International Business MacHines Corp. v. Department of Treasury

Michigan Supreme Court
Lansing, Michigan
Syllabus
Chief Justice: Justices:
Robert P. Young, Jr. Michael F. Cavanagh
Stephen J. Markman
Mary Beth Kelly
Brian K. Zahra
Bridget M. McCormack
David F. Viviano
This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions:
prepared by the Reporter of Decisions for the convenience of the reader. Corbin R. Davis
INTERNATIONAL BUSINESS MACHINES CORP v DEPARTMENT OF TREASURY
Docket No. 146440. Argued January 15, 2014 (Calendar No. 1). Decided July 14, 2014.
International Business Machines Corporation (IBM) brought an action in the Court of
Claims against the Department of Treasury, challenging the department’s ruling that IBM was
not entitled to apportion its business income tax base and modified gross receipts tax base using
the three-factor apportionment formula provided in the Multistate Tax Compact, MCL 205.581
et seq., and was instead required to apportion its income using the sales-factor formula in the
Business Tax Act, MCL 208.1101 et seq., when calculating its state taxes for 2008. Under this
ruling, IBM was entitled to a refund of only $1,253,609 for the 2008 tax year rather than the
$5,955,218 it had sought. IBM moved for summary disposition under MCR 2.116(C)(10), and
the department moved for summary disposition under MCR 2.116(I)(2). After a hearing, the
Court of Claims, Joyce A. Draganchuk, J., denied IBM’s motion and granted summary
disposition in favor of the department, ruling that the BTA mandated the use of the sales-factor
apportionment formula. The Court of Appeals, RONAYNE KRAUSE, P.J., and BORRELLO, J.
(RIORDAN, J., concurring), affirmed the Court of Claims order in an unpublished opinion per
curiam issued November 20, 2012 (Docket No. 306618). It held that because there was a facial
conflict between the BTA’s mandatory sales-factor apportionment formula and the Compact’s
elective three-factor apportionment formula, the Legislature had repealed the Compact’s election
provision by implication when it enacted the BTA. The Supreme Court granted IBM’s
application for leave to appeal. 494 Mich 874 (2013).
In a lead opinion by Justice VIVIANO, joined by Justices CAVANAGH and MARKMAN, and
a concurring opinion by Justice ZAHRA, the Supreme Court held:
The modified gross receipts tax is an income tax for purposes of the Multistate Tax
Compact. IBM was entitled to use the Compact’s elective three-factor apportionment formula to
calculate its 2008 Michigan taxes.
Court of Appeals judgment reversed; Court of Claims order granting summary
disposition in favor of the Department reversed; case remanded to the Court of Claims for entry
of an order granting summary disposition in favor of IBM.
Justice VIVIANO, joined by Justices CAVANAGH and MARKMAN, held that the modified
gross receipts tax fit within the Compact’s broad definition of “income tax” by taxing a variation
of net income, specifically, the entire amount received by the taxpayer as determined from any
gainful activity minus inventory and certain other deductions that are expenses not specifically
and directly related to a particular transaction. He further concluded that the Court of Appeals
erred by holding that the BTA had repealed the Compact’s election provision by implication
because the statutes could be reconciled when read in pari materia.
Justice ZAHRA, concurring, agreed that IBM was entitled to use the Compact’s elective
apportionment formula for its 2008 Michigan taxes, and also that the tax bases at issue were
“income taxes” within the meaning of the Compact. He would not have reached the question
whether the Legislature repealed the Compact’s election provision by implication when it
enacted the BTA because the Legislature made clear that taxpayers were entitled to use the
Compact’s election provision for the 2008, 2009, and 2010 tax years.
Justice MCCORMACK, joined by Chief Justice YOUNG and Justice KELLY, dissenting,
would have affirmed the Court of Appeals judgment, concluding that allowing taxpayers to
apportion their multistate income in accordance with the Compact’s formula violated the
Legislature’s unambiguous directive that taxes established under the BTA must be in accordance
with the BTA’s sales-only apportionment formula. She further concluded that there was no
constitutional barrier that prevented the Legislature from making the Compact’s alternative
election provision unavailable to taxpayers.
©2014 State of Michigan
Michigan Supreme Court
Lansing, Michigan
Opinion
Chief Justice: Justices:
Robert P. Young, Jr. Michael F. Cavanagh
Stephen J. Markman
Mary Beth Kelly
Brian K. Zahra
Bridget M. McCormack
David F. Viviano
FILED July 14, 2014
STATE OF MICHIGAN
SUPREME COURT
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Plaintiff-Appellant,
v No. 146440
DEPARTMENT OF TREASURY,
Defendant-Appellee.
BEFORE THE ENTIRE BENCH
VIVIANO, J.
In this case, we must determine whether plaintiff International Business Machines
Corporation (IBM) could elect to use the three-factor apportionment formula under the
Multistate Tax Compact1 (the Compact) for its 2008 Michigan taxes, or whether it was
required to use the sales-factor apportionment formula under the Michigan Business Tax
1
MCL 205.581 et seq.
Act (BTA).2 The Department of Treasury (the Department) rejected IBM’s attempt to
use the Compact’s apportionment formula and, instead, required IBM to apportion its
income using the BTA’s sales-factor formula.
We conclude that IBM was entitled to use the Compact’s three-factor
apportionment formula for its 2008 Michigan taxes and that the Court of Appeals erred
by holding otherwise on the basis of its erroneous conclusion that the Legislature had
repealed the Compact’s election provision by implication when it enacted the BTA. We
further hold that IBM could use the Compact’s apportionment formula for that portion of
its tax base subject to the modified gross receipts tax of the BTA.
Accordingly, we reverse the Court of Appeals judgment in favor of the
Department, reverse the Court of Claims order granting summary disposition in favor of
the Department, and remand to the Court of Claims for entry of an order granting
summary disposition in favor of IBM.
I. FACTS AND PROCEEDINGS
IBM is a corporation based in New York that provides information technology
products and services worldwide. In December 2009, IBM filed its Michigan Business
Tax annual return for the 2008 tax year. Line 10 of IBM’s return, the “Apportionment
Calculation” line, read “SEE ATTACHED ELECTION.” IBM filed a separate statement
along with its return, entitled “Election to use MTC Three Factor Apportionment,”
indicating that it elected to apportion its business income tax base and modified gross
2
MCL 208.1101 et seq.
2
receipts tax base using the three-factor apportionment formula provided in the Compact.
Under these calculations, IBM sought a refund of $5,955,218. The Department
disagreed. It determined that IBM could not elect to use the Compact’s formula and that
IBM was entitled to a refund of only $1,253,609 when calculated under the BTA’s sales-
factor apportionment formula.
IBM filed a complaint in the Court of Claims, challenging the Department’s
decision. Thereafter, IBM moved for summary disposition under MCR 2.116(C)(10),
and the Department moved for summary disposition under MCR 2.116(I)(2). After a
hearing on the motions, the Court of Claims denied summary disposition to IBM and
granted summary disposition in favor of the Department. The Court of Claims
determined that the BTA mandated the use of the sales-factor apportionment formula.
In an unpublished opinion, the Court of Appeals affirmed the Court of Claims
order granting summary disposition in favor of the Department.3 The Court of Appeals
first determined that there was a facial conflict between the BTA and the Compact insofar
as the BTA mandates use of the sales-factor formula while the Compact permits
taxpayers to elect to use a three-factor apportionment formula.4 On the basis of this
conflict, the Court of Appeals concluded that the Legislature had repealed the Compact’s
election provision by implication when it enacted the BTA.5 The Court of Appeals then
stated that it did not need to decide whether the modified gross receipts tax was an
3
IBM v Dep’t of Treasury, unpublished opinion per curiam of the Court of Appeals,
issued November 20, 2012 (Docket No. 306618).
4
Id. at 3.
5
Id. at 3-4. It also determined that the Compact was not a binding contract.
3
“income tax” under the Compact subject to the Compact’s apportionment formula in light
of its conclusion that the Compact’s election provision had been repealed by implication.6
IBM sought leave to appeal in this Court. We granted IBM’s application and
asked the parties to address
(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.[7]
II. STANDARD OF REVIEW
We review de novo a Court of Claims decision on a motion for summary
disposition.8 We also review de novo issues of statutory interpretation.9
6
Id. at 5. Judge RIORDAN concurred in all respects except regarding the issue of repeal
by implication. He determined that the panel did not need to conclude that the BTA had
impliedly repealed the Compact because MCL 208.1309 allowed the taxpayer to petition
for another apportionment formula. He concluded that the plain language of the BTA
required IBM to apportion its income tax consistently with the BTA.
