acquisition of a right to receive or deemed to exclude other things otherwise within
accrue income which has occurred or been the meaning of the term defined.
generated prior to November 2, 1971 shall be (h) "Internal Revenue Code" means the
deemed to be "property," or an interest in United States Internal Revenue Code of 1954 as
property, for any purpose under this code; and amended and in effect on November 2, 1971,
(c) All income realized for federal income except as provided in subsection (3).
1974
§220.03 ADDENDUM §220.12
(i) "Partnership" includes a syndicate, PART II
group, pool, joint venture, or other unin-
corporated organization through or by means of TAX IMPOSED, APPORTIONMENT
which any business, financial operation, or
venture is carried on, including limited partner- 220.11 Tax imposed.
ships; and the term "partner" includes a 220.12 Net income defined.
member having a capital or a profits interest in a 220.13 Adjusted federal income defined.
partnership. 220.131Adjusted federal income; affiliated
(j) "Regulations" includes rules promul- groups.
gated, and forms prescribed, by the department. 220.14 Exemption.
(k) "Returns'' includes declarations of 220.15 Apportionment of adjusted federal m-
estimated tax required under this code. come.
(l) " State," when applied to a jurisdiction 220.11 Tax imposed.-
other than Florida, means any state of the (1) A tax measured by net income is hereby
United States, the District of Columbia, the imposed on every taxpayer for each taxable
Commonwealth of Puerto Rico, any territory or year commencing on or after January 1, 1972,
possession of the United States, or any political and for each taxable year which begins before
subdivision of any of the foregoing. and ends after January 1, 1972, for the privilege
(m) "Taxable year" means the calendar or of conducting business, earning or receiving
fiscal year upon the basis of which net income income in this state, or being a resident or
is computed under this code, including, in the citizen of this state. Such tax shall be in addition
case of a return made for a fractional part of a to all other occupation, excise, privilege, and
year, the period for which such return is made. property taxes imposed by this state or by any
(n) "Taxpayer" means any corporation sub- political subdivision thereof, including any
ject to the tax imposed by this code, and shall municipality or other district, jurisdiction, or
include all corporations for which a consolidated authority of this state.
return is filed under §220.131. (2) The tax imposed by this section shall be
(2) DEFINITIONAL RULES.-When used an amount equal to 5 percent of the taxpayer's
in this code and neither otherwise distinctly net income for the taxable year.
History.-§1, ch . 71-984.
expressed nor manifestly incompatible with the
intent thereof:
(a) The word "corporation" or "taxpayer" 220.12 Net income defined.-
shall be deemed to include the words "and its (1) For purposes of this code, a taxpayer's
successors and assigns" as if these words, or net income for a taxable year which commences
words of similar import, were expressed; on or after January 1, 1972 shall be that share
of its adjusted federal income for such year
(b) Any term used in any section of this which is apportioned to this state under §220.15,
code with respect to the application of, or in less the exemption allowed by §220.14.
connection with, the provisions of any other
section of this code shall have the same meaning (2) For purposes of this code, a taxpayer's
as in such other section; and net income for a taxable year which begins
before and ends after January 1, 1972 shall be
(c) Any term used in this code shall have the that amount which bears the same ratio to the
same meaning as when used in a comparable taxpayer' s share of adjusted federal income
context in the Internal Revenue Code and other which is apportioned to this state for the entire
statutes of the United States relating to federal year as the number of days in such year after
income taxes, as such code and statutes are in December 31, 1971 bears to the total number of
effect on November 2, 1971. However, if sub- days in such year, less a like proportion of the
section (3) is implemented, the meaning of any exemption allowed by §220.14, unless the tax-
term shall be taken at the time the term is payer elects to compute net income for such
applied under this code. taxable year in the manner and under the
(3) FUTURE FEDERAL AMENDMENTS.- conditions provided in subsection (3).
On or after January 1, 1972 when expressly (3)(a) If the taxpayer so elects, in the case
authorized by law, any amend~ent to the Inter- of a taxable year beginning before and ending
nal Revenue Code shall be given effect under after January 1, 1972, there shall be taken into
this code in such manner and for such periods account in computing adjusted federal income,
as are prescribed in the Internal Revenue Code before apportionment, only those items earned,
to the same extent as if such amendment had received, paid, incurred, or accrued after
been adopted by the legislature of this state. December 31, 1971, and the exemption pro-
However, any such amendment shall have effect vided by §220.14 shall be limited to that amount
under this code only to the extent that the which bears the same ratio to the total exemption
amended provision of the Internal Revenue Code allowable under such section, determined with-
shall be taken into account in the computation out regard to this subsection, as the number of
of net income subject to tax hereunder. days in such year after December 31, 1971 bears
History.-§1, ch . 71-984. to the total number of days in such year.
1975
§220.12 ADDENDUM §220.13
(b) The election provided by this subsection operating losses, net capital losses, and excess
shall be made not later than the due date, in- contribution deductions under sections 170(d)(2)
cluding any extensions thereof, for filing tax- and 404 of the Internal Revenue Code which are
payer's return for the taxable year, in such carried forward from taxable years ending prior
manner as the department may by regulation to January 1, 1972; and
prescribe. However, no such election shall be b. The net operating loss~ net capital loss,
valid unless the director has given his written and excess contributions aeductions under
approval at the time of such filing or unless the sections 170(d)(2) and 404 of the Internal
director fails to object to said election in writing Revenue Code, respectively, allowable for any
within 30 days after such filing. taxable year beginning before and ending after
(c) The method of computing adjusted January 1, 1972 shall be limited to an amount
federal income under this subsection shall be which bears the same ratio to the taxpayer's
considered extraordinary and shall only be net operating loss, net capital loss, and excess
allowed by the director in special situations contributions deductions under sections 170(d)
where the taxpayer has demonstrated that the (2) and 404 of the Internal Revenue Code,
method for determining net income which is respectively, for the entire taxable year as the
prescribed in subsection (2) will not reasonably number of days in such year after December 31,
reflect that portion of the taxpayer's income 1971 bears to the total number of days in such
attributable to the period after December 31, year, unless the taxpayer elects to account
1971. separately for income under subsection 220.12
Hisrory.-§1, ch . 71·984. (3), in which case the net operating loss,
net capital loss, and excess contributions
220.13 Adjusted federal income defined.- deductions under sections 170(d)(2) and 404 of
(1) "Adjusted federal income" shall mean the Internal Revenue Code, respectively,
an amount equal to the taxpayer's taxable allowable for such year shall be determined
income as defined in subsection (2), or said on the basis of the items actually earned,
taxable income of more than one taxpayer as received, paid, incurred, or accrued after
provided in §220.131, for the taxable year, December 31, 1971; and
adjusted as follows: c. A net operating loss and a capital loss
(a) Additions.-There shall be added to such shall never be carried back as a deduction to a
taxable income: prior taxable year, but all deductions attributable
1. The amount of income tax paid or to such losses shall be deemed net operating
accrued as a liability to this state under this loss carryovers and capital loss carryovers,
code which is deductible from gross income in respectively, and treated in the same manner,
the computation of taxable income for the tax- to the same extent, and for the same time
able year; periods as are prescribed for such carryovers in
2. The amount of interest which is excluded section 172 and section 1212, respectively, of the
from taxable income under paragraph 103(a)(1) Internal Revenue Code.
of the Internal Revenue Code and which is not 2. There shall be subtracted from such
derived from obli~ations of the state or any of its taxable income any amount included therein:
political subdi viswns; a . Under section 78 or section 951 of the
3. In the case of a regulated investment Internal Revenue Code;
company or real estate investment trust, an b. Which was derived from sales outside
amount equal to the excess of the net long-term the United States, and from sources outside the
capital gain for the taxable year over the amount United States as interest, as a royalty, or as
of the capital gain dividends attributable to the compensation for technical or other services; and
taxable year. c. Which was received as a dividend from a
(b) Subtractions.- corporation which neither transacts any sub-
!. In computing the net operating loss stantial portion of its business in the United
deduction allowable for federal income tax States nor regularly maintains any substantial
purposes under section 172 of the Internal portion of its assets within the United States.
Revenue Code for the taxable year, the net
capital loss allowable for federal income tax However, as to any amount subtracted under
purposes under section 1212 of the Internal this subparagraph, there shall be added to such
Revenue Code for the taxable year, the excess taxable income all expenses deducted on the
charitable contribution deduction allowable for taxpayer's return for the taxable year which are
federal income tax purposes under section 170 attributable, directly or indirectly, to such
(d)(2) of the Internal Revenue Code for the subtracted amount.
taxable year, and the excess contributions 3. There shall be subtracted from such
deductions allowable for federal income tax taxable income all amounts included therein
purposes under section 404 of the Internal which are derived from stocks, bonds, treasury
Revenue Code for the taxable year, there shall notes, and other obligations of the United States.
be subtracted from taxable income, in order to (c) Installment sales.-
arrive at adjusted federal income, such amounts 1. Unless there has been an election under
as reflect the following limitations: subparagraph 2., any taxpayer which returns any
a . No deduction shall be allowed for net portion of its income for federal income tax
1976
§220.13 ADDENDUM §220.13
purposes under section 453 of the Internal . eluding collection costs and the expenses attri-
Revenue Code, whether or not as a dealer, shall butable to servicing sales contracts.
file its return under this code, and shall compute 5. The amount to be included in taxable
its adjusted taxable income, including income income under subparagraph 4. shall be limited to
derived from transactions treated for federal tax the sum of the following amounts:
purposes as installment sales, in accordance a. An amount equal to 100 percent of the
with the regular method by which the taxpayer income derived from installment sale transac-
accounts, under section 446(c) of the Internal tions consummated on or after January 1, 1972;
Revenue Code, for transactions which are not b . An amount equal to 70 percent of the
installment sales. In preparing its return under income returned for federal income tax purposes
this code, the taxpayer shall adjust taxable in the taxable year which was derived from
income, as defined in subsection (2), by exclud- installment sale transactions consummated prior
ing therefrom all installment sale income re- to January 1, 1972 and after December 31, 1970;
ported in the taxable year with respect to c. An amount equal to 50 percent of the
income realized from installment sales prior to income returned for federal income tax purposes
January 1, 1972 and by including therein the full in the taxable year which was derived from
amount of all income realized from installment installment sale transactions consummated
sales, under an accrual method of accounting, prior to January 1, 1971 and after December 31,
on or after said date. However, for a taxable 1968;
year which begins before and ends after January d. An amount equal to 25 percent of the
1, 1972, the ratio set forth in subsection 220.12 income returned for federal income tax purposes
(2) shall not be applied to the taxpayer's in the taxable year which was derived from
apportioned share of installment sale income in installment sale transactions consummated prior
computing net income. to January 1, 1969 and after December 31, 1966;
2. Ally taxpayer which has elected for and
federal income tax purposes to report any portion e. An amount equal to 10 percent of the
of its income on the installment basis under income returned for federal income tax purposes
section 453 of the Internal Revenue Code may in the taxable year which was derived from
elect so to return income from installment sales installment sale transactions consummated prior
for purposes of this code. However, the election to January 1, 1967.
provided by this subparagraph shall only be 6. The department may by regulation
allowed if: prescribe the methods or procedures for com-
a. The election is made not later than the puting the amounts included and excluded from
due date, including any extensions thereof, for taxable income under subparagraphs 4. and 5.
filing the taxpayer's return under this code, in (2) For purposes of this section, a taxfayer's
such manner as the department may prescribe; taxable income for the taxable year shal mean
and taxable income as defined in section 63 of the
b. The taxpayer consents in writing, at the Internal Revenue Code and properly reportable
time of its election, to the filing of its return for federal income tax purposes for the taxable
without the adjustments to taxable income which year, but subject to the limitations set forth in
are described in subparagraph 1. paragraph (1)(b) with respect to the deductions
3. If the taxpayer is a dealer or otherwise provided by sections 172 (relating to net operat-
returns a portion of its income under section 453 ing losses), 170(d)(2) (relating to excess
of the Internal Revenue Code, an election under charitable contributions), 404(a)(1)(D) (relating
subparagraph 2. must be made for the tax- to excess pension trust contributions), 404(a)(3)
payer's first taxable year under this code in (A) and (B) (to the extent relating to excess
which a portion of its income is so returned stock bonus and profit-sharing trust contribu-
for federal tax purposes, and said election shall tions), 404(d) (relating to excess contributions
apply to all subsequent taxable years for which under the 1939 code) and 1212 (relating to
installment sale treatment is elected for federal capital losses) of the Internal Revenue Code,
income tax purposes, unless the department except that, subject to the same limitations:
consents in writing to the revocation of such (a) "Taxable income," in the case of a life
election prior to the first taxable year for which insurance company subject to the tax imposed
such revocation would apply. by section 802 of the Internal Revenue Code,
4. If an election is made under subpara- shall mean life insurance company taxable in-
graph 2., then, in lieu of returning the entire come; however, the amount of said income to be
amount of installment sale income returned for taken into account for purposes of this code
federal income tax purposes, the taxpayer may shall never exceed, cumulatively, the excess of
include in income for each taxable year under amounts determined under paragraph 802(b)(3)
this code only the amount of income which is of the Internal Revenue Code as of the close of
specified in subparagraph 5., in which event the the taxpayer's taxable year over the amount
taxpayer shall also add to taxable income, as determined under said paragraph as of Decem-
defined in subsection (2), all expenses deducted ber 31, 1971;
on its federal return for the taxable year with (b) "Taxable income," in the case of a
respect to installment sale income excluded from mutual insurance company subject to the tax
Florida net income under this provision, in- imposed by section 821(a) or (c) of the Internal
1977
§220.13 ADDENDUM §220.131
Revenue Code shall mean mutual insurance tion subject to tax under this code which is the
company taxable income or taxable investment parent company of an affiliated group of corpo-
income, as the case may be; rations may elect, not later than the due date
for filing its return for the taxable year, including
(c) "Taxable income," in the case of an any extensions thereof, to consolidate its taxable
insurance company subject to the tax imposed by income with that of all other members of the
section 831(a) of the Internal Revenu~ Code, group subject to tax under this code and to
shall mean insurance company taxable mcome; return such consolidated taxable income here-
under, in which case all such other members
(d) "Taxable income," in the case of a must consent thereto in such manner as the
regulated investment company subject to the tax department may by regulation prescribe. Any
imposed by section 852 of the Internal Revenue Florida parent company of an affiliated group
Code, shall mean investment company taxable of corporations may elect to consolidate its
income; taxable income with all other members of the
affiliated group, even though some of its mem-
(e) "Taxable income," in the case of a real bers are not subject to tax under this code,
estate investment trust subject to the tax provided:
imposed by section 857 of the Internal Revenue (a) Each member of the group consents to
Code, shall mean real estate investment trust such filing by specific written authorization
taxable income; at the time the consolidated return is filed;
(f) "Taxable income," in the case of a (b) The affiliated group so filing under
corporation which is a member of an affiliated this code has filed a consolidated return for
group of corporations filing a consolidated federal income tax purposes for the same
income tax return for the taxable year for taxable year; and
federal income tax purposes, shall mean taxable (c) The affiliated group so filing under this
income of such corporation for federal income code is composed of the identical component
tax purposes as if such corporation had filed a members as have consolidated their taxable
separate federal income tax return for the tax- incomes in said federal return.
able year and each preceding taxa~le year for (2) Subject to subsection (5), the director
which it was a member of an affiliated group, may require a consolidated return for those
unless a consolidated return for the taxpayer and members of an affiliated group of corpora-
others is required or elected under §220.131; tions which are subject to tax and which would
(g) "Taxable income," in the case of a be eligible to elect to consolidate their
cooperative corporation or association, shall incomes under subsection (1), if the filing of
mean the taxable income of such organization separate returns for such corporations would
improperly reflect the taxable incomes of said
determined in accordance with the provisions of corporations or of said group.
section 1381 through 1398 of the Internal (3) The filing of a consolidated return for
Revenue Code; any taxable year shall require the filing of
(h) "Taxable income," in the case of an consolidated returns for all subsequent taxable
organization which is exempt from the federal years so long as the filing taxpayers remain
income tax by reason of section 501(a) of the members of the affiliated group or, in the case
Internal Revenue Code, shall mean its un- of a group having component members not sub-
related business taxable income as determined ject to tax under this code, so long as a con-
under section 512 of the Internal Revenue Code; solidated return is filed by such group for
and federal income tax purposes, unless the director
consents to the filing of separate returns.
(i) "Taxable income," in the case of a (4) The computation of consolidated tax-
corporation for which there is in effect for the able income for the members of an affiliated
taxable year an election under section 1372 of the group of corporations subject to tax hereunder
Internal Revenue Code, shall mean the amount shall be made in the same manner and under
of income subject to tax at the corporate the same procedures, including all inter-
level under paragraph 1372(b)(1) of the Internal company adjustments and eliminations, as are
Revenue Code for each taxable year com- required for consolidating the incomes of
mencing prior to July 1, 1973, and taxable affiliated corporations for the taxable year for
income for such a corporation for each taxable federal income tax purposes in accordance
year commencing on or after July 1, 1973 shall with section 1502 of the Internal Revenue Code,
mean taxable income as defined in section 63 and the amount shown as consolidated taxable
of the Internal Revenue Code, determined without income shall be the amount subject to tax under
regard to the provisions of subchapter S of this code.
said code.
History.-§1, ch. 71·984. (5) No taxpayer may apportion adjusted
federal income under §214.72 as a member of an
220.131 Adjusted federal income; affiliated affiliated group which files a consolidated
groups.- return under this section on the basis of appor-
(1) Subject to subsection (5), any corpora- tionment factors described in §214.71, and no
1978
§220.131 ADDENDUM §220.15
taxpayer may apportion under §214.71 as a (2) The term "financial organization" in
member of an affiliated group which files a paragraph 214.71(3)(b) shall include any bank,
consolidated return on the basis of an appor- trust company, savings bank, industrial bank,
tionment factor described in §214.72, but no tax- land bank, safe deposit company, private
payer shall be barred from filing as a member of banker, savings and loan association, credit
an affiliated group if it apportions adjusted union, cooperative bank, small loan company, _
federal income in the same manner as the parent sales finance company, or investment company;
company and all other filing members of the and
group. (3) The term "everywhere" in part IV of
History.-§1, ch. 71-984.
chapter 214, which is used in the computation of
apportionment factor denominators, shall mean
220.14 Exemption.- "in all other states of the United States,
(1) In computing a taxpayer's liability for the District of Columbia, the Commonwealth of
tax under this code, there shall be exempt from Puerto Rico, any territory or possession of
the tax $5,000 of net income as defined in the United States, or any political subdivision
§220.12 or such lesser amount as will, without of the foregoing," and
increasing the taxpayer's federal income tax ( 4) In lieu of the equally weighted three
liability, provide the state with an amount factor apportionment fraction based on property,
under this code which is equal to the maximum payroll, and sales which is described in
federal income tax credit which may be avail- §214. 71, there shall be used for purposes of the
able from time to time under federal law. tax imposed by this code an apportionment frac-
(2) In the case of a taxable year for a tion composed of a sales factor representing 50
period of less than 12 months, the exemption percent of the fraction, a property factor
allowed by this section shall be prorated on the representing 25 percent of this fraction, and a
basis of the number of days in such year to 365. payroll factor representing 25 percent of the
(3) Only one exemption shall be allowed fraction. However, upon application in ac-
to taxpayers filing a consolidated return under cordance with paragraph (a), any taxpayer shall
this code. be entitled to a refund of tax, in an amount
(4) Notwithstanding any other provision determined under paragraph (b), if it can es-
of this code, not more than one exemption tablish that the aggregate amount of its net
under this section shall be allowed to the income subject to tax under this code and in all
Florida members of a controlled group of other states for the taxable year exceeds 100
corporations, as defined in section 1563 of the percent of the taxpayer's taxable income, as
Internal Revenue Code with respect to taxable determined for federal income tax purposes,
years ending on or after December 31, 1970, for the taxable year.
filing separate returns under this code. The (a) Any taxpayer eligible for a refund under
exemption described in this section shall be this subsection shall make application therefor in
divided equally among such Florida members of accordance with procedures set forth in part I of
the group, unless all of such members consent, at chapter 214. All applications for refund under
such time and in such manner as the department this subsection shall be accompanied by a copy of
shall by regulation prescribe, to an apportion- the taxpayer's federal income tax return for the
ment plan providing for an unequal allocation taxable year, copies of every return filed by the
of such exemption. taxpayer in the states in which it has conducted
History.-§1, ch. 7 1-984. business for the taxable year, and verification
in the form of cancelled checks or other receipts
of the taxpayer's payments of the amounts shown
220.15 Apportionment of adjusted federal to be due on the several returns filed with the
income.-Adjusted federal income as defined in refund application.