7
IBM v Dep’t of Treasury, 494 Mich 874 (2013).
8
Malpass v Dep’t of Treasury, 494 Mich 237, 245; 833 NW2d 272 (2013).
9
Id.4
III. HISTORY OF BUSINESS TAXATION IN MICHIGAN
Because we believe it important to our analysis in this case, we begin with a
discussion of the history of business taxation in Michigan. Michigan’s taxation of
business income or activity began in 1953, when the Legislature enacted a business
activities tax that taxed the adjusted receipts of a taxpayer.10 This tax remained in effect
until Michigan adopted its first corporate income tax as part of the Income Tax Act of
1967 (ITA).11 Against the backdrop of the ITA, Michigan joined the Multistate Tax
Compact in 1970 when the Legislature enacted MCL 205.581.12 The Compact
“symbolized the recognition that, as applied to multistate businesses, traditional state tax
administration was inefficient and costly to both State and taxpayer.”13 Thus, the goals of
the Compact include facilitating and promoting equitable and uniform taxation of
multistate taxpayers.14 To this end, the Compact operates in conjunction with Michigan’s
10
See 1953 PA 150. See also Armco Steel Corp v Dep’t of Revenue, 359 Mich 430, 444;
102 NW2d 552 (1960) (“This tax is part of a general scheme of State taxation of business
activities in Michigan. It is a tax on Michigan activities measured, in amount, by
adjusted receipts derived from or attributable to Michigan sources . . . .”).
11
See MCL 206.61, as enacted by 1967 PA 281. The stated purpose of the ITA was “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 activities . . . .” Title, 1967 PA 281.
12
1969 PA 343. Section 1 of 1969 PA 343, codified under MCL 205.581, includes the
mandatory provisions of the Compact that must be enacted for a state to become a
member. See US Steel Corp v Multistate Tax Comm, 434 US 452, 455-456; 98 S Ct 799;
54 L Ed 2d 682 (1978).
13
US Steel Corp, 434 US at 456.
14
See MCL 205.581, Art I (“The purposes of this compact are to: (1) Facilitate proper
determination of state and local tax liability of multistate taxpayers, including the
5
tax acts, containing several provisions designed to ensure uniform taxation of multistate
taxpayers.
In 1976, the Legislature replaced the corporate income tax with a single business
tax.15 Unlike its predecessor, the Single Business Tax Act (SBTA) taxed business
activity, not income, and operated as “a form of value added tax.”16 In enacting the
SBTA, the Legislature expressly amended the ITA to the extent necessary to implement
the SBTA and expressly repealed provisions of the ITA that would conflict with the
SBTA.17 The Legislature, however, did not expressly repeal the Compact.18
The SBTA remained in effect until 2008, when the Legislature enacted the BTA,
which is at issue in this case.19 Representing another shift in business taxation, the BTA
imposed two main taxes: the business income tax and the modified gross receipts tax.20
In enacting the BTA, the Legislature expressly repealed the SBTA, but again did not
expressly repeal the Compact.21 However, the BTA was short-lived. Effective January
equitable apportionment on tax bases and settlement of apportionment disputes[,] (2)
Promote uniformity or compatibility in significant components of tax systems[,] (3)
Facilitate taxpayer convenience and compliance in the filing of tax returns and in other
phases of tax administration[,] and (4) Avoid duplicative taxation.”).
15
See MCL 208.1 et seq., as enacted by 1975 PA 228.
16
Trinova Corp v Dep’t of Treasury, 433 Mich 141, 149; 445 NW2d 428 (1989).
17
See 1975 PA 233.
18
See id.19
2007 PA 36; MCL 208.1101 et seq.
20
See MCL 208.1201; MCL 208.1203.
21
Enacting section 1 of 2006 PA 325 provides: “The single business tax act, 1975 PA
61, 2012, Michigan returned to a corporate income tax.22 At the same time, the
Legislature stayed true to its past practice of repealing conflicting tax acts and expressly
repealed the BTA.23
Throughout the evolution of our state’s method of business taxation, the Compact
has remained in effect. Another constant throughout this history is that the Legislature
has always required a multistate taxpayer with business income or activity both within
and without the state to apportion its tax base.24 This process, known as formulary
apportionment, has allowed Michigan to tax the portion of a taxpayer’s multistate
business carried on in Michigan without violating the Due Process Clause of the United
States Constitution.25 We now address whether a multistate taxpayer retained the
privilege of electing the apportionment method provided by the Compact for the 2008 tax
year.
228, MCL 208.1 to 208.145, is repealed effective for tax years that begin after December
31, 2007.”
22
See 2011 PA 38.
23
See 2011 PA 39, which reads in part:
Enacting section 1. The Michigan business tax act, 2007 PA 36,
MCL 208.1101 to 208.1601, is repealed effective on the date that the
secretary of state receives a written notice from the department of treasury
that the last certificated credit or any carryforward from that certificated
credit has been claimed.
Enacting section 2. This amendatory act does not take effect unless
House Bill No. 4361 of the 96th Legislature is enacted into law.
24
See MCL 205.553, as amended by 1954 PA 17; 1970 CL 206.115; 1979 CL 208.41;
MCL 208.1301.
25
Malpass, 494 Mich at 245-246.
7
IV. WHETHER IBM COULD ELECT TO USE THE COMPACT’S
APPORTIONMENT FORMULA FOR ITS 2008 TAXES
To determine whether IBM could elect to use the Compact’s three-factor
apportionment formula to calculate its 2008 Michigan taxes, we must decide if the
Legislature repealed the Compact’s election provision by implication when it enacted the
BTA.26
A. LEGAL PRINCIPLES
We begin our analysis “with the axiom that repeals by implication are
disfavored.”27 We will presume, “in most circumstances, that if the Legislature had
intended to repeal a statute or statutory provision, it would have done so explicitly.”28
Nevertheless, “[w]hen the intention of the legislature is clear, repeal by implication may
be accomplished by the enactment of a subsequent act inconsistent with a former act” or
“by the occupancy of the entire field by a subsequent enactment.”29 However, “where the
26
This is the principal argument offered by the Department in disallowing use of the
Compact’s apportionment formula. In the alternative, the Department argues the
Compact can be harmonized with the BTA by reading the Compact’s election provision
and apportionment formula into MCL 208.1309. We address this argument in note 55 of
this opinion.
27
Wayne Co Pros v Dep’t of Corrections, 451 Mich 569, 576; 548 NW2d 900 (1996).
The implied repeal doctrine has “remained stable over approximately four centuries of
common law in the United Kingdom and then here in the United States.” Markham, The
Supreme Court’s New Implied Repeal Doctrine: Expanding Judicial Power to Rewrite
Legislation under the Ballooning Conception of “Plain Repugnancy,” 45 Gonz L Rev
437, 464 (2010). Lord Edward Coke recognized the implied repeal doctrine as far back
as 1614. See id., p 456-458 (discussing Lord Coke’s seminal case on the implied repeal
doctrine—Doctor Foster’s Case, 77 Eng Rep 1222 (KB, 1614)).
28
Wayne Co Pros, 451 Mich at 576.
29
Washtenaw Co Rd Comm’rs v Pub Serv Comm, 349 Mich 663, 680; 85 NW2d 134
8
intent of the Legislature is claimed to be unclear, it is our duty to proceed on the
assumption that the Legislature desired both statutes to continue in effect unless it
manifestly appears that such view is not reasonably plausible.”30 Repeals by implication
will be allowed “only when the inconsistency and repugnancy are plain and
unavoidable.”31 We will “construe statutes, claimed to be in conflict, harmoniously” to
find “any other reasonable construction” than a repeal by implication.32 Only when we
determine that two statutes “are so incompatible that both cannot stand” will we find a
repeal by implication.33
In attempting to find a harmonious construction of the statutes, we “will regard all
statutes upon the same general subject-matter as part of one system . . . .”34 Further,
“[s]tatutes in pari materia, although in apparent conflict, should, so far as reasonably
possible, be construed in harmony with each other, so as to give force and effect to
each . . . .”35 This Court has stated:
(1957).
30
Wayne Co Pros, 451 Mich at 577.
31
Tillotson v Saginaw, 94 Mich 240, 244-245; 54 NW 162 (1892).
32
Wayne Co Pros, 451 Mich at 576-577 (emphasis added; citations and quotation marks
omitted).
33
Valentine v Redford Twp Supervisor, 371 Mich 138, 144; 123 NW2d 227 (1963). As
with any issue of statutory interpretation, our goal “is to give effect to the Legislature’s
intent, focusing first on the statute’s plain language.” Malpass, 494 Mich at 247-248
(citation and quotation marks omitted).
34
Rathbun v State of Michigan, 284 Mich 521, 544; 280 NW 35 (1938) (citation and
quotation marks omitted).
35
Id. (citation and quotation marks omitted).
9
It is a well-established rule that in the construction of a particular statute, or
in the interpretation of its provisions, all statutes relating to the same
subject, or having the same general purpose, should be read in connection
with it, as together constituting one law, although they were enacted at
different times, and contain no reference to one another. 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.[36]
In this case, the Compact’s election provision and § 301 of the BTA share the common
purpose of setting forth the methods of apportionment of a taxpayer’s multistate business
income; therefore, we must construe them together as statutes in pari materia.37
B. APPLICATION
With the history of Michigan business taxation and applicable legal principles in
mind, we turn to the specific statutes at issue. IBM sought to apportion its BTA tax base
using the Compact’s three-factor apportionment formula.38 In so doing, IBM relied on
the Compact’s election provision, which reads 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
36
Id. at 543-544 (citation and quotation marks omitted).
37
Id. at 543 (“Statutes in pari materia are those . . . which have a common
purpose . . . .”).
38
MCL 205.581, Art IV(9) (“All business income shall be apportioned to this state by
multiplying the income by a fraction, the numerator of which is the property factor plus
the payroll factor plus the sales factor, and the denominator of which is 3.”).
10
party state or pursuant to the laws of subdivisions in 2 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 . . . .[39]
This provision allows a taxpayer subject to an income tax to elect to use a party state’s
apportionment formula or the Compact’s three-factor apportionment formula.
However, the Department rejected IBM’s attempts to apportion its income through
the Compact’s apportionment formula. Instead, it required IBM to apportion its BTA tax
base consistently with the BTA and its sales-factor formula. Section 301 of the BTA
reads as follows:
(1) Except as otherwise provided in this act, each tax base
established under this act shall be apportioned in accordance with this
chapter.
(2) Each tax base of a taxpayer whose business activities are
confined solely to this state shall be allocated to this state. Each tax base of
a taxpayer whose business activities are subject to tax both within and
outside of this state shall be apportioned to this state by multiplying each
tax base by the sales factor calculated under section 303.[40]
We recognize that the language of the BTA is mandatory in nature.41 Under the
statute, a taxpayer’s BTA tax base must be apportioned through the BTA’s sales-factor
apportionment formula.42 The Department argues that this mandatory language precludes
39
MCL 205.581, Art III(1).
40
MCL 208.1301.
41
See Fradco v Dep’t of Treasury, 495 Mich 104, 114; 845 NW2d 81 (2014) (“The
Legislature’s use of the word ‘shall’ . . . indicates a mandatory and imperative
directive.”).
42
MCL 208.1301(1).
11
the use of any other apportionment formula and, reading it in isolation, we would agree.
However, as stated previously, § 301 of the BTA is not the only provision of Michigan’s
tax laws pertaining to the apportionment of business income—the Compact’s election
provision shares the same purpose. Therefore, we cannot interpret § 301 of the BTA in a
vacuum.43 Rather, we must consider it along with the Compact “by tracing the history of
legislation on the subject, to ascertain the uniform and consistent purpose of the
legislature.”44
The BTA is not the first Michigan business tax act to contain a mandatory
apportionment formula. All our past business tax acts mandated that a taxpayer with
income or activity that was taxable within and without the state allocate and apportion its
tax base consistently with each respective act.45 These acts further mandated that the tax
base be apportioned through a specific apportionment formula.46 The mandatory
43
See also People v Stephan, 241 Mich App 482, 497; 616 NW2d 188 (2000)
(recognizing that interpreting the unambiguous language of two conflicting statutes does
not end the analysis because “courts do not construe individual statutes in a vacuum” but
rather construe statutes together under the doctrine of in pari materia).
44
Rathbun, 284 Mich at 543-544 (stating further that courts “ ‘will regard all statutes
upon the same general subject matter as part of one system’ ”) (citation omitted).
45
See MCL 205.552, as amended by 1954 PA 17 (providing that “[t]he adjusted receipts
of a taxpayer derived from or attributable to Michigan sources shall be determined in
accordance with the provisions of section 3 of this act”); 1970 CL 206.103 (providing
that “[a]ny taxpayer having income from business activity which is taxable both within
and without this state . . . shall allocate and apportion his net income as provided in this
act”); 1979 CL 208.41 (providing that “[a] taxpayer whose business activities are taxable
both within and without this state, shall apportion his tax base as provided in this
chapter”).
46
See MCL 205.553(b), as amended by 1954 PA 17 (requiring that a taxpayer with
adjusted receipts attributable to activity within and without Michigan apportion the
12
apportionment language of the BTA is nearly identical to the language of its
predecessors.
The Department argues that the Legislature repealed the Compact’s election
provision when it enacted the BTA because § 301 of the BTA is the first tax provision
with apportionment language directly in conflict with the Compact’s election provision.
The import of this argument is that the Compact’s election provision was a dead letter
when it was enacted because both the ITA and the election provision required use of the
same three-factor apportionment formula. However, the Department’s argument
overlooks that the Compact’s election provision, by using the terms “may elect,”
contemplates a divergence between a party state’s mandated apportionment formula and
the Compact’s own formula—either at the time of the Compact’s adoption by a party
state or at some point in the future.47 Otherwise, there would be no point in giving
taxpayers an election between the two. In fact, reading the Compact’s election provision
as forward-looking—i.e., contemplating the future enactment of a state income tax with a
mandatory apportionment formula different from the Compact’s apportionment
receipts consistent with a three-factor formula); 1970 CL 206.115 (requiring that “[a]ll
business income . . . shall be apportioned to this state” through the standard three-factor
apportionment formula); 1979 CL 208.45 (requiring that “[a]ll of the tax base . . . shall be
apportioned to this state” through the three-factor apportionment formula). In 1991, the
Legislature began to phase out the SBTA’s equally weighted, three-factor apportionment
formula, requiring a progressively more sales-factor-focused apportionment formula. See
MCL 208.45, as amended by 1991 PA 77. However, the new apportionment formula was
still mandatory.
47
MCL 205.581, Art III(1). See also Black’s Law Dictionary (9th ed) (defining an
“election” as “[t]he exercise of a choice; esp., the act of choosing from several possible
rights or remedies in a way that precludes the use of other rights or remedies”).
13
formula—is the only way to give meaning to the provision when it was enacted in
Michigan.48 Viewed in this light, the BTA’s mandatory apportionment language may
plausibly be read as compatible with the Compact’s election provision.
Moreover, our review of the statutes in pari materia indicates a uniform and
consistent purpose of the Legislature for the Compact’s election provision to operate
alongside Michigan’s tax acts.49 Just as it did when it enacted the ITA,50 the Legislature,
in enacting the BTA, had full knowledge of the Compact and its provisions.51 Even with
such knowledge on both occasions, the Legislature left the Compact’s election provision
intact. By contrast, the Legislature expressly repealed or amended other inconsistent acts
regarding the taxation of businesses.52 Had the Legislature believed that the Compact’s
election provision no longer had a place in Michigan’s tax system or conflicted with the
48
See Moore v Fennvile Pub Schs Bd of Ed, 223 Mich App 196, 201; 566 NW2d 31
(1997) (“It is the duty of the courts to interpret statutes so as to render no provision
meaningless.”).
49
Rathbun, 284 Mich at 543-544.
50
Although the ITA’s apportionment method is largely consistent with the Compact’s
apportionment method, caselaw during the period in which both were in effect reflects
some potential for inconsistency. See Consumers Power Co v Dep’t of Treasury, 235
Mich App 380, 386 n 6; 597 NW2d 274 (1999) (discussing definitional differences
between the ITA and the Compact); Chocola v Dep’t of Treasury, 132 Mich App 820,
831; 348 NW2d 290 (1984); Donovan Const Co v Dep’t of Treasury, 126 Mich App 11;
337 NW2d 297 (1983).
51
In re Reynolds Estate, 274 Mich 354, 362; 264 NW 399 (1936) (“The Legislature, in
passing [a new act], is presumed to have done so with a full knowledge of existing
statutes.”).