§220.13 shall be apportioned to this state in
accordance with part IV of chapter 214, and for (b) The refund to which any taxpayer shall
the purpose of applying said part to this code: be entitled under this subsection shall be
(1) The term "sales" in paragraph 214.71 equal to 5 percent of the lesser of:
(3Xa) shall mean all gross receipts of the 1. The excess of the amount subject to tax
taxpayer except interest, dividends, rents, for the taxable year under this code over the
royalties, and gross receipts from the sale, amount which would have been subject to tax
exchange, maturity, redemption, or other dis- if the taxpayer had computed net income for
position of securities; except that: purposes of this code on the basis of the
(a) Rental income shall be included in the apportionment fraction described in §214.71; or
term "sales" whenever a significant portion of 2. The excess of the aggregate amount of
the taxpayer's business consists of leasing or net income subject to tax in Florida and in all
renting tangible personal property; other states for the taxable year over the amount
(b) Royalty income shall be included in the of federal taxable income for the taxable year.
term "sales" whenever a significant portion of (c) For purposes of this subsection, the
the taxpayer's business consists of dealing in or terms "net income subject to tax" and "amount
with the production, exploration, or development subject to tax" shall mean the amount against
of minerals; and which a rate or rates are applied in determining
1979
§220.15 ADDENDUM §220.23
the taxpayer's dollar liability for tax m any made by a fiduciary under subsection 220.22(3),
jurisdiction. b y the fiduciary. The fact that an officer or
Hiotory.-§1, ch. 71·984. fiduciary has signed a return or notice shall be
prima facie evidence that the individual was
PART III authorized to sign such document on behalf of
the taxpayer.
RETURNS, DECLARATIONS, RECORDS (2) A return or notice for a partnership shall
be signed by any one of the general partners, and
220.21 Returns and records; regulations. the fact that a partner has signed a return or
220.22 Returns; filing requirement. notice shall be prima facie evidence that such
220.221 Returns; signing and verification. partner was authorized to sign such document
220.222 Returns; time and place for filing. on behalf of the partnership.
220.23 Federal returns. (3) Each return or notice required to be
220.24 Declaration of estimated tax. filed under this code shall be verified by a
220.241 Declaration; time for filing. written declaration that it is made under the
220.242 Declaration as return. penalties of perjury, and if prepared by someone
other than the taxpayer the return shall also
220.21 Returns and recordsi regulations.- contain a declaration by the preparer that it was
Every taxpayer liable for the tax Imposed by this prepared on the basis of all information of which
code shall keep such records, render such the preparer had knowledge.
statements, make such returns and notices, and Hiotory.-§1, ch . 71·984.
comply with such rules and regulations, as the
department may from time to time prescribe. The 220.222 Returns; time and place for filing.-
director may require any taxpayer or class of (1) Returns required by this code shall be
taxpayers, by notice or by regulation, to make filed with the office of the department in Leon
such returns and notices, render such statements, County or at such other place as the department
and keep such records as the director deems may by regulation prescribe. All returns shall be
necessary to determine whether such taxpayer or filed on or before the first day of the fourth
taxpayers are liable for tax under this code. month following the close of the taxable year
Hiotory.-§1, ch. 71·984. unless under subsection (2) one or more exten:
sions of time, not to exceed 6 months in the
220.22 Returns; filing requirement.- aggregate, are granted for such filing .
( I) A return with respect to the tax imposed (2)(a) When a taxpayer has been granted
by this code shall be made by every taxpayer an extension or extensions of time within which
for each taxable year in which such taxpayer to file its federal income tax return for any
either is liable for tax under this code or is taxable year, and if the requirements of §220.32
required to make a federal income tax return, are met, the filing of a copy of such extension
regardless of whether such taxpayer is liable for or extensions with the department shall auto-
tax under this code. matically extend the due date of the return
(2) Every Florida partnership having any required under this code until 15 days after the
partner subject to tax under this code, shall expiration of the federal extension or until the
make an information return setting forth: expiration of 6 months from the original due
(a) All items of income, gain, loss, and date, whichever first occurs.
deduction; (b) The department may grant an extension
(b) The names and addresses of all partners or extensions of time for the filing of any return
subject to tax hereunder who would be entitled required under this code upon receiving a prior
to share in the net income of the partnership if written request therefor if good cause for an
distributed; extension is shown. However, the aggregate
(c) The amount and proportion of the dis- extensions of time under paragraphs (a) and (b)
tributive share of each partner-taxpayer; and shall not exceed 6 months. No extension granted
(d) Such other pertinent information as the under this paragraph shall be valid unless the
department may by form or regulation prescribe. taxpayer complies with the requirements of
(3) Whenever a receiver, trustee in bank- §220.32
ruptcy, or assignee, by order of law or otherwise, History.-§! , ch . 71·984.
has possession of or holds title to all or sub-
stantially all of the property or business of a 220.23 Federal returns.-
taxpayer, whether or not such property or (1) Any taxpayer required to make a return
business is being operated, such receiver, for a taxable year under this code may, at any
trustee, or assignee shall make the returns and time that a deficiency could be assessed or a
notices required of such taxpayer. refund claimed under this code in respect of any
Hiotory.- §1, ch. 71-984. item reported or properly reportable on such re-
turn or any amendment thereof, be required to
220.221 Returns; signing and verification.- furnish to the department a true and correct copy
(!) A return or notice required of a taxpayer of a ny return which may pertain to such item and
shall be signed by an officer duly authorized so to which was filed by such taxpayer under the
act or, in the case of a return or notice provisions of the Internal Revenue Code.
1980
§220.23 ADDENDUM §220.242
(2) In the event the taxable income, any part I of chapter 214. However, the amount
item of income or deduction, or the income tax recoverable pursuant to such a claim shall be
liability reported in a federal income tax return limited to the amount of any overpayment
of any taxpayer for any taxable year is adjusted resulting under this code from recomputation of
by amendment of such return or as a result of any the taxpayer's income for the taxable year after
other recomputation or redetermination of giving effect only to the item or items reflected
federal taxable income or loss, if such adjust- in the adjustment required to be reported.
ment would affect any item or items entering History.- §! , ch. 7 1-984.
into the computation of such taxpayer's net
income subject to tax for any taxable year under 220.24 Declaration of estimated tax.-
this code, the following special rules shall apply : (1) Every taxpayer shall make a declaration
(a) The taxpayer shall notify the depart- of estimated tax for the taxable year, in such
ment of such adjustment by filing either an form as the department shall prescribe, if the
amended return or such other report as the amount payable as estimated tax can reasonably
department may by regulation prescribe, which be expected to be more than $2,500. The term
return or report: " estimated tax" shall mean the amount which
1. Shall show the taxpayer's name, address, the taxpayer estimates to be his tax under this
and employer identification number; the adjust- code for the taxable year or, in the case of a
ments; the taxpayer's revised net income subject taxable year of less than 12 months, an amount
to tax and revised tax liability under this code; of tax determined in accordance with regulations
and such other information as the department prescribed by the department.
may by regulation prescribe; (2) A taxpayer may amend a declaration,
2. Shall be signed by a person required under regulations prescribed by the department.
to sign the original return or by a duly autho- History .- §! , ch . 71-984.
rized representative; and
3. Shall be filed not later than 60 days 220.241 Declaration; time for filing.-
after such adjustment has been agreed to or A declaration of estimated tax under this code
finally determined for federal income tax shall be filed on or before the first day of the
purposes, or after any federal income tax fifth month of each taxable year, except that if
deficiency or refund, abatement, or credit the minimum tax requirement of subsection
resulting therefrom has been assessed, paid, or 220.24(1) is first met:
collected, whichever shall first occur. (1) After the third month and before the
(b) If the amended return or other report sixth month of the taxable year, the declaration
filed with the department concedes the accuracy shall be filed on or before the first day of the
of a federal change or correction, any deficiency seventh month;
in tax under this code resulting therefrom shall (2) After the fifth month and before the
be deemed assessed on the date of filing such ninth month of the taxable year, the declaration
amended return or report, and such assessment shall be filed on or before the first day of the
shall be timely, notwithstanding any other t enth month; or
provision contained in part I of chapter 214. (3) After the eighth month and before the
(c) In any case where notification of an twelfth month of the taxable year, the declara-
adjustment is required under paragraph (a), t ion shall be filed for the taxable year on or
then notwithstanding any other provision before the first day of the succeeding taxable
contained in part I of chapter 214 : year.
1. A notice of deficiency may be issued at History.-§! , ch . 71-984.
any time within 2 years after the date such
notification is given; or 220.242 Declaration as return. - All of the
2. If a taxpayer either fails to notify the provisions of this part and of §214.21 , relating to
department or fails to report a change or confidentiality, shall ~e applicable with respe~t
correction which is treated in the same manner as to declarations of estimated tax unless mam-
if it were a deficiency for federal income tax festly inconsistent therewith. However, the
purposes, a notice of deficiency may be issued declaration required of a preparer other than the
at any time; taxpayer under subsection (3) of §220.22 shall
3. In either case, the amount of any pro- not be required with respect to declarations of
posed assessment set forth in such notice shall estimated tax.
be limited to the amount of any deficiency His tory.-§! , ch . 71-984.
r esulting under this code from recomputation of
the taxpayer's income for the taxable year
after giving effect only to the item or items PART IV
reflected in the adjustment.
(d) In any case when notification of an PAYMENTS
adjustment is required by paragraph (a), a
claim for refund may be filed within 2 years 220.31 Payments; due date.
after the date on which such notification was 220.32 Payments of tentative tax.
due, regardless of whether such notice was given, 220.33 Payments of estimated tax.
notwithstanding any other provision contained in 220.34 Special rules relating to estimated tax.
1981
§220.31 ADDENDUM §220.34
220.31 Payments; due date.- paid in three equal installments. The first in-
(1) Every taxpayer required to file a return stallment shall be paid at the time of required
under this code or a notification under subsection filing of the declaration; the second installment
220.23(2) shall, without assessment, notice, or shall be paid on or before the first day of the
demand, pay any tax due thereon to the depart- tenth month of the taxable year; and the third
ment at the place fixed for filing, including installment shall be paid on or before the first
payment to such depository institutions through- day of the next taxable year.
out the state as the department may by regula- (3) If the declaration is required to be filed
tion designate, on or before the date fixed for on or before the first day of the tenth month of
filing such return, determined without regard to the taxable year, the estimated tax shall be paid
any extension of time for filing the return, or in two equal installments: at the time of required
notification, pursuant to regulations prescribed filing of the declaration for such taxable year
by the department. and on or before the first day of the next taxable
(2) Except as to estimated tax payments year, res_pectively.
under §220.33, the payment required under this ( 4) If the declaration is required to be filed
section shall be the balance of tax remaining on or before the first day of the succeeding
due after giving effect to the following: taxable year, the estimated tax shall be paid in
(a) Any amount of tentative tax or esti- full at the time of such required filing.
mated tax paid by a taxpayer for a taxable (5) If the declaration is filed after the time
year pursuant to §220.32 or §220.33 shall be prescribed in §220.241 due to the grant of an
deemed to have been paid on account of the tax extension of time for filing, subsections (1)
imposed by this code for such taxable year; and through (4) of this section shall not apply, and
(b) Any amount of a tax overpayment which there shall be paid at the time of such filing
is credited against the taxpayer's liability for the all installments of estimated tax which would
taxable year under §214.13 shall be deemed to have been payable on or before such time if
have been paid on account of the tax imposed by the declaration had been filed within the time
this code for such taxable year. prescribed in §220.241 and without regard to the
History.-§1, ch . 71·984. extension, and the remaining installments shall
be paid at the time at which, and in the amounts
220.32 Payments of tentative tax.- in which, they would have been payable if the
(1) In connection with any extension of the declaration had been so filed.
time for filing a return under subsection 220.222 (6) If an amended declaration is filed, the
(2), the taxpayer shall file a tentative tax return remaining installments, if any, shall be ratably
and pay, on or before the date prescribed by increased or decreased, as the case may be, to
law for the filing of such return, determined reflect the increase or decrease in the estimated
without regard to any extensions of time for such tax occasioned by such amendment.
filing , an amount estimated to be the balance of (7) The application of this section to taxable
its proper tax for the taxable year after giving years of less than 12 months shall be in ac-
effect to any estimated tax payments under cordance with regulations prescribed by the
§220.33 and any tax credit under §214.13. department.
(2) The department shall by regulation pre- History.-§1, ch . 71-984.
scribe the manner and form for filing tentative
returns. 220.34 Special rules relating to estimated
(3) Interest on any amount of tax due and tax.-
unpaid during the period of any extension shall (1) Any amount paid as estimated tax shall
be payable as provided in §214.43. be deemed assessed upon the due date for the
History.-§!, ch . 71-984. taxpayer's retum for the taxable year, de-
termined without regard to any extensions of
220.33 Payments of estimated tax.-A time for filing such return.
(2) No interest or penalty shall be due or
taxpayer required to file a declaration of esti-
mated tax pursuant to §220.24 shall pay such paid with respect to a failure to pay estimated
estimated tax as follows: . taxes except the following:
(1) If the declaration is required to be filed (a) Except as provided in paragraph (d), the
on or before the first day of the fifth month of taxpayer shall be liable for interest at the rate
the taxable year, the estimated tax shall be paid of 6 percent per year and for a penalty in an
in four equal installments. The first installment amount determined at the rate of 10 percent
shall be paid at the time of the required per year upon the amount of any underpayment
filing of the declaration; the second and third of estimated tax determined under this sub-
installments shall be paid on or before the first section.
day of the seventh and tenth months of the tax- (b) For purposes of this subsection, the
able year, respectively; and the fourth install- amount of any underpayment of estimated tax
ment shall be paid on or before the first day of shall be the excess of:
the next taxable year. 1. The amount of the installment which
(2) If the declaration is required to be filed would be required to be paid if the estimated
on or before the first day of the seventh month tax were equal to 80 percent of the tax shown
of the taxable year, the estimated tax shall be on the return for the taxable year or, if no
1982
§220.34 ADDENDUM §220.43
return were filed, 80 percent of the tax for such 220.42 Methods of accounting.
year, over 220-43 Reference to federal determinations .
.2. The amount, if any, of the installment 220-44 Adjustments.
paid on or before the last date prescribed for
payment.
(c) The period of the underpayment for 220.41 Taxable year.-
which interest and penalties shall apply shall _(1) For purposes of the tax imposed by
commence on the date the installment was re- this code and the returns required to be filed.
quired to be paid, determined without regard to the taxable year of a taxpayer shall be the sam~
any extensions of time, and shall terminate on ~s the taxable year of such taxpayer for federal
the earlier of the following dates: Income tax purposes.
1. The first day of the fourth month fol- (2) If the taxable year of a taxpayer is
lowing the close of the taxable year or changed for federal income tax purposes, the
2. With respect to any portion 'of the under- taxable year of such taxpayer for purposes of
payment, the date on which such portion is paid. this code shall be similarly changed.
(3) Notwithstanding the provisions of sub-
For purposes of this paragraph, a payment of sections (1) and (2), if the department terminates
estimated tax on any installment date shall be the taxable year of a taxpayer under the pro-
considered a payment of any previous underpay- visions of chapter 214 relating to jeopardy
ment only to the extent such payment exceeds assessments, the tax shall be computed for the
the amount of the installment determined under period determined by such action.
History.-§!, ch . 71-984.
subparagraph (b)l. for such installment date.
(d) No penalty or interest for underpay-
ment of any installment of estimated tax shall be 220.42 Methods of accounting.-
imposed if the total amount of all such payments (1) For purposes of this code, a taxpayer's
made on or before the last date prescribed for method of accounting shall be the same as such
the payment of such installment equals or ex- taxpayer's method of accounting for federal in-
ceeds the amount which would have been re- come tax purposes. If no method of accounting
quired to be paid on or before such date if the has been regularly used by a taxfayer net in-
estimated tax were the lesser of: come for purposes of this code shal be c~mputed
1. An amount equal to the tax computed at
the rates applicable to the taxable year but by such method as in the opinion of the depart-
otherwise on the basis of the facts shown o~ the ment fairly reflects income.
return for, and the law applicable to the pre- (2) If a taxpayer's method of accounting is
ceding taxable year; or ' changed for federal income tax purposes the
2. An amount equal to 80 percent of the tax taxpayer's method of accounting for purpos'es of
this code shall be similarly changed.
finally due for the taxable year; or History.-§!, ch. 71-984.
3. An amount equal to the tax shown on the
taxpayer's return for the preceding taxable year
if a return showing a liability for tax was filed 220.43 Reference to federal determina-
by the taxpayer for the preceding taxable year tions.-
and such preceding year was a taxable year of 12 (1) To the extent not inconsistent with the
months. provisions of this code or forms or regulations
(e) For purposes of paragraphs (b) and (d) prescribed by the department, each taxpayer
the term "tax" shall mean the excess of the ta~ making a return under this code shall take into
imposed by this code over all amounts properly account the items of income, deduction, and
credited against such tax for the taxable year. exclusion on such return in the same manner and
(f) The application of this subsection to amounts as reflected in such taxpayer's federal
taxable years of less than 12 months shall be in income tax return for the same taxable year.
accordance with regulations prescribed by the (2) A final determination under the Inter-
department. nal Revenue Code adjusting any item or items of
(g) The provisions of this subsection shall income, deduction, or exclusion for any taxable
not apply with respect to any taxable year year shall be prima facie correct for purposes of
beginning before January 1, 1972. this code to the extent such item or items enter
(3) The department may provide by regula- into the determination of net income under this
tion for a credit against estimated taxes for any code.
taxable year of any amount determined by the (3) If there has been implementing legisla-
taxpayer or by the department to be an over- tion under subsection 220.03(3), and to the extent
payment of the tax imposed by this code for a required in regulations prescribed by the depart-
preceding taxable year. ment, any taxpayer makin~ a return under this
History.-§!, ch. 71-984. code may be required to mdicate the item or
items of income, deduction, and exclusion which
PART V would enter into the determination of income if
this code were amended to incorporate the Inter-
ACCOUNTING nal Revenue Code as amended and in effect for
such taxable year.
220-41 Taxable year. History.-§!, ch. 7 1-984.
1983
§220.44 ADDENDUM §316.006
220.44 Adjustments.-If it appears to the CHAPTER 253
director that any agreement, understanding,
or arrangement exists between any taxpayers, INTERNAL IMPROVEMENT TRUST FUND
or between any taxpayer and any other person,
which causes any taxpayer's net income subject
to tax to be reflected improperly or inaccurately, 253.015 Limitation on expenditure of trust fund.
the director may adjust any item or items of
income, deduction, or exclusion, or any factor. 253.015 Limitation on expenditure of trust
taken into account in apportioning income to fund.-Other provisions of law to the contrary
this state, to the extent necessary clearly to notwithstanding, effective January 1, 1972 and
reflect the net income of such taxpayer. thereafter, all revenues and receipts accruing
History.-§! , ch . 71-984.
to the board of trustees for the benefit of the
internal improvement trust fund shall be
PART VI available for appropriation by the legislature
solely and exclusively for the acquisition of land
MISCELLANEOUS and the incidental expenses related thereto.
Effective January 1, 1972, the uncommitted
220.51 Promulgation of rules and regulations. fund balance of the internal improvement trust
220.52 Arrangements and captions. fund as of that date shall be expended or loaned
220.53 Adoption of chapter 214. only upon specific legislative appropriation or
authorization.
History.-§2, ch . 71-981.
220.51 Promulgation of rules and regula-
tions.-In accordance with the Administrative
Procedure Act, chapter 120, the department is
authorized to make, promulgate, and enforce
such reasonable rules and regulations , and to CHAPTER 316
prescribe such forms relating to the administra-
tion and enforcement of the provisions of this STATE UNIFORM TRAFFIC CONTROL
code, as it may deem appropriate, including:
(1) Rules for initial implementation of this 316.006 Jurisdiction.
code and for taxpayers' transitional taxable 316.007 Provisions uniform throughtout state.
years commencing before and ending after 316.008 Powers of local authorities.
January 1, 1972;
(2) Rules or regulations to clarify whether
certain groups, organizations, or associations *316.006 Jurisdiction.-Jurisdiction to con-
formed under the laws of this state or any other trol traffic is vested as follows:
state, country, or jurisdiction shall be deemed (1) STATE.-The department of transporta-
"taxpayers" for the purposes of this code, in tion shall have all original jurisdiction over all
accordance with the legislative declarations of state roads throughout this state, including those
intent in §220.02; and within the grounds of all state institutions and
(3) Regulations relating to consolidated the boundaries of all dedicated state parks, and
reporting for affiliated groups of corporations, may place and maintain such traffic control
in order to provide for an equitable and just devices which conform to its manual and speci-
administration of this code with respect to multi- fications upon all such highways as it shall deem
corporate taxpayers. necessary to indicate and to carry out the provi-
History.- §! , ch . 71·984.
sions of this chapter or to regulate, warn, or
guide traffic.