52
See notes 21 and 23 of this opinion.
14
purpose of the BTA, it could have taken the necessary action to eliminate the election
provision.
Because the Legislature gave no clear indication that it intended to repeal the
Compact’s election provision, we proceed under the assumption that the Legislature
intended for both to remain in effect.53 After reading the statutes in pari materia, we
conclude that a reasonable construction exists other than a repeal by implication.54 Under
Article III(1) of the Compact, the Legislature provided a multistate taxpayer with a
choice between the apportionment method contained in the Compact or the
apportionment method required by Michigan’s tax laws. If a taxpayer elects to apportion
its income through the Compact, Article IV(9) mandates that the taxpayer do so using a
three-factor apportionment formula. Alternatively, if the taxpayer does not make the
Compact election, then the taxpayer must use the apportionment formula set forth in
Michigan’s governing tax laws. In this case, IBM’s tax base arose under the BTA. Had
it not elected to use the Compact’s apportionment formula, IBM would have been
required to apportion its tax base consistently with the mandatory language of the BTA—
i.e., through the BTA’s sales-factor apportionment formula.55 Thus, we believe the BTA
and the Compact are compatible and can be read as a harmonious whole.
53
See Wayne Co Pros, 451 Mich at 577.
54
Id. at 576-577.
55
Despite the above framework, the Department argues that if the BTA and the Compact
can be harmonized, it is only through MCL 208.1309(1), which allows a taxpayer to
petition to use another apportionment method. We disagree. The Department’s
“harmonization” would actually be an abrogation of the election provision. Section 309
requires that a taxpayer petition the Department for another apportionment method and
15
Subsequent action by the Legislature indicates that it did not impliedly repeal the
Compact’s election provision when it enacted the BTA.56 On May 25, 2011, the
Legislature expressly amended the Compact’s election provision by adding the following
language:
[E]xcept that beginning January 1, 2011 any taxpayer subject to the
Michigan business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or the
income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.697, shall, for
purposes of that act, apportion and allocate in accordance with the
provisions of that act and shall not apportion or allocate in accordance with
article IV.[57]
There is no dispute that the Legislature specifically intended to retroactively repeal the
Compact’s election provision for taxpayers subject to the BTA beginning January 1,
2011. The Legislature could have—but did not—extend this retroactive repeal to the
start date of the BTA. In addressing this legislation, the dissent suggests that “the 2011
Legislature may have simply been acting expressly to confirm what the 2007 Legislature
believed it had already done implicitly.”58 We would agree with that conclusion if the
Legislature had retroactively repealed the Compact’s election provision beginning
prove that the BTA’s apportionment provision does not fairly represent the taxpayer’s
business activity in the state. Thus, the Department’s interpretation takes the choice out
of the taxpayer’s hands and is inconsistent with the plain language of the Compact.
Therefore, we decline to accept the Department’s proposed harmonization.
56
See Baxter v Robertson, 57 Mich 127, 132; 23 NW 711 (1885) (“Legislative
construction of past legislation . . . is always entitled to be considered with some care, so
far as it throws light on doubtful language . . . .”).
57
2011 PA 40 (emphasis added).
58
Post at 6.
16
January 1, 2008, the effective date of the BTA. However, by only repealing the
Compact’s election provision starting January 1, 2011, the Legislature created a window
in which it did not expressly preclude use of the Compact’s election provision for BTA
taxpayers. Further, we believe that the express repeal of the Compact’s election
provision effective January 1, 2011, is evidence that the Legislature had not impliedly
repealed the provision when it enacted the BTA.59 Therefore, a review of the 2011
amendments supports our conclusion that the Compact’s election provision remained in
effect for the 2008 tax year.
C. RESPONSE TO THE DISSENT
The dissent’s analysis has a tantalizing simplicity to it. It homes in on the plain
language and mandatory nature of the BTA’s apportionment provision. However, the
dissent spends very little time considering the language of the Compact, its history, or the
history of business taxation in Michigan. While this approach may be proper in
construing the BTA in a typical case, it is incomplete when we are faced with the
question of implied repeal. Under such circumstances, that the dissent has arrived at the
better or even the best interpretation of the BTA does not end the inquiry. Rather, because
there is a presumption against implied repeals,60 it is our task to determine if there is any
59
See 1A Singer, Sutherland Statutory Construction (7th ed), § 23:11, p 485 (“[T]he later
express repeal of a particular statute may be some indication that the legislature did not
previously intend to repeal the statute by implication.”).
60
See Jackson v Mich Corrections Comm, 313 Mich 352, 356; 21 NW2d 159 (1946).
17
other reasonable construction that would harmonize the two statutes and avoid a repeal
by implication.61
Repeals by implication are rare, and properly so, given that we will presume under
most circumstances that “if the Legislature had intended to repeal a statute or statutory
provision, it would have done so explicitly.”62 They are even more unlikely in the realm
of our state’s taxation laws.63 This certainly creates a very high bar, but we disagree with
the dissent that we have made it absolute. Rather, by using the applicable canons of
construction and faithfully applying our precedents in this area, we have arrived at a
reasonable construction that harmonizes the BTA and the Compact.64
61
Wayne Co Pros, 451 Mich at 576-577 (emphasis added). See also Rathbun, 284 Mich
at 544-545 (If we “can by any fair, strict, or liberal construction find for the two
provisions a reasonable field of operation, without destroying their evident intent and
meaning, preserving the force of both, and construing them together in harmony with the
whole course of legislation upon the subject, it is [our] duty to do so.”) (emphasis added).
62
Wayne Co Pros, 451 Mich at 576. See also Matsushita Elec Indus Co v Epstein, 516
US 367, 381; 116 S Ct 873; 134 L Ed 2d 6 (1996) (“The rarity with which we have
discovered implied repeals is due to the relatively stringent standard for such findings,
namely, that there be an ‘irreconcilable conflict’ between the two federal statutes at
issue.”).
63
1A Singer, Sutherland Statutory Construction (7th ed), § 23:10, p 484, citing Sylk v
United States, 331 F Supp 661, 665 (ED Pa, 1971) (“On subjects to which the legislature
pays continuous, close attention, such as internal revenue laws, the presumption against
implied repeal may have greater force.”).
64
Contrary to the dissent’s suggestion, the question is not whether the 2008 Legislature
could disregard a policy choice by the 1970 Legislature—obviously it could—but instead
what action it must take to make its intentions clear in the absence of express repealing
language in the statute.
18
The dissent agrees that “every attempt” must be made to construe the BTA and the
Compact harmoniously. But, in the end, the dissent fails to heed this call. Instead,
because of its rigid focus on the mandatory language of the BTA—to the exclusion of the
language and history of the Compact, and its place in Michigan’s taxation scheme—the
dissent’s analysis is at odds with our longstanding implied-repeal jurisprudence.
D. CONCLUSION AS TO THE ISSUE OF IMPLIED REPEAL
In sum, because we are able to harmonize the BTA and the Compact’s election
provision, we conclude that the statutes are not “ ‘so incompatible that both cannot
stand.’ ”65 We believe that our interpretation allows the Compact’s election provision to
serve its purpose of providing uniformity to multistate taxpayers in light of Michigan’s
enactment of an apportionment formula different from the Compact’s formula. Any
conflict apparent from a first reading of these statutes is reconcilable when the statutes
are read in pari materia.66 Therefore, the Department has failed to overcome the
presumption against repeals by implication. Accordingly, the Court of Appeals erred by
holding that the Legislature repealed the Compact’s election provision by implication
65
Valentine, 371 Mich at 144 (citation omitted).