220.52 Arrangement and captions.-No (2) MUNICIPALITIES.-Chartered muni-
inference, implication, or presumption of legis- cipalities shall have original jurisdiction over all
lative construction shall be drawn or made by streets and highways located within their bound-
reason of the location or grouping of any parti· aries, except state roads, and may place and
cular sections or provisions of this code, nor shall maintain such traffic control devices which
any caption be giVen any legal effect. conform to the manual and specifications of
History.-§! , ch . 71-984. the department of transportation upon all streets
and highways under their original jurisdiction as
they shall deem necessary to indicate and to
220.53 Adoption of chapter 214.-The tax carry out the provisions of this chapter or to
imposed by this chapter is hereby made subject regulate, warn, or guide traffic. This subsection
to chapter 214, as that chapter is modified by shall not limit those counties which have the
§220.15 and by paragraphs 220.23(2)(c) and (d). charter powers to provide and regulate arterial,
History.-§! , ch . 71-984. toll, and other roads, bridges, tunnels, and
related facilities from the proper exercise of
those powers by the placement and mainte-
nance of traffic-control devices which conform to
1984
§316.006 ADDENDUM §323.15
the manual and. specifications of the department trolled access roadways by any class or kind of
of transportation on streets and highways located traffic;
within municipal boundaries. (n) Prohibiting or regulating the use of
(3) COUNTIES.-Counties shall have orig- heavily traveled streets by any class or kind of
inal jurisdiction over all streets and highways traffic found to be incompatible with the normal
located within their boundaries, except all state and safe movement of traffic;
roads and those streets and highways specified (o) Designating hazardous railroad grade-
in subsection (2), and may place and maintain crossings in conformity to criteria promulgated
such traffic control devices which conform to the by the department of transportation;
manual and specifications of the department of (p) Designating and regulating traffic on
transportation upon all streets and highways play streets;
under their original jurisdiction as they shall (q) Prohibiting pedestrians from crossing
deem necessary to indicate and to carry out the a roadway in a business district or any designated
provisions of this chapter or to regulate, warn, highway except on a crosswalk;
or guide traffic. (r) Regulating pedestrian crossings at un-
History.-§! , ch . 71-135; §I, ch. 71 -982. marked crosswalks;
•Note.- Effective J a nua ry I, I9n.
Note.-See fonn er §§186.02, 3! 7.oJ2, 317.021 a nd 317.03 1. (s) Regulating persons upon skates, coast-
ers, and other toy vehicles;
*316.007 Provisions · uniform throughout
(t) Adopting and enforcing such tempo-
rary or experimental regulations as may be
state.-The provisions of this chapter shall be necessary to cover emergencies or special condi-
applicable and uniform throughout this state tions.
and in all political subdivisions and municipali- (2) The municipality, through its duly
ties therein, and no local authority shall enact authorized officers, shall have nonexclusive
or enforce any ordinance on a matter covered by jurisdiction over the prosecution, trial, adjudica-
this chapter unless expressly authorized. How- tion, and punishment of violations of this
ever, this section shall not prevent any loca l chapter when a violation occurs within the
authority from enacting an ordinance when municipality and the person so charged is
such enactment is necessary to vest jurisdiction charged by a municipal police officer. The
of violation of this chapter in the local court. disposition of such matters in the municipality
History.-§! , ch . 71-135; §2, ch. 71-982. shall be in accordance with that municipality's
•Note.-Effecti ve J a nua ry I, 1972. charter. This subsection shall not limit those
counties which have the charter power to
pr ovide and regulate arterial, toll, and other
*316.008 Powers of local authorities.- roads, bridges, tunnels, and related facilities
( I) The provisions of this chapter shall not from the proper exercise of those powers
be deemed to prevent local authorities, with pertaining to the consolidation and unification
respect to streets and highways under their of a traffic court system within said counties.
jurisdiction and within the reasonable exercise of (3) No local authority shall erect or main-
the police power, from: tain any official traffic control device at any
(a) Regulating or prohibiting stopping, location so as to regulate the traffic on any state
standing, or parking; road unless approval in writing has first been
(b) Regulating traffic by means of police obtained from the department of transportation.
officers or official traffic control devices· History.-§!, ch. 71-135; §3, ch. 71-982.
(c) Regulating or prohibiting processions o; •Note.-Effective J a nuary I, 1972.
~ssemblages on the streets or highways, includ-
mg all state or federal highways lying within
their boundaries;
(d) Designating particular highways or
roadways for use by traffic moving in one direc- CHAPTER 32:
I
tion;
(e) Establishing speed limits for vehicles in MOTOR CARRIERS;
public parks; FREIGHT-FORWARDING ACT
(f) Designating any street as a through
street or designating any intersection as a stop PART I
or yield intersection; MOTOR CARRIERS
(g) Restricting the use of streets;
(h) Regulating the operation of bicycles; 323.15 Road tax; advance deposits; lien for
(i) Regulating or prohibiting the turning of taxes; enforcement of lien; records;
vehicles or specified types of vehicles; statements, etc.
(j) Altering or establishing speed limits
within the provisions of this chapter; 323.15 Road tax; advance deposits; lien
(k) Requiring written accident reports; for taxes; enforcement of lien; records; state-
(l) Designating no-passing zones; ments, etc.-
(m) Prohibiting or regulating the use of con- (1) There shall be co llected by July 1 of
1985
§323.15 ADDENDUM §323.15
each year from every motor carrier for each and December 31, seventy-five dollars; between
motor vehicle controlled by such motor carrier ,January 1 and March 31, fifty dollars; be-
which travels over the public highways of this tween April 1 and June 30, twenty-five dollars.
state, a road tax as follows: (b) If the annual tax is fifty dollars, and
(a ) Fifteen dollars for each truck or trac- the motor vehicle is placed in service between
tor, regardless of the number of axles, which July 1 and September 30, then fifty dollars is
operates exclusively within twenty-five miles of to be paid; between October 1 and December 31,
its place of domicile; and fifteen dollars for thirty-seven dollars and fifty cents; between
each truck with two axles wherever it operates. January 1 and March 31, twenty-five dollars;
(b) Fifty dollars for each truck with three between April 1 and June 30, twelve dollars
axles. and fifty cents.
(c) One hundred dollars for each truck with (c) If the annual tax is forty dollars, and
four axles. the motor vehicle is placed in service between
(d ) One hundred dollars for each tractor July 1 and September 30, then forty dollars is
except those controlled by carriers whose au- to be paid; between October 1 and December
thority from the commission is limited to the 31, thirty dollars; between January 1 and March
transportation of household goods or mobile 31, twenty dollars; between April 1 and June
homes, for which the road tax shall be forty 30, ten dollars.
dollars; provided, however, in those instances (d) If the annual tax is twenty-five dollars,
where a carrier domiciled in Florida on or and the motor vehicle is placed in service be-
north of U. S. highway 90 and operating ex- tween July 1 and December 31, then twenty-five
clusively on or north of said highway in inter· dollars is to be paid; between January 1 and
state commerce only, the road tax on each June 30, twelve dollars and fifty cents.
tractor so operated by said carrier shall be ten (e) If the annual tax is fifteen dollars, and
dollars. the motor vehicle is placed in service between
(e ) Fifty dollars for each tractor controlled July 1 and December 31, then fifteen dollars is
by holders of only a permit issued pursuant to to be paid; between January 1 and June 30,
~323.05. seven dollars and fifty cents.
( f) Ten dollars for each truck or tractor
controlled by a motor carrier holding a cer- (5) Pursuant to the rules and regulations of
tificate of registration issued pursuant to the commission, a motor carrier may lease ve-
~323 . 28, authorizing the operation in Florida
hicles to another motor carrier without the pay-
of motor vehicles under exemptions provided ment of additional road tax, provided that
by the interstate commerce act. when the tax that has been paid on the vehicle
(g ) Twenty-five dollars for each bus with is less than that required when the vehicle is
a capacity of twelve passengers or less. controlled by the lessee, then the lessor may
(h ) Fifty dollars for each bus with a ca- surrender his road tax plate and upon payment
pacity of not more than twenty-one passengers . of the additional amount receive the required
(i ) One hundred dollars for each bus with plate.
a capacity of more than twenty-one passengers. *(6) The road tax provided for in this sec-
( j ) Five dollars for each motor vehicle tion shall be in lieu of all other taxes and fees
leased to a motor carrier for not more than of every kind, character and description, state,
fifteen days purs uant to the rules and regula- county or municipal, including excise and li-
ti ons of the commission. cense taxes levied or imposed against such mo-
(2 ) Motor ca rriers shall receive as evidence tor carriers, or the operation of such business
of payment of the road tax a plate which shall and facilities thereof, or their property, except
be di splayed upon the vehicle for which the tax ad valorem taxes levied upon the property
was paid. The plate is nontransferable from other than motor vehicles of such motor car-
one vehicle to another except pursuant to the riers, the gasoline tax and motor vehicle fuel
rules and regulations of the commission. How- tax, the motor vehicle license tax now or here-
ever, if a vehi cle is removed from service and after provided for by law, the sales tax imposed
replaced by another vehicle, a new plate will be by chapter 212, and the income tax imposed
issued at no fee pursuant to the rules and by chapter 220.
regulations of the commission. (7) The books and records of all motor car-
(3 ) The road tax shall be applicable to all riers shall be at all times open to inspection
motor carriers required by this part to ob- of the commission or any agent by it appointed
tain a certificate or permit from the commis- for such purpose. The commission shall keep a
sion, whether or not said certificate or permit true and accurate list of all motor carriers to
has been secured by said motor carrier. whom certificates shall be issued with the post
( 4 ) The road tax co llected shall be only for office address of each.
the remaining portion of the year from when History .-U6 . ch . 14764 , 1931: CGL 1936 Supp . 13351151: §3.
the motor vehicle is placed in service by the ch . 18026. 1937: §1. ch . 22834 , 1945 ; U . ch . 26663 . 1951 : !1.
ch . 61-272 ; U, ch. 63-279 ; U , ch . 63-496: §1. ch . 65-337: §§1, 2,
motor carrier as follows: ch . 67-397; §2, ch. 71-984.
(a ) If the annual tax is one hundred dollars •Note.-Subsection (6), as amended, effective January I , 1972.
cf. -§323 .05 Permit to operate motor ve hicle s for hire.
and the motor vehicle is placed in service be-
tween Jul y 1 and September 30, then one hun-
dred dollars is to be pa id ; between October 1
1986
§339.241 ADDENDUM §339.241
CHAPTER 339 primary highway, except the following:
(a) Junkyards which are screened by
FLORIDA HIGHWAY CODE, natural objects, plantings, fences or other
SIXTH PART appropriate means so as not to be visible
from the main traveled way of the highway
Financing; Miscellaneous or otherwise removed from sight.
(b) Junkyards or scrap metal processing
339.241 Florida junkyard control law. facilities which are located in areas which are
• zoned for industrial use .
339.241 Floridajunkyard controllaw.- (c) Junkyards or scrap metal processing
(1) SHORT TITLE.-This section shall be facilities which are not visible from the main
known as the "Florida junkyard control law." traveled way of any interstate or primary high-
(2) DEFINITIONS.-Wherever used or re· way.
ferred to in this section, unless a different
meaning clearly appears from the context: Any junkyard in existence "on December 8, 1971
(a) "Automobile graveyard" means any which the secretary determines cannot be
establishment or place of business which is screened because of topography and elevation
maintained, used, or operated for storing, shall not be required under this section to be
keeping, buying, or selling wrecked, scrapped, removed, relocated, or disposed of until federal
ruined, or dismantled motor vehicles or motor funds are available.
vehicle parts. (4) REQUIREMENTS AS TO FENCES;
(b) "Junk," "junkyard," and "scrap RULES AND REGULATIONS; EXPENDI-
metal processing facility" means the same as TURE OF FUNDS.-
described in paragraphs 205.371 (1) (a), (b), (a) A fence constructed under the provisions
and (e). of this section shall be kept in good order and
(c) "Areas zoned for industrial use" means repair, and any advertisement thereon shall be
all areas zoned for industrial use by municipal regulated by applicable state law.
or county governmental units within the state or (b) The department shall have the power to
an unzoned industrial area as defined by the promulgate rules and regulations governing the
department and approved by the secretary of location, construction, plantings, and materials
transportation. Such areas must be based upon of said fence, living or otherwise.
the existence of at least one industrial activity (c) The department is authorized to spend
other than the junkyard or scrap metal process- such funds as are necessary to obtain federal-aid
ing plant. funds for the purposes described in this
(d) "Distance from edge of right-of-way" subsection.
means the distance presently defined in sub- (5) EMINENT DOMAIN.-The power of
section (g), section 136, title 23, United States eminent domain is vested in the department to
Code. condemn such interests in land as the depart-
(e) "Fence" means an enclosure so con- ment shall determine are required for the pur-
structed or planted and maintained as to obscure poses of screening, relocation, removal, or
the junkyard from ordinary view to those persons disposal of junkyards and scrap metal proces-
passing upon the highways in this state. sing facilities. Such condemnation proceedings
(f) "Interstate highway" means the system shall be maintained in the name of the depart-
presently defined in subsection (e), section 103, ment under the procedure defined and set forth
title 23, United States Code. in chapters 73 and 7 4. Such relocation, removal,
(g) "Federal aid primary highway" means or disposal, for which compensation shall be
any highway within that portion of the state paid, shall be restricted to those projects
highway system as included and maintained wherein federal participation is available.
under chapter 335, including extensions of such (6) ENFORCEMENT.-It is the function
system within municipalities, which has been and duty of the department to administer and
approved by the secretary of transportation enforce the provisions of this section. In addition
pursuant to subsection (b), section 103, title 23, to the power of eminent domain, negotiation,
United States Code. and compensation, the department or any public
(h) "Person" means any individual, firm, official may apply to the circuit court or other
agency, company, association, partnership, court of competent jurisdiction of the county in
business trust, joint stock company, or corpora- which said junkyard or scrap metal processing
tion. facility may be located for an injunction to abate
(i) "Department" means the department such nuisance.
of transportation of the state. (7) PENALTY.-Any person violating any
(3) RESTRICTIONS AS TO LOCATION. provision of this section shall be subject to fine
-No junk, junkyard, automobile graveyard, or of not less than $50 or more than $200. Each day
scrap metal processing facility shall be operated during any portion of which such violation occurs
or maintained within 1,000 feet of the nearest constitutes a continuing separate offense.
edge of the right-of-way of any interstate or History.- §§1·6, ch. 71-338; §§1-7, ch. 71-972.
1987
D
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STATE OF MICHIGAN
COURT OF CLAIMS
EMCO ENTERPRISES, INC.,
OPINION AND ORDER
Plaintiff,
v Case No. 12-000152-MT
DEPARTMENT OF TREASURY, Hon. Michael J. Talbot
Defendant.
This matter comes before the Court pursuant to its sua sponte order to brief the Court on
the application of Int'l Business Machines Corp v Dep't of Treasury, 496 Mich. 642; 852 NW2d
865 (2014) ("IBM"), as well as its sua sponte order to brief the Court on why the Compact
provisions should apply to a value-added tax. Trinova Corp v Michigan Dep't of Treasury, 498
U.S. 358; 111 S. Ct. 818; 112 L. Ed. 2d 884 (1991). The Court concludes that pursuant to MCR
2.116(I)(2), defendant is entitled to judgment as a matter of law.
INTRODUCTION
Plaintiff EMCO Enterprises, Inc. (EMCO), one of numerous plaintiffs with similar claims
pending in the Court of Claims,1 brings this refund action under the former Single Business Tax
Act (SBTA),2 MCL 208.1 et seq. EMCO claims it is entitled to reduce its SBT liability for the
2005 through 2007 tax years by electing to apportion its income using an equally weighted,
three-factor apportionment formula under the Multistate Tax Compact (Compact) provisions,
1
All plaintiffs are claiming SBT refunds for at least one tax year between 2005 and 2006.
2
The SBTA was repealed effective December 31, 2007. See 2006 PA 325.
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MCL 205.581 et seq.,3 rather than the three-factor apportionment formula mandated under the
SBTA.
The primary arguments made in support of plaintiff's claim are: (1) the Compact is a
binding interstate agreement that applies to the SBTA, a net income tax for Compact purposes,
(2) the Department's denial of a taxpayer's right to make an apportionment election under the
Compact is an unconstitutional impairment of a contract under the US Const, art I, § 10, and
Michigan Const 1963, art 1, § 10, and (3) the Michigan Supreme Court's decision in IBM, 496
Mich. 642, controls the disposition of this case. The validity of these claims in the context of the
SBT has not yet been considered by a Michigan court.
The principal question before the Court is exclusively a matter of law: whether the SBT
apportionment formula for the tax years in question is mandatory or whether an SBT taxpayer
may elect to apportion its tax base to Michigan using the Compact's equally weighted, three-
factor apportionment formula.
BACKGROUND
I. Apportionment under the Michigan Single Business Tax
3
Section 1 of 1969 PA 343, codified under MCL 205.581 et seq., includes the provisions of the
Compact originally enacted by parties to the Compact (Member States).
The validity of similar arguments in the context of the Michigan Business Tax Act (MBTA),
MCL 208.1101, et seq., was addressed on July 14, 2014, by the Michigan Supreme Court in
IBM, 496 Mich. 642. Finding that the Legislature in adopting the MBTA did not repeal by
implication the three-factor apportionment formula as set forth in MCL 205.581 et seq., the
Court concluded that the taxpayer was entitled to use the Compact's three-factor apportionment
formula in calculating its 2008 taxes. The Court also found that the Modified Gross Receipts
Tax (MGRT) portion of the MBT was an "income tax" for Compact purposes. On September
11, 2014, in response to IBM, the Legislature enacted 2014 PA 282, which retroactively repealed
the Compact provisions under MCL 205.581 et seq., to January 1, 2008, and mandated the use of
a single-factor apportionment factor for purposes of calculating MBT. While the case presents
many of the same underlying issues as were before the Court in IBM, the decision here involves
a different tax regime (i.e., the SBTA) that preceded the MBTA as enacted under 2007 PA 36.
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A. Initial Uniform Method of Apportionment
From January 1, 1976, until the SBTA's repeal effective December 31, 2007, entities
with "business activity" in Michigan were subject to the SBT.5 Enacted as a replacement for
seven different business taxes, the SBT was an "addition-method" value-added tax (VAT) that
required taxpayers to calculate a tax base by starting with federal taxable income (that is, net
profits), adding back compensation, depreciation and other factors, and making certain other
adjustments.6
Under the SBTA, a taxpayer with business activity both within and without Michigan is
required to apportion its tax base as provided under Chapter 208.7 Under Chapter 208, a three-
factor apportionment formula is applied to the tax base to arrive at that portion of the base that is
apportioned to Michigan. Throughout its history, the SBT was calculated by using a three-
factor apportionment formula consisting of payroll, property, and sales. Initially, just as it had
been under the former business activity tax (BAT) (1954-1966),9 and the former corporate
income tax (CIT) (1967-1975),10 the SBT apportionment formula was a traditional, three-factor
apportionment formula that equally weighted property, payroll, and sales.
By the time the SBTA was adopted, an equally weighted apportionment formula was
almost universal among states with business activity taxes." The formula, based on a model
5
See 1975 PA 228; 2006 PA 325.
6
Trinova Corp, 498 U.S. at 366-367.
7
MCL 208.41.
8
MCL 208.45, MCL 208.45a.
9
The BAT moved to an equally weighted three-factor apportionment formula in 1954. See MCL
205.553, as amended by 1954 PA 17.
10
1967 PA 281.
11
Starting in 1957, when UDITPA adopted a model of three-factor apportionment formula based
on the equal weighed proportion of property, payroll, and sales in a particular state, there was a
general consensus that this formula was the most equitable way of dividing up a multistate
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formula promulgated in the late 1950s under the Uniform Division of Income for Tax Purposes
Act (UDITPA), represented what was widely considered the most equitable way to apportion
income of a multistate business. Under this model, if every state cooperates by adopting the
same apportionment formula, no more than 100% of a multistate business's income is ever taxed,
and each state is assured of receiving its fair share of the multistate taxpayer's income.13
Conversely, to the extent that formulas among states are inconsistent, the possibility exists that
either more than 100% or less than 100% of a multistate business's income could be subject to
state income tax.14 A guiding principle behind the development of the basic property-payroll-
sales apportionment formula under UDITPA was a desire to achieve a long-term, overall fair and
uniform system of state taxation based on cooperation among states.15
B. Deviations of Apportionment Formulas
Over time, more and more states began to move away from a uniform approach to state
taxation. Legislatures, looking to maximize state revenues, began to abandon the equally
weighted three-factor apportionment formula in favor of a more advantageous, heavily-weighted
sales factor.1 There were two primary reasons that budget-strapped states began to change
taxpayer's income among states. See UDITPA, Hist and Pref Notes, 7A ULA 141-2 (2002).
The UDITPA formula was later adopted under the Compact. See discussion, below.
12
The constitutionality of the SBTA's three-factor apportionment formula was upheld in Trinova
Corp, 498 U.S. 358.
13
Anand & Sansing, The Weighting Game: Formula Apportionment as an Instrument of Public
Policy, Nat'l Tax J, Vol 53 No 2 (June 2000) at 183.
14
Id.
15
Mazerov, The Single Sales Factor Formula for State Corporate Taxes - A Boon to Economic
Development or a Costly Giveaway?, Center on Budget and Policy Priorities (September 1,
2005), p 13, available at (last visited April 6, 2015).