66
The Department also cannot show that the Legislature intended to occupy the entire
field covered by the Compact when it enacted the BTA to establish a repeal by
implication. Washtenaw Co Rd Comm’rs, 349 Mich at 680. The BTA and the Compact,
while having some overlapping provisions, occupy two different fields. The BTA is a
stand-alone tax act that governs the taxation of businesses. The Compact acts as an
overlay to Michigan’s taxation system. It is specifically designed to leave the member
states with “complete control over all legislation and administrative action affecting the
rate of tax, the composition of the tax base . . . , and the means and methods of
determining tax liability and collecting any taxes determined to be due.” US Steel Corp,
434 US at 457.
19
when it enacted the BTA. Instead, we hold that the Compact’s election provision was
available to IBM for the 2008 tax year.67
V. WHETHER THE MODIFIED GROSS RECEIPTS TAX IS AN INCOME TAX
UNDER THE COMPACT
Having determined that IBM could elect to use the Compact’s apportionment
formula for the 2008 tax year, we must next consider whether IBM could apportion its
entire BTA tax base through the Compact’s apportionment formula. IBM’s 2008 BTA
tax base contained two components: the business income tax base and the modified gross
receipts tax (MGRT) base. The parties quarrel over whether both components may be
apportioned under the Compact. The Compact election is available to “[a]ny taxpayer
subject to an income tax.”68 While it is undisputed that the business income tax is an
income tax, the Department argues that the MGRT is not an income tax, but rather a
gross receipts tax not subject to the Compact’s election provision. Therefore, we must
determine whether the MGRT is an income tax under the Compact and, thus,
apportionable under the Compact’s three-factor apportionment formula.
The Compact defines “income tax” as follows:
67
Because we are able to harmonize the statutes and conclude that no repeal by
implication occurred, we decline to discuss whether the Compact is binding and, thus,
whether the Legislature even could repeal the Compact by implication. That inquiry
involves constitutional issues, which we will not reach because they are unnecessary to
resolve the case. See Booth Newspapers, Inc v Univ of Mich Bd of Regents, 444 Mich
211, 234; 507 NW2d 422 (1993) (“In addition, there exists a general presumption by this
Court that we will not reach constitutional issues that are not necessary to resolve a
case.”).
68
MCL 205.581, Art III(1).
20
[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.[69]
Under the Compact’s broad definition, a tax is an income tax if the tax measures net
income by subtracting expenses from gross income, with at least one of the expense
deductions not being specifically and directly related to a particular transaction.70
“Modified gross receipts tax” is not defined by the BTA, but MCL 208.1203(2)
states, “[The MGRT] levied and imposed under this section is upon the privilege of doing
business and not upon income or property.” Although this statement indicates that the
MGRT is not a tax upon income under the BTA, we must still determine whether the
MGRT fits under the broad definition of “income tax” under the Compact.
69
MCL 205.581, Art II(4). The Compact also defines “gross receipts tax” in Art II(6) as
follows:
[A] tax, other than a sales tax, which is imposed on or measured by
the gross volume of business, in terms of gross receipts or in other terms,
and in the determination of which no deduction is allowed which would
constitute the tax an income tax.
70
We need not put a definitive label on the MGRT, a task with which commentators have
struggled. See, e.g., McIntyre & Pomp, A Policy Analysis of Michigan’s Mislabeled
Gross Receipts Tax, 53 Wayne L Rev 1283 (2007) (concluding that the MGRT is akin to
a sales-subtraction value added tax but that it is not a transactional tax); Gandhi,
Computing the Tax Base: The Michigan Business Tax, 53 Wayne L Rev 1369 (2007)
(concluding that the MGRT is a reverse-build of Michigan’s now-repealed Single
Business Tax); Grob & Roberts, The Michigan Business Tax Replaces the State’s Much-
Vilified SBT, 17-Oct J Multistate Tax’n & Incentives 8 (2007) (concluding that the
MGRT is something between a gross receipts tax and a gross margin tax). Instead, we
are only tasked with determining whether the MGRT qualifies as an income tax under the
Compact.
21
The MGRT base is “a taxpayer’s gross receipts . . . less purchases from other
firms . . . .”71 The BTA defines “gross receipts” as
the entire amount received by the taxpayer as determined by using the
taxpayer’s method of accounting used for federal income tax purposes, less
any amount deducted as bad debt for federal income tax purposes that
corresponds to items of gross receipts . . . , from any activity whether in
intrastate, interstate, or foreign commerce carried on for direct or indirect
gain, benefit, or advantage to the taxpayer or to others . . . .[72]
Not only is the gross receipts amount reduced by numerous exclusions, it is also subject
to a deduction for the “amount deducted as bad debt for federal income tax purposes that
corresponds to items of gross receipts included in the modified gross receipts tax base.”73
This total—the entire amount received by the taxpayer from any activity minus the bad-
debt deduction and the numerous exclusions under MCL 208.1111—is the gross receipts
base from which the MGRT liability originates.
After the taxpayer determines its gross receipts through the above calculation, the
taxpayer then reduces the gross receipts base by “purchases from other firms.”74 The
“purchases from other firms” deductions include, among other things, “inventory
acquired during the tax year, including freight, shipping, delivery, or engineering charges
included in the original contract price”; “assets . . . acquired during the tax year of a type
that are, or under the internal revenue code will become, eligible for depreciation,
71
MCL 208.1203(3).
72
MCL 208.1111(1).
73
Id.74
MCL 208.1203(3).
22
amortization, or accelerated capital cost recovery for federal income tax purposes”; and
materials and supplies to the extent not included in inventory or depreciable property.75
There are also deductions for compensation paid in certain industries and for payments to
independent contractors.76 Once gross receipts is reduced by any applicable deductions,
the taxpayer arrives at its MGRT base, which is then subject to the MGRT at a rate of .80
percent after allocation or apportionment to this state.77
Having examined how a taxpayer’s MGRT base is calculated, we now turn to the
question whether the MGRT fits within the Compact’s definition of “income tax.” For
the MGRT to be an income tax under the Compact, a tax must measure net income by
starting with gross income and subtracting expenses, with at least one of the expense
deductions not specifically and directly related to a particular transaction.78 The Compact
and the BTA do not define “gross income.” Therefore, we look elsewhere to determine
what normally constitutes gross income. The Internal Revenue Code defines “gross
income” as “all income from whatever source derived” and includes a nonexclusive list
of items that includes things such as “gross income derived from business” and “gains
derived from dealings in property.”79 26 CFR § 1.61-1 provides that “[g]ross income
75
MCL 208.1113(6)(a) through (c). “Inventory” is defined as “[t]he stock of goods held
for resale in the regular course of trade of a retail or wholesale business” and “[f]inished
goods, goods in process, and raw materials of a manufacturing business purchased from
another person.” MCL 208.1111(4)(a), (b).
76
MCL 208.1113(6)(d) through (g).
77
MCL 208.1203(1).
78
MCL 205.581, Art II(4).
79
26 USC 61.
23
includes income realized in any form, whether in money, property, or services.” 26 CFR
§ 1.61-3 further provides that gross income for manufacturing, merchandising, or mining
businesses is “the total sales, less the cost of goods sold, plus any income from
investments and from incidental or outside operations or sources.” Moreover, Black’s
Law Dictionary states that gross income means “[t]otal income from all sources before
deductions, exemptions, or other tax reductions.”80
These definitions of gross income are similar to the definition of gross receipts
under the BTA—the entire amount received by the taxpayer as determined from any
gainful activity. Like gross income under the Internal Revenue Code, gross receipts are
subject to myriad exclusions and deductions. Notably, gross receipts are subject to a
reduction for the purchase of inventory during the tax year, including freight, shipping,
delivery, or engineering charges included in the original contract price. This is similar to
the IRS’s definition of “gross income” for manufacturing, merchandising, or mining
businesses—total sales less the cost of goods sold.81 In addition, several of these
exclusions or deductions are not specifically and directly related to particular
transactions.82 Depreciable assets can be assets used over a certain number of years and,
80
Black’s Law Dictionary (9th ed), p 831.
81
“Cost of goods sold” is determined by a taxpayer’s inventory. See 33A Am Jur 2d,
Federal Taxation, § 6500 (“A taxpayer must use inventories to determine the cost of
goods sold if the production, purchase, or sale of merchandise is an income-producing
factor.”). See also Thor Power Tool Co v Comm’r of Internal Revenue, 439 US 522, 530
n 9; 99 S Ct 773; 58 L Ed 2d 785 (1979); Hygienic Prods Co v Comm’r of Internal
Revenue, 111 F2d 330, 331 (CA 6, 1940).