This same desire led to enactment of the Compact. See discussion, below.
16
After the United States Supreme Court upheld as constitutional Iowa's single factor sales-only
apportionment factor in Moorman Mfg Co v Bair, 437 U.S. 237; 98 S. Ct. 2340; 57 L. Ed. 2d 197
(1978), states were assured that formulas other than three-factor, equal weighted apportionment
formulas were constitutional and began more heavily weighting the sales factor.
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apportionment formulas. First, by increasing the weight of the sales factor, the tax burden
generally shifts from in-state taxpayers with heavy property and payroll in the state, to out-of-
state taxpayers with relatively little property and payroll in the state. This tends to result in an
immediate tax cut for in-state companies exporting to other state and an immediate tax increase
for out-of-state companies importing goods into a state.17 The second justification for more
heavily weighting the sales factor is to provide an economic incentive for an out-of-state
taxpayer to increase its property and payroll in a particular state, thereby reducing a taxpayer's
apportionment fraction in the state, and consequently the overall tax that had to be paid.18
Reflecting a trend across the country, Michigan abandoned uniform apportionment in
1991 when the legislature made a decision to more heavily weight the sales factor.1 Subsequent
legislatures continued to amend the SBT apportionment formula, each time resulting in a more
heavily weighted sales factor. Below is a timeline of the SBT apportionment formulas.
SBT Apportionment Formula Weights
Tax Year Beginning Property Payroll Sales
December 31, 1990 and earlier22 33.3% 33.3% 33.3%
January 1, 1991 - December 31, 199223 30% 30% 40%
January 1, 1993 - December 31, 199624 25% 25% 50%
See Pomp, The Future of the State Corporate Income Tax: Reflections (and Confessions) of a
Tax Lawyer, 16 State Tax Notes 939 (Mar 22, 1999), p 942.
18
Id.
19
See 1991 PA 77.
20 The driving forces behind these changes were large in-state companies with significant
property and payroll in the state, and high percentages of exported, non-Michigan sales. See
Lane, SBT Formula Goes to a Vote, Crain's Detroit Business, p 37 (Oct 2, 1995).
Not at issue here are SBTA's separate apportionment formulas for tax bases derived
principally from transportation, financial, or insurance carrier services or specifically allocated.
22
See 1975 PA 228, MCL 208.45(1).
23
See 1991 PA 77; MCL 208.45(2).
24
See 1991 PA 77; MCL 208.45(4).
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I January 1, 1997 - December 31, 199825 10% 10% 80%
January 1, 1999 - December 31, 200526 5% 5% 90%
January 1, 2006 - December 31, 200727 3.75% 3.75% 92.5%
The formula for arriving at the Michigan portion of the SBT tax base, and whether SBT
taxpayers were required to use such formulas for the tax years beginning in 2005, 2006 and
2007, form the basis of this dispute.
II. The Multistate Tax Compact
A. Adoption of the Compact
In 1969, Michigan adopted the Compact provisions, effective in 1970, through enactment of
1969 PA 343. The Compact itself was drafted in 1966 in response to the threat of federal
intervention over matters of state income tax, and went into effect in 1967 when seven states
adopted the Compact provisions. By 1972, 21 states had adopted the Compact to become
Member States.30 There are currently 16 Member States.31 Michigan is a sovereignty member
25
See 1995 PA 283; MCL 208.45(1).
26
See 1995 PA 283; MCL 208.45(6), MCL 208.45a(l).
Prior to the SBTA's repeal, the formula was set to move to 2.5% property. 2.5% payroll, and
95% sales on January 1, 2008. See 2005 PA 295; MCL 208.45a(2). Under the MBTA, effective
Jan. 1, 2008, the formula consisted of 0% property, 0% payroll, and 100% sales. See 2007 PA
77.
The federal legislation, which was never enacted, was introduced in the wake of the United
States Supreme Court's decision in Northwestern States Portland Cement Co v Minnesota, 358
U.S. 450; 79 S. Ct. 357, 3 LEd2d 421 (1959), holding that there is no Commerce Clause barrier to
the imposition of a direct income tax on a foreign corporation carrying on interstate business
within a taxing state.
29
US Steel Corp v Multistate Tax Comm'n, 434 U.S. 452, 454; 98 S. Ct. 799; 54 L. Ed. 2d 682
(1978).
30
Id.
31
See (lasted visited March 21, 2015).
Michigan was a Compact member prior to January 1, 2008 when it retroactively repealed the
Compact provisions. See 2014 PA 282.
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and participates in general activities of the Commission. The Compact was never approved by
Congress.33
B. Compact Provisions
1. Compact Purpose
The original purposes of the Compact included: (1) "[f]acilitat[ing] proper determination of
state and local tax liability of multistate taxpayers, including the equitable apportionment of tax
bases and settlement of apportionment disputes," (2) "[p]romot[ing] uniformity or compatibility
in significant components of [state] tax systems," (3) "[f]acilitat[ing] taxpayer convenience and
compliance in the filing of tax returns and in other phases of tax administration," and (4)
"[a]void[ing] duplicative taxation."34
2. The Commission
The Compact, through Article VI, established the Multistate Tax Commission
(Commission).35 The powers of the Commission are (1) to study state and local tax systems, (2)
to develop and recommend proposals for greater uniformity, and (3) to compile information
helpful to the states.3 While the Commission also has powers to draft rules and regulations,
32
Id. ("Sovereignty members are states that support the purposes of the Multistate Tax Compact
through regular participation in, and financial support for, the general activities of the
Commission. These states join in shaping and supporting the Commission's efforts to preserve
state taxing authority and improve state tax policy and administration.") Michigan was a
Compact member prior to January 1, 2008 when it retroactively repealed the Compact
provisions. See 2014 PA 282.
33
Though not Congressionally approved, the Compact was upheld against constitutional
challenges in US Steel, 434 U.S. 452.
34
MCL 205.581, Art I.
35
MCL 205.581, Art VI(1).
36
MCL 205.581, Art VI(3).
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each state "retains complete freedom to adopt or reject the rules and regulations of the
Commission."37
3. Compact Apportionment and Election Provisions
Article IV of the Compact incorporates UDITPA's three-factor apportionment formula
based on equally weighted property, payroll, and sales factors.38 The Compact's elective
provision under Article III provides that "[a]ny taxpayer subject to an income tax whose income
is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or
pursuant to the laws of subdivisions in two or more party states may elect to apportion and
allocate his income in the manner provided by the laws of such states or by the laws of such
states and subdivisions without reference to this compact, or may elect to apportion and allocate
in accordance with article IV."39
4. Miscellaneous Compact Provisions
A state can withdraw from the Compact "by enacting a statute repealing the same."40 In
addition, as noted above, each state retains freedom under the Compact to "adopt or reject" the
Commission's rules and regulations.
5. Repeal of the Compact
On September 11, 2014, in response to IBM, the Legislature enacted into law 2013 SB
156 (SB 156) as 2014 PA 282. This law retroactively repealed the Compact provisions under
MCL 205.581 et seq., to January 1, 2008, and mandated the use of a single-factor apportionment
37
US Steel Corp, 434 U.S. at 473.
38
MCL 205.581, Art IV(1). See also Pomp, Reforming a State Corporate Income Tax, J of State
Taxation (Spring 2014), p 21.
39
MCL 205.581, Art III(l).
40
MCL 205.581, Art X(2).
41
US Steel, 434 U.S. at 473.
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factor for purposes of calculating Michigan Business Tax (MBT)42 and the CIT. The Legislature
gave the act retroactive effect by providing as follows:
Enacting section 1, 1969 PA 343, MCL 205.581 to 205.589, is repealed
retroactively and effective beginning January 1, 2008. It is the intent of the
legislature that the repeal of 1969 PA 343, MCL 205.581 to 205.589, is to express
the original intent of the legislature regarding the application of section 301 of the
Michigan business tax act, 2007 PA 36, MCL 208.1301, and the intended effect
of that section to eliminate the election provision included within section 1 of
1969 PA 343, MCL 205.581, and that the 2011 amendatory act that amended
section 1 of 1969 PA 343, MCL 205.581, was to further express the original
intent of the legislature regarding the application of section 301 of the Michigan
business tax act, 2007 PA 36, MCL 208.1301, and to clarify that the election
provision included within section 1 of 1969 PA 343, MCL 205.581, is not
available under the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713.
PA 282 thus amended the MBT to express the "original intent" of the Legislature with
regard to (1) the repeal of the Compact provisions, (2) application of the MBT's apportionment
provision under MCL 208.1301, and (3) the intended effect of the Compact's election provision
under MCL 205.581. The effect of the amendments, as written, retroactively eliminates a
taxpayer's ability to elect a three-factor apportionment formula in calculating tax liability under
both the MBT and CIT. The explicit repeal under PA 282 did not extend to the SBTA.
LEGAL ANALYSIS
I. IS THE SBT AN "INCOME TAX" WITHIN THE MEANING OF
THE COMPACT?
The threshold issue that must be decided by the Court is whether the SBT is an "income
tax" within the meaning of the Compact.43 Article III of the Compact provides that with respect
to a state "income tax," a taxpayer may elect to apply the Compact's equally weighted three-
42
MCL 208.1101, et seq.
43
The Court's determination is limited to a finding of whether or not the SBT is an income tax
for purposes of the Compact. On the issue whether the SBT is an income tax in other contexts,
see Trinova Corp, 498 U.S. 358, and Gillette Co v Dep't of Treasury, 198 Mich. App. 303, 310;
497 NW2d 595 (1993).
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factor formula in lieu of the state's apportionment formula.44 "'Income tax" under the Compact is
interpreted broadly, and is defined as:
[A] tax imposed on or measured by net income including any tax imposed on or
measured by an amount arrived at by deducting expenses from gross income, 1 or
more forms of which expenses are not specifically and directly related to
particular transactions.[46]
The Court's primary goal in statutory interpretation is "to ascertain and give effect to the
Legislature's intent."47 In so doing, the Court "should first look to the specific statutory
language to determine the intent of the Legislature, which is presumed to intend the meaning that
the statute plainly expresses."48
In calculating the SBT, the tax base starts with federal taxable income.49 Federal taxable
income is gross income minus allowable deductions under the federal tax code.50 Allowable
deductions from gross income include ordinary, necessary expenses paid or incurred in the
carrying of a trade or business.51 The SBT then expands the income tax base by adding back
some, but not all, of the federal expense deductions taken to arrive at federal taxable income.52
For example, except for compensation, most ordinary and necessary business expenses incurred
in the carrying on of a trade or business are deducted from gross income to arrive at federal
44
MCL 205.581, Art III(1).
45
See IBM, 496 Mich. at 667 (opinion by VIVIANO, J.), explaining that the Modified Gross
Receipts Tax component of the Michigan Business Tax was an "income tax" under the Compact
because the tax base started with gross income and subtracted expenses not specifically and
directly related to a particular transaction.
46
MCL 205.581, Art II(4).(emphasis added).
47
Bronson Methodist Hosp v Allstate Ins Co, 286 Mich. App. 219, 223; 779 NW2d 304 (2009).
48 Id. (internal quotation marks and citations omitted.).
49
The tax base "means business income." MCL 208.9(1). "Business income" is defined
generally as "federal taxable income." MCL 208.3(3).
50
Mobil Oil Corp v Dep 7 of Treasury, 422 Mich. 473, 496-497; 373 NW2d 730 (1985).
51
IRC § 162(a) (emphasis added).
MCL 208.9(2) through 208.9(6). Certain subtractions from federal taxable income are also
required. See MCL 208.9(9), 208.9(10).
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taxable income, but are not added back as part of the SBT tax base.53 The resulting tax is thus in
part measured by "an amount arrived at by deducting expenses from gross income" for purposes
of defining income tax under the Compact. That some expenses such as compensation are also
added back to the SBT tax base before the tax is calculated does not alter the conclusion that the
SBT is "imposed on or measured by an amount arrived at by deducting expenses from gross
income, 1 or more forms of which expenses are not specifically and directly related to particular
transactions." Under the plain language of the Compact, it is therefore an income tax for
Compact purposes.
A finding that the SBT is an income tax for Compact purposes is also consistent with the
Court's finding in IBM that the Modified Gross Receipts Tax (MGRT) portion of the MBT "fits
within the broad definition of 'income tax' under the Compact by taxing a variation of net
income. . . ."55 The SBT and the MGRT, in a broad sense, are similar taxes in that they both
have a "value added" component that is distinct from a tax based purely on income.56 That these
taxes are not inherently "income taxes" is reflected in nearly identical provisions under both the
SBTA and the MGRT stating that "[t]he tax levied under this section and imposed is upon the
privilege of doing business and not upon income."57 Despite the Legislature's words that the
MGRT is not a tax imposed upon income, the Court in IBM declined to "put a definitive label on
the MGRT"58 and unanimously found that the MGRT was an income tax for the broad purposes
53
Id.
54
MCL 205.581, Art II(4).
55
IBM, 496 Mich. at 667 (opinion by VIVIANO, J.).
56
McIntyre & Pomp, A Policy Analysis of Michigan's Mislabeled Gross Receipts Tax, 53 Wayne
L Rev 1275, 1281 (2008).
57
See MCL 208.31(4). MCL 208.1203 provides that "[t]he tax levied and imposed under this
section is upon the privilege of doing business and not upon income or property. (Emphasis
added).
58
IBM, 496 Mich. at 663 n 70 (opinion by VIVIANO, J.).
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of the Compact.59 Likewise the Court here finds that the SBT is an income tax for these same
broad purposes.
It should be noted that the neither the SBT nor the MGRT are treated income taxes for all
purposes. For example, in Gillette Co v Dep't of Treasury, 198 Mich. App. 303, 309; 497 NW2d
595 (1993), the Court of Appeals found that the SBT is not an income tax because it is not
"measured by net income" for purposes of PL 86-272, a federal law that protects certain
activities of an out-of-state business from triggering income tax "nexus" with a state. Similarly,
neither is the MGRT subject to PL 86-272.60 This is so because the MGRT, like the SBT, is not
"measured by net income" for purposes of PL 86-272. Nonetheless, just as the Court in IBM
chose to interpret the Compact's definition broadly61 and found that the MGRT "fits within the
broad definition of income tax' under the Compact by taxing a variation of net income . . . ,"62
the Court reaches the same conclusion here with respect to the SBT.
II. IS THE COMPACT BINDING ON SUBSEQUENT
LEGISLATURES?
The Court now addresses whether the Compact bound future legislatures under either
federal compact law or Michigan law.
A. THE COMPACT LACKS THE "CLASSIC INDICIA" OF A BINDING
INTERSTATE COMPACT UNDER FEDERAL COMPACT LAW
The United State Supreme Court has recognized that not all interstate compacts are
binding contracts that restrict future legislatures. See Northeast Bancorp, Inc v Bd of Governors,
All US 159; 105 S. Ct. 2545; 86 L. Ed. 2d 112 (1985). While a Congressionally-approved
59
IBM, 496 Mich. at 663 (opinion by VIVIANO, J.), 668 (ZAHRA, J., concurring), 672 n 3
(MCCORMACK, J., dissenting).
60
See the Department's Revenue Administrative Bulletin 2008-4, p 5-6, making clear that PL
86-272 does not apply to the MGRT portion of the MBT, but only to the business income tax
(BIT) portion of the MBT.
61
See IBM, 496 Mich. at 667 (opinion by VIVIANO, J.).
62
Id.
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interstate compact has the force of federal law and is binding on Member States,63 an interstate
compact that has not been approved by Congress, such as the Compact here, can be either a
binding interstate compact or merely an advisory compact.64
The test for distinguishing between an advisory compact and a binding interstate compact
is set forth in Northeast Bancorp, as further explained in Seattle Master Builders Ass'n v Pacific
Northwest Electric Power, 786 F2d 1359, 1363 (CA 9, 1986). The three "classic indicia" of a
binding interstate compact are: (1) the establishment of a joint regulatory body, (2) the
requirement of reciprocal action for effectiveness, and (3) the prohibition of unilateral
modification or repeal. Northeast Bancorp, All US at 175; Seattle Master Builders, 786 F2d at
1363. Looking at the three indicia of a binding interstate compact, the Compact has none of
these features and is more properly characterized as a non-binding advisory compact.
1, The Compact did not establish a joint regulatory agency
A hallmark of an advisory compact, as opposed to a binding contract, is that advisory
compacts "cede no state sovereignty nor delegate any governing power to a compact-created
agency."65 When the Compact, through Article VI, established the Commission,66 no governing
or regulatory powers were conferred. Enumerated in Article VI, the powers of the Commission
are (1) to study state and local tax systems, (2) to develop and recommend proposals for greater
63
The Compact Clause of the United States Constitution, art I, §10, cl 3, provides, "No State
shall, without the Consent of the Congress, . . . enter into any Agreement or Compact with
another State. . . ."
64
Advisory interstate compacts have no formal or regulatory enforcement mechanisms and are
intended to study and make recommendations on interstate problems. Broun, et al, The Evolving
Use and the Changing Role of Interstate Compacts: A Practitioner's Guide (2006), p 13.
65
Id. 14.
66
MCL 205.581, Art VI.
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uniformity, and (3) to compile information helpful to the states.67 None of these purposes is
regulatory, and it in no way indicates a delegation of sovereign authority to tax.
The conclusion that the Compact did not cede state authority or governing power to the
Commission was expressly acknowledged by the Court in US Steel Corp v Multistate Tax
Comm, 434 U.S. 452, 473; 98 S. Ct. 799; 54 L. Ed. 2d 682 (1978):
[The Compact] does not purport to authorize the Member States to
exercise any powers they could not exercise in its absence. Nor is there any
delegation of sovereign power to the Commission; each State retains complete
freedom to adopt or reject the rules and regulations of the Commission.
[Emphasis added.]
In summary, the Compact, by its terms, does not create a regulatory body.
2. The Compact does not require reciprocal action
There is nothing reciprocal about the Compact's provisions. Each member state operates
its respective tax systems independently from the tax systems of other Member States, and the
determination of tax in one state is generally independent of the determination in another state.
With respect to apportionment formulas, in particular, Articles III(1) and IV's application in one
member state has no bearing on another state. And the functionality of one member state's
apportionment methodology does not hinge on whether another member state's apportionment
methodology is reciprocal in nature. As the Supreme Court recognized in Moorman Mfg Co v
Bair, 437 U.S. 267, 274; 98 S. Ct. 2340; 57 L. Ed. 2d 197 (1978), "the States have wide latitude in
the selection of apportionment formulas . . . ." Consistent with Moorman, a Member State's
decision to allow or eliminate a certain apportionment formula is unaffected by the choice of
formula that another member state has made.
3. The Compact allows unilateral withdrawal and modification
67
MCL 205.581, Art VI(3).
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Under the express terms of the Compact, Member States are free to unilaterally withdraw
at any time without notice to another member state. Thus unilateral withdrawal is clearly
permitted under the Compact.
Whether unilateral modification is permitted under the Compact is less clear and not
directly addressed under the Compact. However, three factors lead to a conclusion that Member
States did not intend to restrict their ability to vary terms of the Compact. First, as pointed out
recently by the United States Supreme Court, "States rarely relinquish their sovereign powers, so
when they do we would expect a clear indication of such devolution, not inscrutable silence."69
Because there is no such "clear indication" under the terms of the Compact that states are
prevented from asserting their sovereign powers to legislate and vary the Compact's terms, it is
reasonable to conclude that the parties were free to unilaterally amend the Compact provisions,
including Articles III(1) and IV.
Second, language in the Compact that it "shall be liberally construed as to effectuate the
purposes thereof," supports an interpretation that flexibility in administering Compact provisions
was contemplated.7
Third, the Member States' course of performance shows that unilateral amendments to or
withdrawals from the Compact have long been accepted. As pointed out by the dissent in IBM,
496 Mich. at 681-682, "[M]ember [S]tates did not view strict adherence to Articles III and IV as a
68
MCL 205.581, Art X(2) ("Any party state may withdraw from this compact by enacting a
statute repealing the same.) See also US Steel, 434 U.S. at 473 ("[E]ach State retains complete
freedom to adopt or reject the rules and regulations of the Commission.")
69
Tarrant Regional Water Dist v Herrmann, US ; 133 S. Ct. 2120, 2133; 186 L. Ed. 2d 153
(2013).
70
MCL 205.581, Art XII.
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binding contractual obligation, as Compact members have deviated from the Compact's election
and apportionment formula without objection from other members."71 Moreover,
[i]t bears emphasizing that Compact members have not only refrained from
bringing legal action against one another for deviating from Articles III and IV,
they have endorsed the Commissioner's interpretation of the Compact: in the
Gillette [Co v Franchise Tax Bd, 151 Cal Rptr 3d 106; 291 P3d 327 (2013)]
litigation, all of the member states jointly filed an amicus brief urging the
Supreme Court of California to reject the lower court's construction of the
Compact as a binding contract. [IBM, 496 Mich. at 682 n 7 (MCCORMACK, J.,
dissenting).]