82
While the Compact does not define the phrase “not specifically and directly related to
particular transactions,” the use of the words “specifically,” “directly,” and “particular”
24
thus, not related to a single transaction.83 Materials and supplies purchased during a tax
year can be used at any time for the operation of a business and for any amount of
transactions. Finally, the purchase of inventory, which includes such things as goods
held for resale or raw materials, some of which can stay in a taxpayer’s warehouse for an
indeterminate amount of time, can be an expense not specifically or directly related to a
particular transaction.84
We hold that the MGRT fits within the broad definition of “income tax” under the
Compact by taxing a variation of net income—the entire amount received by the taxpayer
as determined from any gainful activity minus inventory and certain other deductions that
are expenses not specifically and directly related to a particular transaction. Therefore,
IBM could elect to use the Compact’s apportionment formula for that portion of its tax
base subject to the MGRT for the 2008 tax year.85
VI. CONCLUSION
We conclude that Court of Appeals erred by holding that the BTA repealed the
Compact’s election provision by implication. Therefore, IBM could elect to use the
connotes a close relation to an individual transaction. See Random House Webster’s
College Dictionary (2001). That is, the tax cannot be a tax focusing on specific
transactions, i.e., a transactional tax.
83
See 26 USC 167, 168.
84
MCL 208.1111(4)(a), (b).
85
Our holding is limited to the determination that the MGRT is included within the
Compact definition of “income tax.” As noted earlier in note 70, we do not need to reach
the issue whether the MGRT, generally, is an income tax.
25
Compact’s apportionment formula during the 2008 tax year. We further hold that IBM
could use the Compact’s apportionment formula to apportion its MGRT base under the
BTA. Accordingly, we reverse the Court of Appeals judgment in favor of the
Department, reverse the Court of Claims order granting summary disposition in favor of
the Department, and remand to the Court of Claims for entry of an order granting
summary disposition in favor of IBM.
David F. Viviano
Michael F. Cavanagh
Stephen J. Markman
26
STATE OF MICHIGAN
SUPREME COURT
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Plaintiff-Appellant,
v No. 146440
DEPARTMENT OF TREASURY,
Defendant-Appellee.
ZAHRA, J. (concurring).
I agree with the lead opinion’s holding that IBM was entitled to use the Compact’s
elective three-factor apportionment and allocation formula for its 2008 Michigan taxes. I
also agree with both the lead opinion and the dissenting opinion that the tax bases at issue
here are “income taxes” within the meaning of the Compact. Whether the Legislature
repealed the Compact’s election provision by implication when it enacted the BTA is a
very close question. I would not reach that question because the Legislature made clear
that taxpayers are entitled to use the Compact’s election provision for the 2008, 2009, and
2010 tax years.
Assuming that the Legislature impliedly repealed the Compact’s election
provision in 2008 by enacting the BTA, IBM could nonetheless avail itself of the
Compact’s election provision for tax years 2008 through 2010 because the Legislature, in
2011, clearly intended to provide multistate taxpayers the benefit of the Compact’s
election provision for these tax years. Specifically, on May 25, 2011, the Legislature
necessarily re-enacted all the provisions of the Compact, and ordered that act to take
immediate effect.1 MCL 8.3u provides that
[t]he provisions of any law or statute which is re-enacted, amended or
revised, so far as they are the same as those of prior laws, shall be
construed as a continuation of such laws and not as new enactments. If any
provision of a law is repealed and in substance re-enacted, a reference in
any other law to the repealed provision shall be deemed a reference to the
re-enacted provision.
Pursuant to this provision, we must construe the Compact as though it had not been
impliedly repealed.2
That said, the BTA’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. This new provision is
not “the same as those of prior laws” and is a “new enactment,” which expressly provides
that a taxpayer could elect to apportion its income under article IV of the Compact
except that beginning January 1, 2011 any taxpayer subject to the Michigan
business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or the income
tax act of 1967, 1967 PA 281, MCL 206.1 to 206.697, shall, for purposes of
that act, apportion and allocate in accordance with the provisions of that act
and shall not apportion or allocate in accordance with article IV.[3]
There can be no dispute given this language that the Legislature specifically
intended to retroactively repeal the Compact’s election provision beginning January 1,
1
2011 PA 40.
2
See also 1A Singer, Sutherland Statutory Construction (7th ed), Repeal and
Reenactment, § 23:29.
3
2011 PA 40.
2
2011. Further, I conclude that this language contemplates that any taxpayer could avail
itself of the Compact’s election provision for tax years 2008 through 2010. This is
because the Legislature, either under the original enactment of the Compact4 (assuming
the Legislature did not repeal the Compact’s election provision by implication when it
enacted the BTA) or under the above re-enactment and supplementation of the Compact5
(assuming the Legislature repealed the Compact’s election provision by implication when
it enacted the BTA), chose to commence its express repeal of the Compact’s election
provision on January 1, 2011, even though the conflict between the BTA and the
Compact had existed from the 2008 tax year. Simply put, the contrapositive of the
Compact’s supplemental provision must mean that before January 1, 2011, a taxpayer
could, “for purposes of that act [the ITA or the BTA], apportion and allocate in
accordance with the provisions of [the ITA or the BTA] and [may] apportion or allocate
in accordance with article IV” of the Compact. This is, in my opinion, the most
reasonable understanding of this legislation.
In sum, the Legislature in 2011 created a window in which it intended the
Compact’s election provision to apply. In this case, IBM sought to “apportion and
allocate” its taxes under the BTA well before January 1, 2011, and therefore may
apportion or allocate its taxes in accordance with article IV of the Compact. For this
reason, I concur in the result reached in the lead opinion.
Brian K. Zahra
4
1969 PA 343.
5
2011 PA 40.
3
STATE OF MICHIGAN
SUPREME COURT
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Plaintiff-Appellant,
v No. 146440
DEPARTMENT OF TREASURY,
Defendant-Appellee.
MCCORMACK, J. (dissenting).
I respectfully dissent because I conclude that the Michigan Business Tax Act
(BTA), MCL 208.1101 et seq., requires taxpayers to apportion their multistate income in
accordance with the BTA’s sales-only apportionment formula and without resort to the
Multistate Tax Compact’s election provision. I reach this result because the Legislature’s
command—“each tax base established under this act shall be apportioned in accordance
with this chapter,” MCL 208.1301(1) (emphasis added)—is plain, unambiguous, and
permits only one interpretation. Further, there is no constitutional barrier that prevents
the Legislature from making the Compact’s alternative election provision unavailable to
taxpayers. I would affirm the judgment of the Court of Appeals.
I. AN IRRECONCILABLE CONFLICT OF STATUTES
The threshold issue is, at its core, one of statutory interpretation. When the
language of a statute is unambiguous, we give effect to its plain meaning. Ter Beek v
City of Wyoming, 495 Mich 1, 8; 846 NW2d 531 (2014). It is hard to imagine a more
unambiguous command than the mandatory directive found in § 301 of the BTA: “Except
as otherwise provided in this act, each tax base established under this act shall be
apportioned in accordance with this chapter.” MCL 208.1301(1). There is no “otherwise
provided” exception in the BTA that would aid IBM in its attempt to avoid the statute’s
sales-only apportionment requirement. And, within Chapter 208 of the Michigan
Compiled Laws, it is the BTA alone that provides the formula by which taxpayers are to
apportion their multistate income. See MCL 208.1301(2); MCL 208.1303(1). Neither
the Compact nor its apportionment provisions are referred to anywhere in the BTA.
I share the lead opinion’s view that we must make every attempt “to construe
statutes, claimed to be in conflict, harmoniously[.]” Wayne Co Prosecutor v Dep’t of
Corrections, 451 Mich 569, 577; 548 NW2d 900 (1996).1 When later enacted legislation
irreconcilably conflicts with a prior act, however, “the last expression of the legislative
will must control.” Jackson v Mich Corrections Comm, 313 Mich 352, 356; 21 NW2d
159 (1946).
Section 301(1) of the BTA directs that taxes established under the BTA be
apportioned “in accordance with this chapter.” “[T]his chapter” requires taxpayers to use
1
The lead opinion implies that if the Compact is found to irreconcilably conflict with the
BTA, the Compact, as the earlier enacted statute, will necessarily have been repealed by
implication. Our caselaw does not demand such a result. See Metro Life Ins Co v Stoll,
276 Mich 637, 641; 268 NW 763 (1936) (“It is the rule that where two laws in pari
materia are in irreconcilable conflict, the one last enacted will control or be regarded as
an exception to or qualification of the prior statute.”) In any event, regardless of whether
the BTA impliedly repealed the Compact beginning January 1, 2008, the issue remains
the same—whether the Compact election was available for tax years 2008 through 2010.