Because the Compact fails to create a regulatory body, contemplates no reciprocal
actions, and contains no bar to unilateral deviations or repeal, the Court concludes that none of
the "classic indicia" of a binding compact exist. Rather than a binding interstate contract, it is
more properly interpreted as an advisory compact that did not act to bind future legislatures.
B. THE COMPACT IS NOT A BINDING CONTRACT UNDER MICHIGAN LAW
Because it was not congressionally-approved, the Compact is governed by state law.72
Michigan law therefore governs the interpretation of the Compact.
In Michigan, there is a "strong presumption that statutes do not create contractual
rights." In addition, "[i]n order for a statute to form the basis of a contract, the statutory
language must be plain and susceptible of no other reasonable construction than that the
71
As summarized in Hellerstein & Hellerstein, State Taxation (2014), the course of performance
of states with regard to the Compact provisions generally, and the elective apportionment
provisions specifically, shows that unilateral repeal and modifications to the Compact provisions
have been widespread.
2
See Doe v Young Marines of The Marine Corps League, 277 Mich. App. 391, 399; 745 NW2d
168 (2007) (finding that Michigan courts are not bound to follow a federal court's interpretation
of state law.) See also McComb v Wambaugh, 934 F2d 474, 479 (CA 3, 1991) (finding that
because a non-Congressionally approved compact does not express federal law, it must be
construed as state law.)
73
Studier v Mich Pub Sch Employees' Retirement Bd, 472 Mich. 642, 661; 698 NW2d 350
(2005).
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Legislature intended to be bound to a contract."74 As noted in the dissent in IBM, "[t]his
presumption is grounded in the principle that 'surrenders of legislative power are subject to strict
limitations that have developed in order to protect the sovereign prerogatives of state
governments.'"75
There are no words in the Compact, as adopted by the Legislature under 1969 PA 343,
that indicate that the state intended to be bound to the Compact, and specifically to Article III(1).
Therefore, the presumption must be that the state did not surrender its legislative power to
require use of a particular apportionment formula. Such interpretation comports with the
Supreme Court's recognition of "the basic principle[] that the States have wide latitude in the
selection of apportionment formulas. . . ."76 This interpretation is also consistent with the
Court's recent acknowledgment that states "do not easily cede their sovereign powers. . . ."77
Because there is no clear indication under MCL 205.581 that the state contracted away its ability
to either select an apportionment formula that differs from the Compact, or to repeal the
Compact altogether, this Court concludes that no contractual obligation was created by
enactment of 1969 PA 343.78
74
Id. at 662 (quotation marks and citation omitted).
75
IBM, 496 Mich. at 682 (McCORMACK, J., dissenting), quoting Studier, 472 Mich. at 661.
76
Moorman, 437 U.S. at 274.
77 Tarrant, 133 S. Ct. at 2132.
Even if the Compact could somehow be construed as a binding contract under Michigan law,
the Member States' course of performance supports a determination that Member States either
waived or modified the Compact's terms under Articles III(1) and IV, or materially breached the
terms under Articles III(1) and IV well before the repeal of the Compact provisions under PA
282. In addition, as suggested in the dissenting opinion in IBM, taxpayers would have no
standing to enforce the terms of any purported contract that was made with Member States.
[I]t is not entirely clear to me why IBM has standing to enforce the Compact as a
contract, given that IBM is neither a party to the Compact nor is it clear that they
were intended as a third-party beneficiary. See Schmalfeldt v North Pointe Ins
Co, 469 Mich. 422; 670 NW2d 651 (2003); MCL 600.1405. In any event, because
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C. BECAUSE NO BINDING CONTRACT WAS CREATED UNDER FEDERAL
OR STATE LAW, THE LEGISLATURE WAS FREE TO MANDATE THE
USE OF APPORTIONMENT FORMULAS THAT DEVIATED FROM THE
COMPACT
Generally, legislatures have the power to repeal existing legislation and are not bound by
the acts of prior legislatures, so long as existing contractual obligations are not impaired.79 The
principle that one legislature cannot bind a succeeding legislature is thus derived from the
constitutional power of the Legislature to legislate. As discussed earlier, no contract was
created by enactment of the Compact provisions. Therefore, the Legislature's constitutional
right to change, amend, or repeal the law could not be restricted by enactment of 1969 PA 343,81
and the Legislature acted within the scope of its legislative powers as vested in it by the
Michigan Constitution when it amended the SBTA to mandate apportionment provisions that
deviated from the Compact.
III. DO THE COMPACT ELECTIVE PROVISION AND THE
SBTA'S MANDATED APPORTIONMENT PROVISIONS
APPARENTLY CONFLICT, AND IF SO, CAN THEY BE
HARMONIZED?
Having found that future legislatures were not bound by the Compact, the Court must
now decide whether the Compact elective provision and the SBT apportionment formulas are in
apparent conflict during the relevant tax years in question, and if so, whether they can be
I conclude that no such contractual relationship was formed, I find it unnecessary
to address this issue sua sponte. [IBM, 496 Mich. at 681 n 5 (MCCORMACK, J.,
dissenting).]
79
See, e.g., Studier, 472 Mich. at 660; LeRoux v Secretary of State, 465 Mich. 594, 615-616; 640
NW2d 849 (2002). See also Atlas v Wayne Co Bd of Auditors, 281 Mich. 596, 599; 275 N.W. 507
(1937) ("The power to amend and repeal legislation as well as to enact it is vested in the
legislature, and the legislature cannot restrict or limit its right to exercise the power of legislation
by prescribing modes of procedure for the repeal or amendment of statutes; nor may one
legislature restrict or limit the power of its successors.")
80
Const 1963, art 4, § 1.
81
Studier, 472 Mich. at 660.
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harmonized. If the statutes are in conflict and cannot be reconciled, the Court must give effect to
the later enacted and more specific statute, and find that the Legislature repealed the earlier
enacted statute by implication.
A. WHETHER THE STATUTES ARE IN APPARENT CONFLICT
The SBTA directs that "[a] taxpayer whose business activities are taxable both within and
without this state, shall apportion his tax base as provided in this chapter." Under Chapter 208
of the Michigan Compiled Laws, the SBTA provides for a three-factor formula for apportioning
the tax base to Michigan. ' The three factors, property, payroll, and sales, are each multiplied by
a separately stated percentage, and the results are then added together to determine the
apportionment factor.85 For 2005, the formula was the sum of the following percentages: (1) the
property factor multiplied by 5%, (2) the payroll factor multiplied by 5%, and (3) the sales factor
multiplied by 90%. For 2006 and 2007, the formula was the sum of the following percentages:
(1) the property factor multiplied by 3.75%, (2) the payroll factor multiplied by 3.75%, and (3)
the sales factor multiplied by 92.5.
The Compact states, in pertinent part:
(1) Any taxpayer subject to an income tax whose income is subject to
apportionment and allocation for tax purposes pursuant to the laws of a party state
or pursuant to the laws of subdivisions in two or more party states may elect to
apportion and allocate his income in the manner provided by the laws of such
state or by the laws of such states and subdivisions without reference to this
compact, or may elect to apportion and allocate in accordance with article IV. . .[88]
82
Jackson v Mich Corrections Comm'n, 313 Mich. 352, 357; 21 NW2d 159 (1946).
83
MCL 208.41 (emphasis added).
84
MCL 208.45; MCL 208.45a.
85
Id.
86
1995 PA 283; MCL 208.45(6), MCL 208.45a(l).
87
2005 PA 295; MCL 208.45a(2).
88
MCL 205.581, Art III(1).
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Article IV of the Compact incorporates UDITPA's three-factor apportionment formula
based on equally weighted factors and consists of the sum of the following percentages: (1) the
property factor multiplied by 33.3%, (2) the payroll factor multiplied by 33.3%, and (3) the sales
factor multiplied by 33.3%.89
The goal of statutory interpretation is to determine and give effect to the Legislature's
intent.90 "The words of a statute are the most reliable indicator of the Legislature's intent and
should be interpreted according to their ordinary meaning and the context within which they are
used in the statute."91
Looking to the specific language, the SBTA directs that that a multistate SBT taxpayer
"shall apportion his tax base as provided in this chapter."92 The word "shall" is used to designate
a mandatory provision. No other words are found within the SBTA that would otherwise
provide a taxpayer with the discretion to use an apportionment formula outside of Chapter 208.94
At the same time, the specific language of the Compact permits a taxpayer to elect out of an
apportionment formula and apply an equally weighted, three-factor apportionment formula.95
Because the SBTA during the tax years in question mandates the use of one apportionment
formula, while the Compact provides for the discretionary use of another apportionment formula,
the statutes are in apparent conflict.
B. WHETHER THE STATUTES CAN BE HARMONIZED
89
MCL 205.581, Art IV(1).
90
People v Smith, 496 Mich. 133, 138, 852 NW2d 127 (2014).
91
Id.
92
MCL 208.41 (emphasis added).
93
Smitter v Thornapple Twp, 494 Mich. 121, 136; 833 NW2d 875 (2013).
94
Though not relevant here, under limited circumstances a taxpayer petition for, or the
Department may require, an alternative apportionment method under the SBTA. See MCL
208.69.
95
MCL 205.581, Art III(1) and IV.
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In cases where the provisions of two statutes are in apparent conflict, as is the case here,
and where the provisions relate to the same subject, as do the SBT apportionment provisions for
the tax years in question and the Compact's elective provision, the Court must attempt to
harmonize the statutes by reading them together in pari materia. The process for attempting to
harmonize two statutes was set forth by the lead opinion in IBM:
The endeavor should be made, by tracing the history of legislation on the subject,
to ascertain the uniform and consistent purpose of the legislature, or to discover
how the policy of the legislature with reference to the subject-matter has been
changed or modified from time to time. In other words, in determining the
meaning of a particular statute, resort may be had to the established policy of the
legislature as disclosed by a general course of legislation. With this purpose in
view therefore it is proper to consider, not only acts passed at the same session of
the legislature, but also acts passed at prior and subsequent sessions.
In reference to the subject matter of apportionment formulas, it is thus the duty of this
Court to read the conflicting statutes together and determine whether the Legislature had a
"uniform and consistent purpose," or whether its policies with respect to apportionment have
"been changed or modified from time to time."98 The doctrine of in pari materia is not without
restrictions, however, and "does not permit the use of a previous statute to control by way of
former policy the plain language of a subsequent statute. . . ."99
1. History and General Course of Apportionment Legislation
As discussed below, the purpose and policies behind the Compact and equally weighted,
three-factor apportionment formula, and the reasons why the Legislature eventually abandoned
96
IBM, 496 Mich. at 652-653 (opinion by VlVIANO, J.), quoting Rathbun v Michigan, 284 Mich.
521, 544; 280 N.W. 35 (1938). "Statutes in pari materia are those . . . which have a common
purpose . . . ." Id.
97
IBM, 496 Mich. at 652-653 (opinion by VIVIANO, J.), citing Rathbun, 284 Mich. at 543-544
(emphasis added; citation and quotation marks omitted.)
98
Id.
99
Voorhies v Faust, 220 Mich. 155, 157-158; 189 NW 1006(1922).
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the formula and replaced it with a progressively heavier weighted sales factor, are key to
resolving the issue of whether the statutes here can be harmonized.
When it was enacted into Michigan law in 1969, two of the Compact's stated purposes
were to "[p]romote uniformity or compatibility in significant components of tax systems" and to
"[a]void duplicative taxation."100 At the time, Michigan had long since embraced a cooperative,
unified approach to taxation, having adopted an equally weighted, three-factor apportionment
formula in the 1950s under the BAT, and again in 1967 under the Income Tax Act ITA.101 Thus
the apportionment formulas of the ITA and the Compact were redundant, and the Compact's
elective provision had no relevance to a multistate taxpayer seeking a more advantageous
apportionment formula.
The Legislature's policy of adhering to an almost universal, uniform system of state
taxation carried over to the SBTA as enacted in 1975. Once again, just as the Legislature had
done under the ITA, an equally weighted, three-factor apportionment formula was adopted from
UDITPA.103 And once again, because the apportionment formulas of the SBTA and the
Compact were essentially mirror images of each other, the Compact's elective provision had no
relevant application.
A turning point in Michigan tax policy occurred in 1991, when Michigan joined with
many other states that had abandoned old tax policies based on cooperation, uniformity and
100
MCL 205.581, Art I(2), (4).
101
By the late 1960s, nearly all states with a corporate income tax uniformly used equally
weighted, three-factor apportionment formulas. McClure, Understanding Uniformity and
Diversity in State Corporate Income Taxes, Nat'l Tax J, Vol LXI, No 1 (March 2008), p 156. As
the Supreme Court observed in Trinova Corp, the equally weighted, three-factor apportionment
factor had become "something of a benchmark against which other apportionment formulas are
judged." Trinova Corp, 498 U.S. at 380-381 (citation and quotation marks omitted).
102
See 1969 PA 343, MCL 208.41, 45.
103
See discussion above on UDITPA. See also Reforming a State Corporate Income Tax, J of
State Taxation (Spring 2014) at 21.
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equal weighting of apportionment factors and had begun to more heavily weight the sales
factor.104 For the first time since Michigan had adopted an equally weighted, three-factor
apportionment formula in 1954,105 the sales factor was now weighted more heavily.106 The
Legislature made subsequent changes to the SBT apportionment formula in 1995 and 2005, each
time increasing the weight of the sales factor. Finally, in 2007 when the Legislature adopted the
MBTA, the apportionment factor moved to a single factor apportionment formula based 100%
on sales,107 and that formula remains in effect under the CIT.108
2. Modifications of Legislature's Policies of Uniform Apportionment
The Legislature's policies behind these apportionment formula changes and why it chose
to progressively move towards a more heavily weighted sales factor are relevant in the Court's
attempt to read the statute in pari materia. The primary reason that Michigan departed from a
uniform, agreed-upon apportionment formula was the same reason that other states abandoned
equally weighted, three-factor apportionment: "to gain a competitive advantage - or to avoid a
competitive disadvantage."109 Legislative analyses of bills that increased the weight of the sales
factor in SBT's apportionment support this rationale.
104
See also Mazerov, The Single Sales Factor Formula for State Corporate Taxes - A Boon to
Economic Development or a Costly Giveaway?, Center on Budget and Policy Priorities
(September 1, 2005), available at (last visited April
6, 2015).
105
1954 PA 17.
106
1991 PA 77. As the revenue effect of this change, see A Policy Analysis, 53 Wayne L Rev at
1279 ("The result of this shift in weighting was to greatly reduce the tax on firms manufacturing
entirely in Michigan for export whereas the tax on firms manufacturing outside the State for sale
in Michigan was increased.")
107
See 2007 PA 36, MCL 208.1301, 1303.
108
1967 PA 281, § 601, added by 2011 PA 38, effective Jan. 1, 2012, MCL 206.661, MCL
206.663(3).
109
Understanding Uniformity, Nat'l Tax J, Vol LXI, No 1 at 152. Any question as to the
constitutionality of a heavily weighted apportionment formula was settled by the Supreme Court
in Moorman, 437 U.S. 267 (upholding Iowa's single factor apportionment formula based on
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Specifically, the legislative analysis under 1991 SB 69, the bill that led to the
abandonment of equally weighted apportionment under the SBTA, reveals that the mandatory
weighting of the sales factor was intended to benefit multistate companies headquartered in
Michigan at the expense of "multistate firms that are principally based elsewhere but exploit
Michigan markets." Further, the change to a mandated apportionment formula with a heavily
weighted sales factor "would serve as an inducement for capital-intensive businesses to locate
here, while protecting Michigan home-based companies from other states that apportion to
themselves a greater part of the companies' business activity."111 And as warned in the opposing
arguments of the same bill, "once the double-double [sales factor] apportionment formula took
effect, more of the tax liability would be shifted to out-of-state firms."112
The Legislature's purpose in abandoning the 33.3% sales factor in 1991, as well as its
purpose in progressively moving towards a 100% sales factor under the MBT and CIT, is well
documented, and consistent with the purposes of most other states that have now abandoned the
"benchmarked" uniform apportionment formula.113 "[T]he Legislature is presumed to be aware
of, and thus to have considered the effect on, all existing statutes when enacting new laws."
However, there is no rational way to conclude that the Legislature intended to abandon a uniform
apportionment formula, mandate the use of a new formula designed to in part shift the tax burden
to out-of-state taxpayers, and at the same time permit those same out-of-state taxpayers to elect
sales.). This decision "opened the floodgates for states wanting to change their apportionment
formulas for competitive reasons." Understanding Uniformity, Nat'l Tax J, Vol LXI, No 1 at
152.
110
Senate Legislative Analysis, SB 69 (Substitute S-13 as passed by the Senate), June 13, 1991,
p 6.
111 M
112
Id.
113
See generally, Understanding Uniformity, Nat'l Tax J, Vol LXI, No 1.
114
Walen v Dep't of Corrections, 443 Mich. 240, 248; 505 NW2d 519 (1993), citing Malcolm v
East Detroit, 437 Mich. 132, 139, 468 NW2d 479 (1991).
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back in to the old apportionment formula. And there would otherwise have been no point in
changing the apportionment formula to encourage out-of-state firms to increase their property
and payroll in Michigan, and no incentive provided to such companies to do so, if an election
could be made to disregard the heavily-weighted statutory formula.
Further, the fact that the Legislature changed the weight of the apportionment formula's
sales factor multiple times over the course of almost 16 years without once making reference to
the Compact's elective provision in the bills or legislative analyses, is strong evidence that the
uniform principle of state taxation adopted by the state in 1954 and reaffirmed by its adoption of
the Compact in 1969, no longer had a place in the state's apportionment policy. This silence also
gives meaning and understanding to what the Legislature intended to accomplish when it first
abandoned uniform apportionment in 1991 and continued to more heavily weight the sales factor
until adopting a single sales factor formula in 2007 under the MBTA.
In light of the "'established policy of the legislature as disclosed by a general course of
legislation,'" 115 and the prohibition against "use of a previous statute to control by way of
former policy the plain language of a subsequent statute,"116 the Court concludes that the
SBTA's mandated apportionment provision for the tax years in question and the Compact's
elective provision cannot be harmonized.
C. IMPLIED REPEAL OF FORMER STATUTE BY ENACTMENT OF THE
LATER STATUTE
Finally, where two statutes are irreconcilable and cannot be harmonized, "as a general
rule, a more recently enacted statute takes precedence over an earlier one, especially if the more
115
IBM, 496 Mich. at 652-653 (opinion by VIVIANO, J.), (citation omitted).
116
Voorhies, 220 Mich. at 157-158.
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recent one is also more specific."117 Further, unless the subsequent act was intended as a
complete substitute of the first, " ' [t]he rule is that the latter act operates to the extent of the
repugnancy, as a repeal of the first. . . .'" 1 1 8 As discussed above, the SBTA and the Compact
irreconcilably conflict to the extent of the mandated post-1990 SBT apportionment provision and
the Compact's elective provision. Therefore the SBTA's apportionment provision controls, and
as of January 1, 1991, must be considered a repeal of the Compact's elective provision.119
The Court acknowledges that there is a strong presumption against implied repeals.
However, "[they] do happen, and, when clear, must be given effect." In addition, the
presumption against implied repeal is weakened where the question involves an obscure,
forgotten statute. The Compact elective provision is one such statute. The elective
provision essentially lay dormant and was of no use from its January 1, 1970 effective date
through December 31, 1990, because during that time period the ITA and SBTA's mandated
117
City of Kalamazoo v KTS Indus, Inc, 263 Mich. App. 23, 34-35; 687 NW2d 319 (2004)
(citation omitted).
118
Jackson, 313 Mich. at 357 (citation omitted).
119
The Court limits its decision to the implied repeal of the Compact's elective provision only,
and not to the repeal of the entire Compact which was made through 2014 PA 282, effective
January 1, 2008. As noted earlier, the Court rejects any arguments made that the legislatures
subsequent to 1969 were not free to vary the terms of the Compact, or that repeal of the Compact
could only be made on an "all or nothing" basis. For a contrary view, see Gillette Co v
Franchise Tax Bd, 209 Cal App 4th 938; 147 Cal Rptr 3d 603 (2012), review granted and
opinion superseded sub nom Gillette v Franchise Tax Bd, 151 Cal Rptr 3d 106; 291 P3d 327
(2013) (". . . the plain language of the withdrawal provision, enabling a party state to withdraw
from the Compact 'by enacting a statute repealing the same,' allows only for complete
withdrawal from the Compact. . . . Faced with the desire to escape an obligation under the
Compact, a state's only option is to withdraw completely by enacting a repealing statute.")
120
Jackson, 313 Mich. at 356.
121
Id. at 357 (internal citations omitted.)
122
1A Sutherland Statutory Construction § 23:26 (7th ed), p 535, citing W L Mead, Inc v Int'l
Bros of Teamsters, 217 F2d 6, 9 (CA 1, 1954). (The presumption against implied repeal carries
less weight where the earlier statute is an "obscure and generally forgotten" one.)
123
See Herbert & Mayster, The Multistate Tax Compact — A Promise Forgotten, 66 State Tax
Notes 597 (2012).