2
a sales-only apportionment formula.2 The Compact, however, provides that “[a]ny
taxpayer subject to an income tax[3] . . . may elect to apportion” its income in accordance
with the Compact’s three-factor apportionment formula. MCL 205.581, Art III(1).
Reading these provisions side by side, I see two, and only two, possible results: either
taxes established under the BTA need not be apportioned “in accordance with this
chapter,” as § 301 demands, or taxpayers may not elect to use the Compact formula to
apportion tax bases established under the BTA. While I agree with the lead opinion that
statutes that appear to be conflict should be read together and reconciled, if reasonably
possible, Rathbun v State of Michigan, 284 Mich 521, 544; 280 NW 35 (1938), I disagree
that this is a case where reconciliation is possible. The differing opinions offered by this
Court here make the underlying conflict undeniably plain. The Compact and the BTA
are irreconcilably in conflict; one statute—either the Compact or the BTA—must prevail
over the other. And neither alternative is easily dismissed. Traditional rules of
construction lead me to resolve the conflict in favor of the later enacted and more specific
legislation. See Kalamazoo v KTS Indus, Inc, 263 Mich App 23, 38-39; 687 NW2d 319
(2004) (resolving a direct conflict between two statutes in favor of the subsequently
enacted legislation).
2
Taxpayers may petition the Treasury to use an alternative apportionment method if the
apportionment provisions of the BTA “do not fairly represent the extent of the taxpayer’s
business activity in this state[.]” MCL 208.1309(1).
3
I agree with the lead opinion that the tax bases at issue here are “income taxes” within
the meaning of the Compact. MCL 205.581, Art II(4).
3
The lead opinion agrees that the plain language of § 301 is mandatory. But it
asserts that § 301 can nevertheless be interpreted as permitting taxpayers to make the
Compact election. I do not see how this interpretation of the BTA is reasonable. If a
taxpayer can elect an alternative apportionment formula, then § 301 is in no sense
mandatory. Quite the opposite: § 301’s mandatory apportionment “in accordance with
this chapter” becomes optional. By interpreting § 301 as permitting taxpayers to make
the Compact election, the lead opinion has not, as it claims, settled on a harmonious
construction of the BTA and the Compact. Rather, it has resolved the conflict in favor of
the Compact, the earlier enacted statute. But our precedent is clear: when an
irreconcilable conflict exists, as in this case, the later enacted legislation controls.
Jackson, 313 Mich at 356; see also Washtenaw Co Rd Comm’rs v Pub Serv Comm, 349
Mich 663, 680; 85 NW2d 134 (1957). Because I am not convinced that the two statutes
can be read harmoniously, I believe that, for tax years 2008 through 2010, the enactment
of the BTA impliedly repealed the Compact’s election provision.
The lead opinion tries to give some effect to § 301 by stating that a taxpayer “must
use the apportionment formula set forth in” the BTA if it does not make the Compact
election. Ante at 15. This construction does not make § 301’s mandatory directive
“mandatory” at all. When a taxpayer is given a choice as to whether they will apportion
their income in accordance with the BTA’s sales-only formula, the number of alternative
options—a single one, or more—is irrelevant. As long as an alternative option exists, the
taxpayer may, not must, use the apportionment formula set forth in the BTA. And once
the lead opinion’s “mandatory” construction is revealed to be anything but that, I do not
believe that the lead opinion has persuasively explained why the BTA did not impliedly
4
amend or repeal the Compact’s election provision. Rather, the lead opinion, relying on
the fact that the Legislature has expressly repealed and amended tax statutes in the past,
simply states that “[h]ad the Legislature believed that the Compact’s election provision
no longer had a place in Michigan’s tax system . . . , it could have taken the necessary
action to eliminate the election provision.” Ante at 14-15. Because it did not, the lead
opinion “proceed[s] under the assumption that the Legislature intended for [the
Compact’s election provision] to remain in effect.” Ante at 15. This, of course, simply
assumes the lead opinion’s conclusion that there was no repeal. Yes, repeals by
implication are disfavored, and that the Legislature knows how to affect an express repeal
is irrefutable. But by demanding that the Legislature take “the necessary action”—i.e.,
expressly amend or repeal the Compact—the lead opinion has elevated the presumption
against implied repeals into an absolute bar.
Having failed to adequately explain why the statutory language itself permits the
result it reaches, the lead opinion anchors its analysis in a historical overview of business
taxation in Michigan. While informative, I find this approach ultimately unpersuasive.
The lead opinion argues that because the Compact was enacted at a time when Michigan
law applied the same three-factor apportionment formula as that provided in the
Compact, the Legislature, in enacting it, must have anticipated the future enactment of a
tax act requiring a different apportionment formula and intended for the Compact to
prevail should a conflict arise. But even assuming that the lead opinion is correct, that
interpretation reads into the Compact a policy choice by the 1970 Legislature that the
2008 Legislature was free to disagree with, either by enacting an income tax with a
different, mandatory apportionment formula, as it did in 2008, or by repealing the
5
election provision outright, as it did in 2011. See Studier v Mich Pub Sch Employees’
Retirement Bd, 472 Mich 642, 661; 698 NW2d 350 (2005) (“[A] fundamental principle
of the jurisprudence of both the United States and this state is that one legislature cannot
bind the power of a successive legislature.”).
The lead opinion underscores its error by attaching particular significance to 2011
PA 40, which expressly amended the Compact to make the election unavailable to BTA
taxpayers beginning January 1, 2011. The effect of this amendment on tax years 2011
and beyond is plain to see, but whether the amendment lends force to IBM’s position in
this dispute is not. In enacting this amendment, the 2011 Legislature may have simply
been acting expressly to confirm what the 2007 Legislature believed it had already done
implicitly. And even if the 2011 Legislature was expressing its view that the BTA did
not, in fact, repeal the election provision, this Court is not bound by the prior
Legislature’s construction of the earlier enactment. See Robertson v Baxter, 57 Mich
127, 132; 23 NW 711 (1885) (“Legislative construction of past legislation has no judicial
force except for the future. But it is always entitled to be considered with some care, so
far as it throws light on doubtful language, and for future cases it has authority.”); Frey v
Mitchie, 68 Mich 323, 327; 36 NW 184 (1888) (“It is unnecessary to say more than that a
legislative interpretation of old laws has no judicial force. Whether right or wrong must
be determined by the statutes themselves.”). The question we must answer in this case
concerns what the Legislature intended when it enacted the BTA—not what it intended
when it enacted the Compact forty years earlier or amended it three years later. While in
answering this question the 2011 amendment may be considered “with some care, so far
6
as it throws light on doubtful language,” Baxter, 57 Mich at 132, that light does not shine
on the lead opinion’s argument.
In my view the BTA made the Compact election unavailable. Because the statutes
are irreconcilably in conflict, the latter, as the more specific and later enacted statute,
must be given effect over the former. For this reason, I disagree with the lead opinion
that the BTA’s mandatory directive can be interpreted so as to allow BTA taxpayers to
make the Compact election instead. As a result, I find it necessary to address IBM’s
argument that the Legislature was not constitutionally permitted to make the BTA’s
sales-only apportionment formula exclusive and mandatory without first repealing the
Compact in its entirety.
II. THE LEGISLATURE WAS NOT BARRED FROM UNILATERALLY
AMENDING THE COMPACT
IBM asks this Court to invoke the authority of “compact law” and hold that the
Legislature, even had it intended to alter the Compact’s election provision when it
enacted the BTA, was prohibited from doing so.4 I would decline that invitation.
4
To the extent that IBM is separately arguing that the Compact is a binding contract
among its member states and that unilateral amendment of the Compact offends the
Contract Clause, that argument is discussed later in this opinion.
The California First District Court of Appeal recently decided this very issue in 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 Gillette Court held that “under established compact law,
the [Multistate Tax] Compact superseded subsequent conflicting state law . . . [and] the
federal and state Constitutions prohibit states from passing laws that impair the
obligations of contracts.” Gillette, 147 Cal Rptr 3d at 615. For the reasons stated herein,
I believe that Gillette was wrongly decided.