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apportionment formulas were the same as under the Compact. When the Legislature later
changed the apportionment formula to more heavily weight the sales factor in 1991, 1995, 2005
and 2007, there is no evidence in the legislative analyses to suggest that the Legislature gave any
consideration to the dormant elective provision of the Compact or to the potential fiscal impact
of a taxpayer electing out of a mandated apportionment formula. What is clear from the
legislative analyses is that the Legislature anticipated that by changing the apportionment
formula to more heavily weight the sales factor, companies with significant sales in Michigan,
but with little physical presence in the state, would "experience a substantial tax increase."124
This conclusion could not have been rationally reached if the Legislature had been aware of the
"obscure and generally forgotten" elective provision of the Compact.1
IV. IS DENIAL OF TAXPAYER'S RIGHT TO ELECT THREE-
FACTOR APPORTIONMENT A VIOLATION OF THE
COMMERCE AND DUE PROCESS CLAUSES OF THE UNITED
STATES CONSTITUTION?
The Court rejects arguments made by plaintiff that denial of a taxpayer's use of an
equally weighted, three-factor apportionment formula is unconstitutional under the Commerce
and Due Process Clauses of the United States Constitution.
124
Senate Legislative Analysis, SB 342, February 8, 1996. It was not just the Legislature and its
constituents who failed to consider the potential impact of the Compact's elective provision. For
example, at the House Tax Policy Committee hearing on SB 342 in September 1995, Marathon
Oil, an out-of-state company with sales in Michigan but little or no payroll or property in the
state, testified against the bill, suggesting that it was unfair to out-of-state taxpayers. Michigan
Single Sales Factor Bill Creates Controversy, State Tax Notes, 95 STN 183-16 (September 21,
1995). If the Compact provisions had applied, there would have been no need for such
testimony because any perceived unfairness would not have existed. See also Lane, Committee
Expects SBT Vote 'Thursday for Sure,' Crain's Detroit Business, p 4 (October 9, 1995) (". . .
major out-of-state corporations have fought against giving more weight to the sales factor in the
SBT apportionment formula, calling instead for SBT relief they say would be more widespread
and less selective.")
125
See W L Mead, Inc, 217 F2d at 9.
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First, plaintiff's constitutional claims are untimely. Under MCL 205.27a(7), "a claim for
refund based upon the validity of a tax law based on the laws of the constitution of the United
States or the state constitution of 1963" must be filed within 90 days after the due date set for the
filing of the returns. Because plaintiff did not assert its constitutional claims within the 90 day
period, no valid refund claim can be made on the basis of either Commerce Clause or due
process violations.
Further, even if plaintiff had timely filed these constitutional claims, these very same
issues were decided long ago by the Supreme Court in Moorman, 437 U.S. at 274. There, the
Court rejected the taxpayer's assertion that it is unconstitutional to require an out-of-state
company to use Iowa's single sales factor apportionment formula rather than an equally
weighted, three-factor formula. The Court stated:
The only conceivable constitutional basis for invalidating the Iowa statute
would be that the Commerce Clause prohibits any overlap in the computation of
taxable income by the States. If the Constitution were read to mandate such
precision in interstate taxation, the consequences would extend far beyond this
particular case. For some risk of duplicative taxation exists whenever the States
in which a corporation does business do not follow identical rules for the division
of income. Accepting appellant's view of the Constitution, therefore, would
require extensive judicial lawmaking.[126]
The Court further noted that it is for Congress, not the Court, to decide whether a
particular uniform apportionment formula can be imposed on a state:
It is clear that the legislative power granted to Congress by the Commerce Clause
of the Constitution would amply justify the enactment of legislation requiring all
States to adhere to uniform rules for the division of income. It is to that body, and
not this Court, that the Constitution has committed such policy decisions.[127]
126
Moorman, 437 U.S. at 278.
127
Id. at 280.
 Doc 2015-9686 (29 pgs)
In conclusion, even if plaintiff's constitutional claims had been timely filed, denial of
plaintiff's right to make an election to use an equally weighted, three-factor apportionment
formula does not violate either the Due Process or Commerce Clauses of the United States
Constitution.
V. CONCLUSION
The Court, in fulfilling its duty to ascertain and apply the intent of the Legislature, finds
that the taxpayer is required to use the apportionment formulas mandated under the SBTA for the
tax years in question, and is not entitled to elect a different apportionment formula under the
Compact. Though the SBT is an income tax within the meaning of the Compact, future
legislatures were not bound by the policies of the legislature that enacted 1969 PA 343. The
purpose of state tax uniformity as embedded in both the Compact's apportionment elective
provision by the 1969 legislature, and the SBTA's equally weighted, three-factor apportionment
formula as originally enacted by the 1975 legislature, is not consistent with the purpose of later
amendments made to apportionment formulas by the Legislature. Under traditional rules of
statutory construction, the apportionment formula under the SBTA for the tax years in question
must control.
IT IS HEREBY ORDERED that summary disposition is granted to defendant pursuant to
MCR 2.116(I)(2).
This order resolves the last pending claim and closes the case.
Dated: APR 2 1 2015
Hon. Michael J. Talbot
Chief Judge, Court of Claims
E
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STATE OF MICHIGAN
COURT OF CLAIMS
YASKAWA AMERICA, INC.,
OPINION AND ORDER
Plaintiff,
v Case No. 11-000077-MT
DEPARTMENT OF TREASURY, Hon. Michael J. Talbot
Defendant.
This matter comes before the Court pursuant to its sua sponte order issued to plaintiff
Yaskawa America, Inc., to show cause why judgment should not be entered in favor of defendant
Department of Treasury (Department) in light of the retroactive effect of 2014 PA 282 (PA 282).
Having reviewed the responses to the order, the Court concludes that the Department is entitled
to judgment as a matter of law and so GRANTS summary disposition in favor of the Department
pursuant to MCR 2.116(I)(1).
INTRODUCTION
This case is one of many cases currently pending in the Court of Claims involving
taxpayers that have claimed refunds of tax under the Michigan Business Tax (MBT) Act, MCL
208.1101 et seq., based on an election to utilize a three-factor apportionment formula under the
Multistate Tax Compact (Compact) provisions, MCL 205.581 et seq. 1 The underlying premise
1
Section 1 of 1969 PA 343, codified under MCL 205.581 et seq., includes the provisions of the
Compact originally enacted by parties to the Compact (Member States).
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of these claims is that the elective three-factor apportionment provision of the Compact, as
adopted by 1969 PA 343, remained viable under the MBT Act, as enacted by 2007 PA 36. Use
of the single-factor apportionment formula under the MBT Act, it is argued, is not mandated
because the Compact provisions, including the three-factor apportionment election provisions,
remain in effect. 2
The validity of this argument was addressed on July 14, 2014, by the Michigan Supreme
Court in Int’l Business Machines Corp v Dep’t of Treasury, 496 Mich. 642; 852 N.W.2d 865
(2014) (“IBM”). Finding that the Legislature, in adopting the MBT Act, did not repeal by
implication the three-factor apportionment formula as set forth in MCL 205.581 et seq., the
Court concluded that the taxpayer was entitled to use the Compact’s three-factor apportionment
formula in calculating its 2008 taxes.
On September 11, 2014, in response to IBM, the Legislature enacted PA 282, which
retroactively repealed the Compact provisions under MCL 205.581 et seq., to January 1, 2008,
and mandated the use of a single-factor apportionment formula for purposes of calculating MBT.
The Court now considers the retroactive application of PA 282. Having considered the
arguments made in response to the Court’s show cause order, and for the reasons stated below,
the Court concludes that PA 282 retroactively applies to this case, and all pending MBT refund
actions filed in reliance on the Compact’s elective, three-factor apportionment formula under the
former MCL 205.581 et seq.
2
Taxpayers in some of these cases have also argued that the Compact provisions remain in effect
with regard to the Income Tax Act, MCL 206.1 et seq.
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BACKGROUND
History of the Compact
The Compact is an interstate tax agreement that was originally enacted in 1967 by the
legislatures of seven states. The Compact was initially drafted out of concerns of state
sovereignty in reaction to the introduction of federal legislation that sought to regulate various
areas of state taxation. 3 The original purposes of the Compact included:
(1) facilitating proper determination of state and local tax liability of multistate
taxpayers, including the equitable apportionment of tax bases and settlement of
apportionment disputes; (2) promoting uniformity and compatibility in state tax
systems; (3) facilitating taxpayer convenience and compliance in the filing of tax
returns and in other phases of tax administration; and (4) avoiding duplicative
taxation. [US Steel Corp v Multistate Tax Comm, 434 U.S. 452, 456; 98 S. Ct. 799;
54 L. Ed. 2d 682 (1978). 4]
Michigan adopted the Compact provisions, effective in 1970, through enactment of 1969 PA
343.
Apportionment Formulas under the Compact and the MBT Act
The present case, and others like it, concern two alternative methods of apportioning
income for purposes of calculating MBT. Under the MBT Act, created by 2007 PA 36, 5 income
is apportioned by applying a single factor apportionment formula based solely on sales. MCL
3
The legislation, which was never enacted, was introduced in the wake of Northwestern States
Portland Cement Co v Minnesota, 358 U.S. 450; 79 S. Ct. 357; 3 L. Ed. 2d 421 (1959), which held
that there is no Commerce Clause barrier to the imposition of a direct income tax on a foreign
corporation carrying on interstate business within a taxing state.
4
The Compact was never approved by Congress, but it was upheld against constitutional
challenges in US Steel, 434 U.S. 452.
5
For a history of business taxation in Michigan, see IBM, 496 Mich. at 648-650.
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208.1301(2). In contrast, under the Compact’s election provision, income may be apportioned
using an equally-weighted, three-factor apportionment formula based on sales, property and
payroll. The potential effect of electing “out” of the MBT Act’s single-factor apportionment
methodology is a reduction of the overall apportionment percentage for companies that do not
have significant property and payroll located in Michigan.
Decision in IBM
In IBM, 496 Mich. 642, the Supreme Court considered the issue of whether MBT
taxpayers must use a single-factor apportionment formula as mandated by the MBT Act or
whether MBT taxpayers may elect to apply a three-factor apportionment formula under the
Compact. The parties were asked by the Court to brief four issues:
(1) whether the plaintiff could elect to use the apportionment formula
provided in the Multistate Tax Compact, MCL 205.581, in calculating its
2008 tax liability to the State of Michigan, or whether it was required to use
the apportionment formula provided in the Michigan Business Tax Act, MCL
208.1101 et seq.; (2) whether § 301 of the Michigan Business Tax Act, MCL
208.1301, repealed by implication Article III(1) of the Multistate Tax
Compact; (3) whether the Multistate Tax Compact constitutes a contract that
cannot be unilaterally altered or amended by a member state; and (4) whether
the modified gross receipts tax component of the Michigan Business Tax Act
constitutes an income tax under the Multistate Tax Compact. [Int’l Business
Machines v Dep’t of Treasury, 494 Mich. 874; 832 NW2d 388 (2013).]
In its decision, the Court determined that for tax years 2008 through 2010, 6 the
Legislature did not repeal by implication the three-factor apportionment formula as set forth in
MCL 205.581 et seq., and concluded that the taxpayer was entitled to use the Compact’s three-
factor apportionment formula in calculating its 2008 taxes. The Court also concluded that both
6
The Legislature explicitly repealed the Compact apportionment provisions effective January 1,
2011, through enactment of 2011 PA 40.
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the business income tax base and the modified gross receipts tax base of the MBT are “income
taxes” within the meaning of the Compact. The Court did not reach the third issue of whether
the Compact constitutes a contract. 7 On November 14, 2014, the Michigan Supreme Court
denied reconsideration. Int’l Business Machines v Dep’t of Treasury, ___Mich___; 855 NW2d
512 (2014).
Retroactive Repeal of the Compact Provisions by PA 282
On September 11, 2014, 2013 SB 156 (SB 156) was enacted into law as PA 282,
amending the MBT Act and expressly repealing the Compact provisions, as codified under MCL
205.581 to MCL 205.589. The Legislature gave the Act retroactive effect by providing as
follows:
Enacting section 1. 1969 PA 343, MCL 205.581 to 205.589, is repealed
retroactively and effective beginning January 1, 2008. It is the intent of the
legislature that the repeal of 1969 PA 343, MCL 205.581 to 205.589, is to express
the original intent of the legislature regarding the application of section 301 of the
Michigan business tax act, 2007 PA 36, MCL 208.1301, and the intended effect
of that section to eliminate the election provision included within section 1 of
1969 PA 343, MCL 205.581, and that the 2011 amendatory act that amended
section 1 of 1969 PA 343, MCL 205.581, was to further express the original
intent of the legislature regarding the application of section 301 of the Michigan
business tax act, 2007 PA 36, MCL 208.1301, and to clarify that the election
provision included within section 1 of 1969 PA 343, MCL 205.581, is not
available under the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713.
PA 282 thus amended the MBT Act to express the “original intent” of the Legislature with
regard to (1) the repeal of the Compact provisions, (2) application of the MBT Act’s
7
Thus, this Court is bound only by the Supreme Court’s pre-PA 282 ruling that (1) the
Compact’s election provision under Article III(1) of the Compact was not implicitly repealed by
enactment of the MBT Act in 2008, (2) the election provision properly applied to the modified
gross receipts tax component of the MBT, and (3) IBM could elect to use the Compact’s three-
factor apportionment formula in calculating its 2008 MBT liability.
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apportionment provision under MCL 208.1301, and (3) the intended effect of the Compact’s
election provision under MCL 205.581. 8 The effect of the amendments, as written, retroactively
eliminates a taxpayer’s ability to elect a three-factor apportionment formula in calculating tax
liability under both the MBT Act and income tax act.
PROCEDURAL SUMMARY
During the pertinent period, plaintiff was an out-of-state corporation with business
activities in Michigan. Plaintiff, and other similar taxpayers, filed their MBT returns calculating
tax by taking an election under Article III(1) of the Compact to apportion the MBT tax base
using a three-factor apportionment formula. The returns reflected overpayments of tax, and
taxpayers requested refunds of these amounts. The Department denied the refund claims,
asserting that use of the three-factor apportionment was improper and that use of the single-
factor apportionment was mandated by MCL 208.1301. In response, taxpayers paid the tax and
filed actions in the Court of Claims.
Pending the Supreme Court’s resolution of IBM, this Court ordered this case and other
similar cases held in abeyance. After the case was decided, the Court lifted its order holding the
cases in abeyance and ordered the Department to brief the Court on why IBM, 496 Mich. 642,
should not control the disposition of these cases. After the Legislature enacted PA 282 that
retroactively repealed the Compact provisions, the Court issued the show cause order concerning
that legislation. The Court now considers the arguments against retroactive application of PA
282.
8
PA 282 also clarified that the Compact’s election provision is not available under the income
tax act of 1967, 1967 PA 281.
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LEGAL ANALYSIS
I. THE UNILATERAL REPEAL OF THE COMPACT PROVISIONS BY
ENACTMENT OF PA 282 WAS A PERMISSIBLE EXERCISE OF THE
LEGISLATURE’S SOVEREIGN AUTHORITY TO LEGISLATE
The Court first considers whether the Legislature was authorized to unilaterally repeal the
Compact provisions by enacting PA 282. This determination will depend on an analysis of (1)
whether the Compact created a binding contract with Member States, (2) whether enactment of
PA 282 impaired contractual obligations under the federal or state constitutional Contracts
Clauses, and (3) under Michigan law, whether 1969 PA 343 could restrict subsequent
legislatures from repealing the Compact provisions. For the following reasons, the Court
concludes that the Legislature acted constitutionally and within its sovereign authority to
legislate when it repealed the Compact provisions through enactment of PA 282.
A. THE COMPACT IS NOT A BINDING CONTRACT
In evaluating whether repeal of the Compact by application of PA 282 unconstitutionally
impairs a contract or whether a future legislature is bound to the provisions created by 1968 PA
343, there must first be a determination that a contract exists. See IBM, 496 Mich. at 681
(MCCORMACK, J., dissenting).
1. The Compact Lacks the “Classic Indicia” of a Binding Interstate Compact
under Federal Compact Law
The United State Supreme Court has recognized that not all interstate compacts are
binding contracts that restrict future legislatures. See Northeast Bancorp, Inc v Bd of Governors,
472 U.S. 159; 105 S. Ct. 2545; 86 L. Ed. 2d 112 (1985). While a Congressionally-approved
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interstate compact has the force of federal law and is binding on Member States, 9 an interstate
compact that has not been approved by Congress, such as the Compact here, can be either a
binding interstate compact or merely an advisory compact. 10
The test for distinguishing between an advisory compact and a binding interstate compact
is set forth in Northeast Bancorp, as further explained in Seattle Master Builders Ass’n v Pacific
Northwest Electric Power, 786 F2d 1359, 1363 (CA 9, 1986). The three “classic indicia” of a
binding interstate compact are: (1) the establishment of a joint regulatory body, (2) the
requirement of reciprocal action for effectiveness, and (3) the prohibition of unilateral
modification or repeal. Northeast Bancorp, 472 U.S. at 175; Seattle Master Builders, 786 F2d at
1363. Looking at the three indicia of a binding interstate compact, the Compact has none of
these features and is more properly characterized as a non-binding advisory compact.
a. The Compact did not establish a joint regulatory agency
A hallmark of an advisory compact, as opposed a binding contract, is that advisory
compacts “cede no state sovereignty nor delegate any governing power to a compact-created
agency.” Broun, et al, The Evolving Use and the Changing Role of Interstate Compacts: A
Practitioner’s Guide (2006), p 14. When the Compact, through Article VI, established the
Multistate Tax Commission (Commission), 11 no governing or regulatory powers were conferred.
9
The Compact Clause of the US Constitution, art I, §10, cl 3, provides, “No State shall, without
the Consent of the Congress, . . . enter into any Agreement or Compact with another State . . . .”
10
Advisory interstate compacts have no formal or regulatory enforcement mechanisms and are
intended to study and make recommendations on interstate problems. Broun, et al, The Evolving
Use and the Changing Role of Interstate Compacts: A Practitioner’s Guide (2006), p 13.
11
MCL 205.581, Art VI.
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Enumerated in Article VI, the powers of the Commission are (1) to study state and local tax
systems, (2) to develop and recommend proposals for greater uniformity, and (3) to compile
information helpful to the states. 12 None of these purposes is regulatory, and it in no way
indicates a delegation of sovereign authority to tax.
The conclusion that the Compact did not cede state authority or governing power to the
Commission was expressly acknowledged by the Court in US Steel Corp:
[The Compact] does not purport to authorize the Member States to
exercise any powers they could not exercise in its absence. Nor is there any
delegation of sovereign power to the Commission; each State retains complete
freedom to adopt or reject the rules and regulations of the Commission.
[Emphasis added.] [US Steel Corp, 434 U.S. at 473.]
In summary, the Compact, by its terms, does not create a regulatory body.
b. The Compact does not require reciprocal action
There is nothing reciprocal about the Compact’s provisions. Each member state operates
its respective tax systems independently from the tax systems of other Member States, and the
determination of tax in one state is generally independent of the determination in another state.
With respect to apportionment formulas, in particular, Articles III(1) and IV’s application in one
member state has no bearing on another state. And the functionality of one member state’s
apportionment methodology does not hinge on whether another member state’s apportionment
methodology is reciprocal in nature. As the Supreme Court recognized in Moorman Mfg Co v
Bair, 437 U.S. 267, 274; 98 S. Ct. 2340; 57 L. Ed. 2d 197 (1978), “the States have wide latitude in
the selection of apportionment formulas.” Consistent with Moorman, a Member State’s decision
12
Id. at Art VI(3).
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to allow or eliminate a certain apportionment formula is unaffected by the choice of formula that
another member state has made.
c. The Compact allows unilateral withdrawal and modification
Under the express terms of the Compact, Member States are free to unilaterally withdraw
at any time without notice to another member state. MCL 205.581, Art X(2) (“Any party state
may withdraw from this compact by enacting a statute repealing the same.) See also US Steel,
434 U.S. at 473 (“[E]ach State retains complete freedom to adopt or reject the rules and
regulations of the Commission.”) Thus unilateral withdrawal is clearly permitted under the
Compact.
Whether unilateral modification is permitted under the Compact is less clear and is not
directly addressed under the Compact. However, three factors lead to a conclusion that Member
States did not intend to restrict their ability to vary terms of the Compact. First, as pointed out
recently by the United States Supreme Court, “States rarely relinquish their sovereign powers, so
when they do we would expect a clear indication of such devolution, not inscrutable silence.”
Tarrant Regional Water Dist v Herrmann, ___ US ___; 133 S. Ct. 2120, 2133; 186 L. Ed. 2d 153
(2013). Because there is no such “clear indication” under the terms of the Compact that states
are prevented from asserting their sovereign powers to legislate and vary the Compact’s terms, it
is reasonable to conclude that the parties were free to unilaterally amend the Compact provisions,
including Articles III(1) and IV.
Second, language in the Compact that it “shall be liberally construed as to effectuate the
purposes thereof,” supports an interpretation that flexibility in administering Compact provisions
was contemplated. MCL 205.581, Art XII.
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Third, the Member States’ course of performance shows that unilateral amendments to or
withdrawals from the Compact have long been accepted. As pointed out by the dissent in IBM,
496 Mich. at 681-682, “[M]ember [S]tates did not view strict adherence to Articles III and IV as a
binding contractual obligation, as Compact members have deviated without objection from other
members.” 13 Moreover,
“It bears emphasizing that Compact members have not only refrained from
bringing legal action against one another for deviating from Articles III and IV,
they have endorsed the Commissioner’s interpretation of the Compact: in the
Gillette [Co v Franchise Tax Bd, 151 Cal Rptr 3d 106; 291 P3d 327 (2013)]
litigation, all of the member states jointly filed an amicus brief urging the
Supreme Court of California to reject the lower court’s construction of the
Compact as a binding contract. [IBM, 496 Mich. at 682 n 7 (MCCORMACK, J.,
dissenting).]
Because the Compact fails to create a regulatory body, contemplates no reciprocal
actions, and contains no bar to unilateral deviations or repeal, the Court concludes that none of
the “classic indicia” of a binding compact exist. Rather than a binding interstate contract, it is
more properly interpreted as an advisory compact that did not act to bind future legislatures.
2. The Compact is not a Binding Contract under Michigan Law
Because it was not congressionally-approved, the Compact is governed by state law. See
Doe v Young Marines of The Marine Corps League, 277 Mich. App. 391, 399; 745 NW2d 168
(2007) (finding that Michigan courts are not bound to follow a federal court’s interpretation of
13
As summarized in Hellerstein & Hellerstein, State Taxation (2014), the course of performance
of states with regard to the Compact provisions generally, and the elective apportionment
provisions specifically, shows that unilateral repeal and modifications to the Compact provisions
have been widespread.
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state law.) See also McComb v Wambaugh, 934 F2d 474, 479 (CA 3, 1991) (finding that
because a non-Congressionally approved compact does not express federal law, it must be
construed as state law.) Michigan law therefore governs the interpretation of the Compact.
In Michigan, there is a “strong presumption that statutes do not create contractual rights.”
Studier v Mich Pub Sch Employees’ Retirement Bd, 472 Mich. 642, 661; 698 NW2d 350 (2005).
“In order for a statute to form the basis of a contract, the statutory language must be plain and
susceptible of no other reasonable construction than that the Legislature intended to be bound to
a contract.” Id. at 662 (quotation marks and citation omitted). As noted in the dissent in IBM,
“[t]his presumption is grounded in the principle that ‘surrenders of legislative power are subject
to strict limitations that have developed in order to protect the sovereign prerogatives of state
governments.’ ” IBM, 496 Mich. at 682 (MCCORMACK, J., dissenting), quoting Studier, 472 Mich.
at 661.
There are no words in the Compact, as adopted by the Legislature under 1969 PA 343,
that indicate that the state intended to be bound to the Compact, and specifically to Article III(1).
Therefore, the presumption must be that the state did not surrender its legislative power to
require use of a particular apportionment formula. Such interpretation comports with the
Supreme Court’s recognition of “the basic principle[] that the States have wide latitude in the
selection of apportionment formulas . . . .” Moorman, 437 U.S. at 274. This interpretation is also
consistent with the Court’s recent acknowledgment that states “do not easily cede their sovereign
powers . . . .” Tarrant, 133 S. Ct. at 2132. Because there is no clear indication under MCL
205.581 that the state contracted away its ability to either select an apportionment formula that
differs from the Compact, or to repeal the Compact altogether, the Court concludes that no
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contractual obligation was created by enactment of 1969 PA 343 that would prohibit the
enactment of PA 282. 14
B. REPEAL OF THE COMPACT BY PA 282 DOES NOT VIOLATE THE
CONTRACTS CLAUSES OF THE STATE OR FEDERAL CONSTITUTIONS
The United States Constitution provides, “No State shall . . . pass any . . . Law impairing
the Obligation of Contracts . . . .” US Const, art I, § 10, cl 1. The Michigan Constitution
provides: “No . . . law impairing the obligation of contract shall be enacted.” Const 1963, art 1,
§10. “Statutes are presumed to be constitutional, and courts have a duty to construe a statute as
constitutional unless its unconstitutionality is clearly apparent.” In re Request for Advisory
Opinion Regarding Constitutionality of 2011 PA 38, 490 Mich. 295, 307; 806 NW2d 683 (2011)
(citation and quotation marks omitted). In addition, “ ‘[t]he presumption of constitutionality is
especially strong’ ” when tax legislation is concerned. Id. at 308 (citation omitted).
14
Even if the Compact could somehow be construed as a binding contract under Michigan law,
the Member States’ course of performance supports a determination that Member States either
waived or modified the Compact’s terms under Articles III(1) and IV, or materially breached the
terms under Articles III(1) and IV well before the repeal of the Compact provisions under PA
282. See n 12. In addition, as suggested in the dissenting opinion in IBM, taxpayers would have
no standing to enforce the terms of any purported contract that was made with Member States.
[I]t is not entirely clear to me why IBM has standing to enforce the Compact as a
contract, given that IBM is neither a party to the Compact nor is it clear that they
were intended as a third-party beneficiary. See Schmalfeldt v North Pointe Ins
Co, 469 Mich. 422; 670 NW2d 651 (2003); MCL 600.1405. In any event, because
I conclude that no such contractual relationship was formed, I find it unnecessary
to address this issue sua sponte. [IBM at 681 n 5 (MCCORMACK, J., dissenting).]
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As discussed earlier, the Compact creates no binding contract, and therefore the
Legislature’s repeal of the Compact by PA 282 does not impair an obligation of contract in
violation of the Michigan or United States Constitutions.
C. BECAUSE LEGISLATURES CANNOT BIND SUBSEQUENT LEGISLATURES
UNDER MICHIGAN LAW, 1969 PA 343 DOES NOT RESTRICT THE ABILITY
OF A SUBSEQUENT LEGISLATURE TO CORRECT AN ERROR, EITHER
PROSPECTIVELY OR RETROACTIVELY
Generally, legislatures have the power to repeal legislation and are not bound by the acts
of prior legislatures, so long as existing contractual obligations are not impaired. See, e.g.,
Studier, 472 Mich. at 660; LeRoux v Secretary of State, 465 Mich. 594, 615-616; 640 NW2d 849
(2002). See also Atlas v Wayne Co Board of Auditors, 281 Mich. 596, 599; 275 N.W. 507 (1937)
(“The power to amend and repeal legislation as well as to enact it is vested in the legislature, and
the legislature cannot restrict or limit its right to exercise the power of legislation by prescribing
modes of procedure for the repeal or amendment of statutes; nor may one legislature restrict or
limit the power of its successors”). The principle that one legislature cannot bind a succeeding
legislature is thus derived from the constitutional power of the Legislature to legislate. Const
1963, art 4, § 1. As discussed earlier, no contract was created by enactment of the Compact
provisions. Thus, the Legislature’s constitutional right to change, amend or repeal the law could
not be restricted by enactment of 1969 PA 343. Studier, 472 Mich. at 660. Therefore, the
Legislature, by enacting PA 282 to correct its drafting error contained in 2007 PA 36, acted
within the scope of its legislative powers as vested in it by the Michigan Constitution.
Moreover, correcting the drafting errors from 2007 PA 36 by repeal of the Compact
provisions through PA 282 is consistent with the intent of the Legislature in enacting 1969 PA
353. This is evidenced by the language of Article X of the Compact:
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Any party state may withdraw from this compact by enacting a statute
repealing the same. No withdrawal shall affect any liability already incurred by
or chargeable to a party state prior to the time of such withdrawal. [MCL
205.581, Art X(2).]
“When interpreting a statute, courts must ascertain the legislative intent that may reasonably be
inferred from the words expressed in the statute.” Andrie Inc v Dep’t of Treasury, 496 Mich. 161,
167; 853 NW2d 310 (2014) (quotation marks omitted). This requires the Court to consider “the
plain meaning of the critical word or phrase as well as its placement and purpose in the statutory
scheme.” Id. (citations and quotation marks omitted).
It is clear from the language of Article X(2) that in 1969 the Legislature contemplated the
possibility of future withdrawal from the Compact. Withdrawal from the Compact provisions by
PA 282 is therefore consistent with the Legislature’s intent. The Court rejects any argument that
under Article X(2) repeal of the Compact can be prospective only. As made clear by the
enacting provisions of PA 282, the repeal of the Compact provisions was intended to apply
prospectively from January 1, 2008. Because it is this Court’s duty to carry out the intent of the
Legislature, repeal of the Compact provisions by PA 282 must be given effect.
D. CONCLUSION
The Court concludes that the Compact did not create a binding contract with Member
States, but it was merely an advisory compact. Because no contract was created under federal
Compact or Michigan law, there was no impairment of contractual obligations and therefore no
violations of the Contracts Clauses of the federal or state constitutions. Finally, inasmuch as
there is no impairment of contractual obligations, the Legislature was free to amend or repeal
1969 PA 343. Thus this Court must give effect to and apply the intent of PA 282 as a valid
expression of the Legislature’s sovereign and constitutional authority to legislate.
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II. THE RETROACTIVE APPLICATION OF PA 282 DOES NOT VIOLATE
OTHER PROVISIONS OF THE STATE OR FEDERAL CONSTITUTIONS
Other constitutional arguments against the retroactive application of PA 282 concern due
process, separation of powers, the Commerce Clause, and the First Amendment’s right to
petition. 15 These arguments have no merit.
It is well settled that a tax act is not necessarily unconstitutional because it is retroactive.
Welch v Henry, 305 U.S. 134, 147; 59 S. Ct. 121; 83 L. Ed. 87 (1938). A statute is presumed
constitutional unless there is a clear showing to the contrary. Ammex, Inc v Dep’t of Treasury,
273 Mich. App. 623, 635; 732 N.W.2d 116 (2007); Gen Motors Corp v Dep’t of Treasury, 290
Mich. App. 355, 369; 803 N.W.2d 698 (2010). In addition, a taxing statute must be shown to
“clearly and palpably violate the fundamental law before it will be declared unconstitutional.”
Ammex, 273 Mich. App. at 635-636 (citation and internal quotation marks omitted). For the
following reasons, the presumption that PA 282 is constitutional remains intact.
A. RETROACTIVE APPLICATION OF PA 382 DOES NOT VIOLATE DUE
PROCESS
PA 282’s retroactive application does not violate due process of law. First, taxpayers
have no vested interests in tax laws, and therefore no valid claim that an interest in “life, liberty,
or property” has been deprived by retroactive application of PA 282. Second, the Legislature
15
Contracts Clause arguments are relevant in the context of whether a contract that was allegedly
entered into vis-à-vis the adoption of the Compact, and for reasons discussed earlier, must fail.
As to whether the retroactive application of a tax statute would generally implicate the Contracts
Clauses of the Michigan or United States Constitutions, taxes are not considered contractual in
nature, but are instead statutory. Welch v Henry, 305 U.S. 134, 146; 59 S. Ct. 121; 83 L. Ed. 87
(1938). Any further discussion of whether PA 282 violates the Contracts Clauses is unnecessary.
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had a legitimate purpose for giving retroactive effect to PA 282. And third, the period of
retroactivity of PA 282 is rationally related to that purpose.
1. Taxpayers have No Vested Interests
“The due process clauses of the United States and Michigan Constitutions apply when
government actions deprive a person of a liberty or property interest.” Edmond v Dep’t of
Corrections, 143 Mich. App. 527, 533; 373 NW2d 168 (1985). To determine whether the Due
Process Clause applies, courts look to the nature of the interest at stake. Id. A property interest
must be a vested right to be protected under due process. Detroit v Walker, 445 Mich. 682, 698-
699; 520 NW2d 135 (1994).
In United States v Carlton, 512 U.S. 26; 114 S. Ct. 2018; 129 L. Ed. 2d 222 (1994), the
Supreme Court specifically rejected the argument that the taxpayer had a viable vested right in
tax legislation. Id. at 33. It explained that “[t]ax legislation is not a promise, and a taxpayer has
no vested right in the Internal Revenue Code.” Id. The Michigan Court of Appeals has also
made clear that a taxpayer “does not have a vested right in a tax statute or in the continuance of
any tax law.” Gen Motors Corp, 290 Mich. App. at 371. See also Walker, 445 Mich. at 703;
GMAC v Treasury Dep’t, 286 Mich. App. 365, 377-378; 781 NW2d 310 (2009). Similarly, no
taxpayer has a vested right in a tax refund based on the continuation of the Compact election
provisions, and any due process claim must fail.
2. The Legislature had a Legitimate Purpose for Giving Retroactive Effect to
PA 282
Not only are taxpayers’ rights not vested here, but there are no substantive due process
violations implicated by the retroactive application of PA 282. The test for determining whether
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due process has been violated by retroactive tax legislation was set forth by the Supreme Court in
Carlton, 512 U.S. 26. Under Carlton, a statute’s retroactive application satisfies due process if:
(1) it is supported by a legitimate legislative purpose, and (2) it is rationally related to that
legislative purpose. Carlton, 512 U.S. at 30.
In enacting PA 282 and giving it retroactive effect, the Legislature had a legitimate
purpose: to protect state revenues. The potential ramifications of not giving retroactive effect to
PA 282 were made clear in the Senate Fiscal Agency’s legislative analysis of SB 156: 16
The first enacting section of the bill would retroactively repeal the State’s
enactment of the Multistate Tax Compact, effective January 1, 2008. As a result,
taxpayers filing under the MBT would not be allowed to use alternative
apportionment calculations provided under the Compact when computing a
Michigan tax base. While the Department of Treasury has not allowed taxpayers
to use these alternative calculations, the Michigan Supreme Court’s recent
decision in IBM Corp. v Department of Treasury may enable certain taxpayers to
use these calculations, and the Department estimates that approximately $1.1
billion in refunds would be paid as a result. Because MBT revenue is directed to
the General Fund, these refunds would reduce General Fund revenue, and the bill
would prevent a reduction in General Fund revenue of $1.1 billion. [Senate
Legislative Analysis, SB 156, September 10, 2014, p 5. (Emphasis added.)]
Furthermore, as was recognized by the Court in Gen Motors, 290 Mich. App. at 373, a
legislature’s purpose to “mend a leak in the public treasury or tax revenue” is legitimate. See
also Carlton, 512 U.S. at 32 (finding a legitimate governmental purpose where the Internal
16
Although legislative bill analyses are not official statements of legislative intent, they
nonetheless can have probative value. See, e.g., North Ottawa Community Hosp v Kieft, 457
Mich. 394, 406 n 12; 578 NW2d 267 (1998); Nemeth v Abonmarche Dev, Inc, 457 Mich. 16, 27-
29; 576 NW2d 641 (1998); People v Grant, 455 Mich. 221, 240-241; 565 NW2d 389 (1997);
Travis v Dreis & Krump Mfg Co, 453 Mich. 149, 164-166, 551 NW2d 132 (1996) (opinion by
BOYLE, J.).
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Revenue Code was retroactively amended for purposes of correcting a legislative error that
would have “created a significant and unanticipated revenue loss.”)
Here, PA 282 served the legitimate governmental purpose of fixing a legislative error and
preventing the potential loss of over $1 billion of MBT revenues in the form of tax refunds from
overpayments.
3. Retroactive Application of PA 282 is a Rational Means of Furthering this
Legitimate Purpose
In addition to having a legitimate legislative purpose of preventing a catastrophic fiscal
shortfall, the retroactive application of PA 282 is also a rational means of furthering this
legitimate purpose. In Gen Motors, 290 Mich. App. at 375, the Court of Appeals found that
whether a retroactive tax law met the rational means prong of Carlton includes a consideration of
whether the retroactive period is “modest” as tested against the “totality of circumstances.” In
determining that a five-year look back period was a rational means of accomplishing the
prevention of revenue loss, the Court looked to whether (1) the retroactive amendment created a
“wholly new tax,” (2) the taxpayer acted in reliance on an expectation its activity would not be
taxed, (3) how promptly the Legislature acted to correct the problem leading to loss in revenue,
and (4) the period of time to which the amendment retrospectively applies.
Applying the “totality of circumstances” here, the retroactive application of PA 282 does
not exceed the modest limitation of the Due Process Clause and is a rational means of
accomplishing the Legislature’s purpose of stemming revenue losses.
First, PA 282 does not reach back in time to assess a “wholly new tax” on long-
concluded transactions, but rather it confirmed that single-factor apportionment under the MBT
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was mandatory and that an election to use a three-factor apportionment formula could not be
made.
Second, as a matter of law, there can be no valid claim that an MBT taxpayer acted in
reliance on an expectation that for the MBT its income would be apportioned by the three-factor
apportionment provision. As the Supreme Court recognized in Moorman, 437 U.S. 267, the states
have wide latitude in the selection of an apportionment methodology. Moreover, it is also well
established that a taxpayer does not have a vested right in a tax statute or in the continuance of
any tax law. Walker, 445 Mich. at 703; Ludka v Dep’t of Treasury, 155 Mich. App. 250; 399
NW2d 490 (1986). And as Carlton, 512 U.S. at 33, made clear, even where a taxpayer has
detrimentally relied on a tax statute, this does not result in a constitutional violation:
Although Carlton’s reliance is uncontested—and the reading of the original
statute on which he relied appears to have been correct—his reliance alone is
insufficient to establish a constitutional violation. Tax legislation is not a
promise, and a taxpayer has no vested right in the Internal Revenue Code.
[Emphasis added.]
Because taxpayers do not, as a matter of law, have a reliance interest in any particular
apportionment formula a state chooses in dividing the income of multistate taxpayer, this Court
rejects any assertion that a taxpayer would have changed its behavior or structured its affairs
differently had it known that the Compact’s elective provision was no longer available.
Third, the Legislature acted promptly in correcting its error. Not until July 14, 2014,
when the Court decided IBM, was it made clear to the Legislature that 2007 PA 36 was
defective. SB 156, H-1, which added the retroactive repeal of the Compact, provisions, was
introduced on September 9, 2014, and was enacted into law on September 11, 2014.
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Fourth, the period of time to which the amendment applies was modest, particularly in
light of the time frames of other retroactive legislation that Michigan courts and those of other
jurisdictions have held were within the modesty limits of the Due Process Clause. For example,
in Gen Motors, 290 Mich. App. 355, the Court concluded that a five-year retroactive period
(eleven years as applied to the specific taxpayer’s tax years) was modest. In GMAC, 286 Mich
App 365, the Court upheld a law with a seven-year retroactive period. See also Enterprise
Leasing Co v Arizona Dep’t of Revenue, 221 Ariz 123; 211 P3d 1 (Ariz Ct App, 2008) (six year
period); King v Campbell Co, 217 S.W.3d 862 (Ky Ct App, 2006) (upholding 2005 legislation that
denied refunds of taxes overpaid since 1986 under 2004 judicial decision); Miller v Johnson
Controls, Inc, 296 S.W.3d 392 (Ky, 2009) (upholding 2000 legislation retroactively ratifying 1988
tax-agency policy that a 1994 judicial decision overruled); Zaber v City of Dubuque, 789 NW2d
634 (Iowa, 2010) (five-and-one-half years); Licari v Comm’r, 946 F2d 690 (CA 9, 1991) (four
years); Tate & Lyle, Inc v Comm’r of Internal Revenue, 87 F3d 99 (CA 3, 1996) (six years);
Montana Rail Link, Inc v United States, 76 F3d 991 (CA 9, 1996) (four years).
All of these factors lead to the conclusion that the Legislature’s means of stemming the
loss of revenues, by giving retroactive effect to PA 282, was a rational means of furthering a
legitimate governmental purpose.
B. RETROACTIVE APPLICATION OF PA 282 DOES NOT VIOLATE
PRINCIPLES OF SEPARATION OF POWERS
In addition to being a rational means of achieving a legitimate purpose, PA 282 does not
violate the principle of separation of powers under the Michigan Constitution. The Separation of
Powers Clause is set forth in Const 1963, art 3, § 2:
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The powers of government are divided into three branches;
legislative, executive and judicial. No person exercising powers of one
branch shall exercise powers properly belonging to another branch except
as expressly provided in this constitution.17
With respect to retroactive legislation, the Legislature is permitted to retroactively change
legislation, so long as it does not “not reverse a judicial decision or repeal a final judgment.”
GMAC, 286 Mich. App. at 380; Romein v Gen Motors Corp, 436 Mich. 515, 536-537; 462 NW2d
555 (1990), aff’d 503 U.S. 181; 112 S. Ct. 1105; 117 L. Ed. 2d 328 (1992). See also Wylie v City
Comm’n of Grand Rapids, 293 Mich. 571; 292 N.W. 668 (1940). Furthermore, a legislature is
entitled to correct its own mistakes though retroactive legislation. See Gen Motors, 290 Mich
App at 373.
By enacting PA 282, the Legislature acted within its authority to legislate by correcting a
mistake made clear to it by the Court in IBM. PA 282 did not purport to overturn the IBM
decision, nor did it repeal the final judgment as it applied to the plaintiff. The Court’s holding in
IBM was limited to a finding that there was no implicit repeal of the Compact apportionment
provisions through enactment of 2007 PA 36, and PA 282 does not conflict with or disturb this
ruling. Through enactment of PA 282, the Legislature took steps to retroactively repeal the
17
As expressly provided in the Constitution, the legislative power is vested in a senate and a
house of representatives, Const 1963, art 4, § l; the executive power is vested in the governor,
Const 1963, art 5, § l Sec. 1; and the judicial power is vested exclusively in the courts, Const
1963, art 6, § 1. Pursuant to these powers, it is the legislature’s duty to state what the law is, it is
the judiciary’s role to interpret this law, and it is and it is the executive branch’s obligation to
enforce the law as written and as interpreted by the judiciary. 1 Official Record, Constitutional
Convention 1961, pp 601-602 (“[H]e who makes a law shall not enforce it, nor sit in judgment
upon it; that he who enforces a law shall not make or change it nor shall he judge of its violation;
and he who sits in judgment shall have neither made the law nor enforced it.”)
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Compact provisions explicitly, clarifying its original intent in enacting the MBT. Such action did
not impinge upon the judiciary’s functions in violation of the separations of powers.
Although IBM left unresolved the issue of whether the retroactive repeal of the Compact
provisions would be constitutional, both the majority and the concurring opinions suggest that an
explicit, retroactive repeal of the Compact provisions, effective January 1, 2008, could have led
to a different result. 18 Rather than deviating from the Court’s opinion, PA 282’s explicit,
retroactive repeal of the Compact provisions is consistent with the language in IBM suggesting
that retroactive repeal would be an appropriate legislative response to the challenges being made.
The Legislature did not violate the separation of powers doctrine when it passed the retroactive
amendments under PA 282.
C. PA 282 DOES NOT VIOLATE THE COMMERCE CLAUSE
PA 282 does not violate the Commerce Clause 19, which prohibits state laws that (1)
facially discriminate against interstate commerce, (2) have a discriminatory effect, or (3) are
enacted for a discriminatory purpose. Caterpillar Inc v Dep’t of Treasury, 440 Mich. 400, 422-
425; 488 NW2d 182 (1992). Under the dormant Commerce Clause, states may not discriminate
18
Discussing 2011 PA 40, which retroactively repealed the Compact apportionment provisions
effective January 1, 2011, the majority stated that “[t]here is no dispute that the Legislature
specifically intended to retroactively repeal the Compact’s election provision for taxpayers
subject to the [MBT] beginning January 1, 2011. The Legislature could have—but did not—
extend this retroactive repeal to the start date of the [MBT].” IBM, 496 Mich. at 659. (Emphasis
added.) See also concurring opinion of Justice Zahra, noting that “the [MBT’s] exclusive
apportionment method remains in conflict with the election provision of the Compact. This
conflict, in my view, is easily resolved because the Legislature in 2011 also expressly
supplemented the Compact.” Id. at 669. (Emphasis added.)
19
US Const, art I, § 8, cl 3.
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against interstate commerce by “unduly burden[ing] interstate commerce.” Quill Corp v North
Dakota, 504 U.S. 298, 312; 112 S. Ct. 1904; 119 L. Ed. 2d 291 (1992) (citations omitted). PA 282
neither discriminates against, nor unduly burdens, interstate commerce.
First, PA 282 is not facially discriminatory. Facial discrimination requires an “explicit
discriminatory design to the tax.” Amerada Hess Corp v Dir, 490 U.S. 66, 75; 109 S. Ct. 1617; 104
L. Ed. 2d 58 (1989). The text of PA 282 makes clear, on its face, that no taxpayer, regardless of
location, can elect the three-factor apportionment.
Second, PA 282 has no discriminatory effect. The effect of PA 282 is that no taxpayer,
whether in-state or out-of-state, can make an election to apply a three-factor apportionment for
MBT purposes. As the United States Supreme Court made clear in Moorman, 437 U.S. 267,
requiring a single-factor apportionment formula does not have the effect of discriminating
against an out-of-state taxpayer.
In addition, PA 282 was not enacted for a discriminatory purpose, but rather sought to
clarify the original intent of the 2007 Legislature with respect to all taxpayers, both in-state and
out-of-state. Any claims made that PA 282 violates the Commerce Clause of the United States
Constitution must therefore fail.
D. PA 282 DOES NOT VIOLATE THE FIRST AMENDMENT PETITION CLAUSE
Neither does PA 282, by retroactively revoking taxpayers’ right to petition the
Department and appeal to a court for a refund of tax, violate their First Amendment right to
petition the government.
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The right of citizens to petition the government for redress of grievances is specifically
guaranteed by the United States and Michigan Constitutions. US Const Amend I; Const 1963,
art 1, § 3. This right is not unlimited, however, and “may be circumscribed to the extent
necessary to achieve a valid state objective.” Jackson Co Ed Ass’n v Grass Lake Community Sch
Bd of Ed, 95 Mich. App. 635, 641-642; 291 NW2d 53 (1979).
The Supreme Court has long made clear that the First Amendment does not require the
government to listen to individuals or to respond to individual grievances. In Bi-Metallic
Investment Co v State Bd of Equalization, 239 U.S. 441; 36 S. Ct. 141; 60 L. Ed. 372 (1915), the
Court responded to a real estate owner’s argument that it had no opportunity to be heard in
opposition to a legislative tax valuation increase by stating:
Where a rule of conduct applies to more than a few people it is impracticable that
everyone should have a direct voice in its adoption. The Constitution does not require all
public acts to be done in town meeting or an assembly of the whole. Generally statutes
within the state power are passed that affect the person or property of individuals,
sometimes to the point of ruin, without giving them a chance to be heard. Their rights
are protected in the only way that they can be in a complex society, by their power,
immediate or remote, over those who make the rule. [Id. at 445 (emphasis added).]
See also Smith v Arkansas State Highway Employees, Local 1315, 441 U.S. 463, 464-465; 99 S. Ct.
1826; 60 L. Ed. 2d 360 (1979) (finding that the Arkansas Highway Commission did not have an
affirmative obligation under the First Amendment “to listen, to respond or, in this context, to
recognize the association and bargain with it.”)
The Supreme Court’s analysis in Bi-Metallic Investment applies here. There is no merit
to any argument that the retroactive application of PA 282 violates a taxpayers’s First
Amendment right to petition the government. Taxpayers’ First Amendment rights on matters of
tax legislation—whether prospective or retroactive—are properly protected by taxpayers’ power
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over those who “make the rule[s]”—that is, the Legislature. Bi-Metallic Investment, 239 U.S. at
445. While the Court has an obligation, within jurisdictional limits, to respond to taxpayers’
grievances with respect to individual overpayments of tax, it is under no constitutional obligation
under the First Amendment to answer to taxpayers about general validity of the legislation itself.
Thus application of PA 282 does not violate a taxpayer’s First Amendment rights.
Moreover, to the extent that PA 282 may impact taxpayers’ procedural rights of
petitioning the court for a refund of tax, these rights are properly safeguarded under rights of due
process, which “affirmatively require[s] the government to provide meaningful procedural
opportunities in response to judicial petitions, far and above any required by the First
Amendment standing alone.” Andrews, A Right of Access to Court Under the Petition Clause of
the First Amendment: Defining the Right, 60 Ohio St L J 557, 634 (1999). And as the Court has
already discussed, plaintiff’s constitutional rights of due process have been satisfied with respect
to the application of PA 282.
III. THERE WERE NO PROCEDURAL VIOLATIONS THAT BAR
APPLICATION OF PA 282
A. THE TITLE-OBJECT CLAUSE OF THE MICHIGAN CONSTITUTION WAS
NOT VIOLATED
PA 282 satisfies the Title-Object Clause of the Michigan Constitution. This clause states:
No bill shall be altered or amended on its passage through either house so as to
change its original purpose as determined by its total content and not alone by its
title. [Const 1963, art 4, § 24.]
PA 282 is titled as follows:
AN ACT to amend 2007 PA 36, entitled “An act to meet deficiencies in state funds by
providing for the imposition, levy, computation, collection, assessment, reporting,
payment, and enforcement of taxes on certain commercial, business, and financial
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activities; to prescribe the powers and duties of public officers and state departments; to
provide for the inspection of certain taxpayer records; to provide for interest and
penalties; to provide exemptions, credits, and refunds; to provide for the disposition of
funds; to provide for the interrelation of this act with other acts; and to make
appropriations,” by amending sections 111, 305, 403, and 433 (MCL 208.1111,
208.1305, 208.1403, and 208.1433), sections 111 and 305 as amended by 2012 PA 605,
section 403 as amended by 2008 PA 434, and section 433 as amended by 2007 PA 215,
and by adding section 508; and to repeal acts and parts of acts.
The three different challenges that may be brought against a statute on the basis of the
Title-Object Clause are: (1) a multiple-object challenge, (2) a title-body challenge, and (3) a
change of purpose challenge. Ray Twp v B & BS Gun Club, 226 Mich. App. 724, 728; 575 NW2d
63 (1997); HJ Tucker & Assoc, Inc v Allied Chucker & Engineering Co, 234 Mich. App. 550,
556-557; 595 NW2d 176 (1999). In assessing the validity of these challenges, the constitutional
requirements under the Title-Object clause are to be construed reasonably. Mooahesh v Dep’t of
Treasury, 195 Mich. App. 551, 563; 492 NW2d 246 (1992). See also Gen Motors Corp, 290
Mich. App. at 388.
1. Multiple-Object Challenge
With respect to the multiple-object challenge, the body of the law, as well as its title,
must be examined to determine whether the act embraces more than one object or purpose. Ray
Twp, 226 Mich. App. at 731. The object of the legislation must be determined by examining the
law as enacted, not as originally introduced. People v Kevorkian, 447 Mich. 436, 456; 527
NW2d 714 (1994). A bill that is enacted into law may include all matters germane to its object,
as well as all provisions that directly relate to, carry out, and implement the principal object.
City of Livonia v Dep’t of Social Servs, 423 Mich. 466, 497; 378 NW2d 402 (1985). “The
purpose of the single-object rule is to avoid bringing into one bill diverse subjects that have no
necessary connection.” Mooahesh, 195 Mich. App. at 564.
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In determining whether PA 282 violated the single object rule, Mooahesh is instructive.
Mooahesh involved a title-object challenge to 1988 PA 136, which (1) amended the Individual
Income Tax Act to provide that lottery winnings are taxable, and (2) repealed a section from the
Lottery Act that had previously exempted lottery winnings from taxation. 20 The Court first
determined that the general purpose of the act as found in the title (“to meet deficiencies in state
funds”) was to raise revenues, and that “[a] statute may authorize the doing of all things that are
in furtherance of the general purpose of act without violating the one-object limitation of art 4, §
24.” Mooahesh, 195 Mich. App. at 564 (emphasis added). It further stated that “[t]he object of
‘meet[ing] deficiencies in state funds’ may reasonably be found to include the repeal of a tax
exemption, even if that exemption does not appear in any act specifically devoted to taxation.”
Mooahesh, 195 Mich. App. at 566. In addition, acknowledging that “it might have been ‘better
draftsmanship,’ to have provided for a separate amendment to the Lottery Act,” the Court
determined that “the inclusion of the repeal of the tax exemption provision in an act amending
the income tax laws does not render the act in violation of the single-object requirement.” Id.
(internal citations omitted.)
20
The title of 1988 PA 516 provided, in pertinent part:
An act to amend sections . . . of the Public Acts of 1967, entitled “An act to meet
deficiencies in state funds by providing for the imposition, levy, computation, collection,
assessment, and enforcement by lien and otherwise of taxes on or measured by net
income; to prescribe the manner and time of making reports and paying the taxes, and the
functions of public officers and others as to the taxes; to permit the inspection of the
records of taxpayers; to provide for interest and penalties on unpaid taxes; to provide
exemptions, credits and refunds of the taxes; to prescribe penalties for the violation of
this act; to provide an appropriation; and to repeal certain acts and parts of acts. . . .”
[Emphasis added.]
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Just as the statute considered in Mooahesh had as its general purpose the raising of
revenues, so too was the general purpose of PA 282. And just as it might have been “better
draftsmanship” to have provided for a separate amendment repealing § 34 of the Lottery Act, the
Legislature in enacting PA 282 might have been better advised to repeal the Compact provisions
in a separate act. But like the choice to amend the ITA and repeal a section of the Lottery Act in
one act, the choice to include the repeal of the Compact and amend the MBT in one act is not a
violation of the single-object requirement. 21
2. Title-Body Challenge
With respect to a title-body challenge, the title of an act must express the general purpose
or object of the act. Ray Twp, 226 Mich. App. at 728. “ ‘[T]he title need not serve as an index of
all that the act contains.’ ” Midland Twp v Mich State Boundary Comm’n, 401 Mich. 641, 653;
259 N.W.2d 326 (1977) (quoting People v Milton, 393 Mich. 234, 246-247; 224 NW2d 266
(1974)). It is sufficient if the title “ ‘is a descriptive caption, directing attention to the subject
matter which follows . . . or if it be expressive of the purpose and scope of the enactment.’ ”
Mooahesh, 195 Mich. App. at 556-557, quoting People ex rel Wayne Prosecuting Atty v Sill, 310
21
As repeated by the Court in Mooahesh, 195 Mich. App. at 564:
There is . . . no constitutional requirement that the legislature do a tidy job in
legislating. It is perfectly free to enact bits and pieces of legislation in separate
acts or to tack them on to existing statutes even though some persons might think
that the bits and pieces belong in a particular general statute covering the matter.
The constitutional requirement is satisfied if the bits and pieces so enacted are
embraced in the object expressed in the title of the amendatory act and the act
being amended. [Id. quoting Detroit Bd of Street R Comm’rs v Wayne Co, 18
Mich. App. 614, 622-623; 171 NW2d 669 (1969).]
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Mich 570, 574; 17 NW2d 756 (1945). The test under a title-body challenge is whether the title
“gives fair notice to the legislators and the public of the challenged provision.” H J Tucker &
Assocs, 234 Mich. App. at 559. “The notice aspect is violated where the subjects are so diverse in
nature that they have no necessary connection.” Mooahesh, 195 Mich. App. at 569.
Here, as discussed earlier, the Legislature’s broad purpose of PA 282 was to raise
revenue through the imposition of tax. The title adequately expressed this object and gave notice
of this general purpose. To withstand scrutiny under Const 1963, art 4, § 24, it was not
necessary for the Legislature to provide in the title “an index of all that the act contains,”
Midland Twp, 401 Mich. at 653. In addition, the subjects within the title all had a nexus to the
purpose of raising revenue and were not “so diverse in nature that they [had] no necessary
connection” to this purpose. Mooahesh, 195 Mich. App. at 569. There was no violation of the
title-body rule under PA 282.
3. Change-of-Purpose Challenge
Finally, a change of purpose challenge to PA 282 on the ground that its purpose changed
during passage through the Legislature, is tested as to whether “the change represents an
amendment or extension of the basic purpose of the original, or the introduction of entirely new
and different subject matter.” Anderson v Oakland Co Clerk, 419 Mich. 313, 328; 353 NW2d
448 (1984) (LEVIN, J., concurring) (internal quotation marks omitted). See also Kevorkian, 447
Mich. at 461 (“[T]he test for determining if an amendment or substitute changes a purpose of the
bill is whether the subject matter of the amendment or substitute is germane to the original
purpose.”)
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Here, as discussed earlier, the general purpose of SB 156 as originally introduced was to
raise revenues. This original purpose of SB 156 did not change under Substitute H-1, as
introduced and later enrolled as PA 282.
As originally introduced, SB 156 amended the MBT by (1) allowing an adjustment to the
modified gross receipts tax base for amounts attributable to the taxpayer pursuant to a discharge
of indebtedness, (2) revising the calculation of the investment credit with respect to the recapture
of revenue when property previously subject to the credit is sold, (3) revising the calculation of
the credit for a taxpayer located and conducting business in a renaissance zone before December
1, 2002, and, (4) revising a provision concerning a dock sale, for purposes of apportionment.
See Senate Legislative Analysis, SB 156, March 19, 2013. The original bill stated that the act
was “curative and intended to clarify the original intent of the Legislature.” Id. Substitute H-1,
as enrolled as PA 282, retained the original proposed amendments, and added, in pertinent part,
(1) a requirement that a taxpayer claim a refund in 2015 if as a result of the amendments, there
was an overpayment for a tax year between 2010 and 2014, and (2) a provision that the bill
would retroactively repeal the Compact provisions under Public Act 343 of 1969 to January 1,
2008, and express legislative intent regarding the single-factor apportionment formula and the
elimination of the Compact’s election provision. See Senate Legislative Analysis, SB 156,
September 10, 2014.
Substitute H-1, as enrolled as PA 282, was “an extension of the basic purpose of the
original,” rather than “the introduction of the entirely new and different subject matter” that
would otherwise violate the change-of-purpose rule. Anderson, 419 Mich. at 327. The general
purpose of both the bill as originally enacted, and substitute H-1, as enrolled as PA 282, was also
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to raise revenues. Because the general purpose of the bills did not change or introduce new and
different subject matter, a change-in-purpose challenge to PA 282 must fail.
In conclusion, given the presumption that PA 282 is constitutional, and in light of the fact
that the Title-Object Clause is to be liberally construed, the Court concludes that PA 282 does
not violate the Title-Object Clause of the Constitution.
B. THE “FIVE-DAY RULE” UNDER THE MICHIGAN CONSTITUTION WAS
NOT VIOLATED
The issue whether PA 282 violates the Title-Object Clause is integrally related to the
“five-day rule” of art 4, § 26 of Const 1963 which states, in pertinent part, that no bill can be
passed until it has been printed or reproduced and in the possession of each house for at least five
days. 22 This rule was not violated by passage of PA 282.
Whether the five-day rule has been violated depends on whether (1) the bill was in the
possession of both houses for five days, and (2) whether there has been a change in purpose.
Anderson, 419 Mich. at 339 (LEVIN, J., concurring). Here, SB 156 was before both the House
and Senate for at least 5 days. 23 And as discussed earlier, SB 156 as finally passed served the
original bill’s general purpose of raising revenues. The Court therefore concludes that enactment
of PA 282 did not violate Const 1963, art 4, § 26.
22
As explained by the Court in Anderson, 419 Mich. at 329-330, “The five-day rule and the
change of purpose provision were contained in the same article and section of the Constitution of
1908. Const 1908, art 5, § 22. It is clear that the function of the change of purpose provision,
both in the Constitution of 1908 and as modified in the Constitution of 1963, is to fulfill the
command of the five-day rule.”
23
See 2013 Senate Journal 9; 2014 Senate Journal 61.
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C. THE TAX-TITLE CLAUSE OF THE MICHIGAN CONSTITUTION WAS NOT
VIOLATED
PA 282 does not violate the “tax-title” clause of art 4, § 32 of the Michigan Constitution.
That provision, also known as the “distinct-statement” clause, requires that “[e]very law which
imposes, continues or revises a tax shall distinctly state the tax.” Id. The purpose of this clause
is “ ‘to prevent the Legislature from being deceived in regard to any measure for levying taxes,
and from furnishing money that might by some indirection be used for objects not approved by
the Legislature.’ ” Dawson v Sec of State, 274 Mich. App. 723, 747; 739 NW2d 339 (2007).
(Citation omitted.)
Both the title and the body of PA 282 make clear that the act related distinctly to tax, and
there is no language within SB 156, enrolled as PA 282, that would have caused the Legislature
to be “deceived in regard to any measure for levying taxes.” Dawson, 274 Mich. App. at 747.
There is no merit to any claim that PA 282 violates Const 1963, art 4, § 32.
IV. CONCLUSION
The passage of PA 282 is a valid, constitutional act by the Legislature that provided
clarity to taxpayers as to the original intent of the MBT Act. 24 It also prevented the significant
fiscal harm to the state that would have resulted if taxpayers had been permitted to elect
apportionment provisions under the Compact. The Legislature’s choice in PA 282 to
retroactively repeal the Compact provisions was within the boundaries of the Michigan and
United States Constitutions and stayed true to the Legislature’s original intent to require single-
24
PA 282 also clarified that the Compact’s election provision is not available under the Income
Tax Act, MCL 206.1, et seq.
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factor apportionment under the MBT Act. Application of PA 282 to the disposition of this case,
and others like it, is appropriate; 25 failure to do so would otherwise provide taxpayers with a
windfall that the Legislature did not mean to provide. See Hochman, The Supreme Court and the
Constitutionality of Retroactive Legislation, 73 Harv L Rev 692, 705 (1960).
IT IS HEREBY ORDERED that summary disposition is GRANTED in favor of the
Department pursuant to MCR 2.116(I)(1).
This order resolves the last pending claim and closes the case.
Dated: December 19, 2014 ________________________________
Hon. Michael J. Talbot
Chief Judge, Court of Claims
25
Similar claims brought under the Income Tax Act, MCL 206.1, et seq., would likewise fail;
PA 282 would apply and negate the basis for the plaintiff's claim.
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