7
The United States Constitution provides that “[n]o State shall, without the Consent
of Congress . . . enter into any Agreement of Compact with another State[.]” US Const,
art I, § 10, cl 3. As the Supreme Court explained in US Steel Corp v Multistate Tax
Comm, 434 US 452; 98 S Ct 799; 54 L Ed 2d 682 (1978), the clause is not to be read
strictly, but only as requiring congressional consent for compacts that tend to increase the
political power of the states in a way that “may encroach upon or interfere with the just
supremacy of the United States.” Id. at 471 (quotation marks and citation omitted).
Those compacts that receive congressional authorization and fall within the scope of the
Compact Clause are treated as federal law. Cuyler v Adams, 449 US 433, 440; 101 S Ct
703; 66 L Ed 2d 641 (1981). Compacts without congressional approval, however, are not
transformed into federal law; thus their construction is a matter of state statutory law.
Notwithstanding the fact that the Multistate Tax Compact, as a compact without
congressional approval, does not carry the supreme force of federal law, IBM believes
that the Legislature could not impose an exclusive apportionment formula because the
Compact supersedes conflicting state law in any event. This is contrary to our well-
established rule that a statute can be amended, repealed, or superseded, in whole or in
part, expressly or impliedly, by a subsequently enacted statute. LeRoux v Secretary of
State, 465 Mich 594, 615; 640 NW2d 849 (2002) (“Absent the creation of contract rights,
the later Legislature is free to amend or repeal existing statutory provisions.”). The
essence of IBM’s argument is that because a compact is an agreement between Michigan
and the other member states, it is not like any other state law subject to traditional
principles of statutory construction, but rather it has some greater force and authority. As
a result, any variation from the Compact’s terms is strictly prohibited. In support of this
8
proposition, IBM cites as persuasive authority McComb v Wambaugh, 934 F2d 474, 479
(CA 3, 1991), and CT Hellmuth & Assoc, Inc v Washington Metro Area Transit Auth, 414
F Supp 408, 409 (D Md, 1976). Neither case, in my view, supports such a rule.
In McComb, the plaintiff, as guardian ad litem for a minor child, brought a suit
against the city of Philadelphia and its employees under 42 USC 1983. The suit sought
damages for injuries the child suffered as a result of parental abuse. Before he was
injured the child was under the protective custody of a Virginia court. The Virginia court
ordered that the child be returned to his parental home in Philadelphia, where the abuse
occurred. Plaintiff argued that the Virginia court order, in conjunction with the Interstate
Compact for Placement of Children (ICPC), a compact to which Pennsylvania and
Virginia are parties that had not been congressionally approved, extended the jurisdiction
of the Virginia court into Pennsylvania and thereby imposed a legal duty on the
Philadelphia social workers. The United States Court of Appeals for the Third Circuit
rejected this argument, ultimately concluding that the ICPC did not apply when a child is
returned by the sending state to a natural parent residing in another state. McComb, 934
F2d at 482.
IBM cites the Third Circuit’s discussion of the scope of the ICPC for its argument
here:
Because Congressional consent was neither given nor required, the
[ICPC] does not express federal law. Consequently, this Compact must be
construed as state law. . . .
Nevertheless, uniformity of interpretation is important in the
construction of a Compact because in some contexts it is a contract between
the participating states. Having entered into a contract, a participant state
may not unilaterally change its terms. A Compact also takes precedence
9
over statutory law in member states. [McComb, 934 F2d at 479 (citations
omitted; emphasis added).]
The McComb court 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. Moreover, the unsupported
statement contradicts the one that precedes it. Either the compact must be construed as
state law or it must be construed as something with greater authority than state law, but
the McComb court said both. Finally, this statement was dictum, because the court did
not identify any potential conflict between the ICPC and Pennsylvania law and the court
ultimately determined that the ICPC did not apply. Id. at 482.
In CT Hellmuth, the plaintiff sought to compel disclosure of documents under
Maryland law. The defendant, an interstate agency formed by an interstate compact
between Maryland, Virginia, and the District of Columbia, argued that its status as an
interstate agency exempted it from the Maryland law. In granting the defendant’s motion
for summary judgment, the court remarked that
when enacted, a compact constitutes not only law, but a contract which may
not be amended, modified, or otherwise altered without the consent of all
parties. It, therefore, appears settled that one party may not enact
legislation which would impose burdens upon the compact absent the
concurrence of the other signatories. [CT Hellmuth, 414 F Supp at 409.]
CT Hellmuth and the cases it relied upon, however, involved congressionally approved
compacts, which, as explained, supersede subsequent state law by virtue of the
Supremacy Clause. Cuyler, 449 US at 440.
IBM’s claim that the Compact trumps the BTA simply because of its status as a
compact relies on the faulty premise that the distinction between compacts that have
10
congressional approval and those that do not is unimportant, and that all compacts are
immune to unilateral modification by their member states because “[a] Compact . . . takes
precedence over statutory law in member states.” McComb, 934 F2d at 479. This
assumes too much. Any immunity, if it exists, is a result of a compact’s dual nature as
both state law and a contract among its member states. See Green v Biddle, 21 US (8
Wheat) 1; 5 L Ed 547 (1832) (recognizing that an interstate compact can be a contract).
As a result the Legislature is free to amend or repeal an existing statutory provision as
long as it does not impair a contractual obligation. LeRoux, 465 Mich at 615; see US
Const, art I, § 10, cl 1; Const 1963, art 1, § 10. In other words, the Legislature is
prohibited from unilaterally amending the Compact only if that amendment impairs
contractual obligations created by the Compact itself. When viewed as a matter of
contract law, I believe that it was within the Legislature’s power to require BTA
taxpayers to apportion their multistate income solely in accordance with § 301.
III. UNILATERAL AMENDMENT OF MCL 205.581, ART III(2) DOES NOT
VIOLATE THE STATE OR FEDERAL CONTRACTS CLAUSE
In evaluating whether § 301 of the BTA unconstitutionally impairs a contract, the
threshold question is whether the Compact did, in fact, create a contractual relationship in
the first instance. I do not believe that it did. Two factors weigh heavily in this
conclusion. First, the member states’ courses of conduct indicate that there is no
contractual obligation to strictly adhere to Articles III and IV of the Compact. Second,
the Compact is silent regarding a member state’s authority to enact exclusive
apportionment formulas that differ from the Compact’s formula.
11
Starting with the obvious: taxpayers like IBM were not parties to the Compact. To
the extent that the Compact can be viewed as a contract, it is an agreement between its
member states, not between taxpayers and the states.5 The Compact member states’
courses of performance are critical to understanding the nature of the agreement. As the
Supreme Court recently explained, a party’s course of performance is “highly significant”
evidence of the party’s understanding of the Compact’s terms. Tarrant Regional Water
Dist v Hermann, ___ US ___; 133 S Ct 2120, 2135; 186 L Ed 2d 153 (2013) (citation and
quotation marks omitted).6 Here, it is plain that the member states did not view strict
adherence to Articles III and IV as a binding contractual obligation, as Compact members
have deviated from the Compact’s election provision and apportionment formula without
objection from other members. Arkansas, for example, has retained the Compact’s
election provision but changed the Compact formula to place additional emphasis on the
sales factor. Ark Code 26-5-101, Art IV(9). Nondeviating members have not pursued
actions against those states that have deviated, and no member state has intervened on
IBM’s behalf in this case. Further, the Multistate Tax Commission—the organization
charged with administering the Compact—has urged us to reject IBM’s rigid
5
While the Treasury has not made the argument in its brief on appeal, it 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.
6
Michigan law recognizes a similar principle. See Klapp v United Ins Group Agency,
Inc, 468 Mich 459, 478-479; 663 NW2d 447 (2003).
12
interpretation of the Compact. These facts weigh heavily in favor of rejecting IBM’s
argument that the Compact creates a binding contractual obligation on its member states
to refrain from amending the election provision.7
Deference to principles of state sovereignty leads me to the same conclusion. As
this Court explained in Studier, 472 Mich at 661, there is a “strong presumption that
statutes do not create contractual rights.” This 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.” Id. IBM has not
overcome this presumption here. The Compact’s silence on the effect of a member
state’s ability to elect an exclusive apportionment formula indicates that Michigan did not
contract away its right to do exactly that. Id. at 662. While it is true that the Compact
does not expressly allow Michigan to adopt a different apportionment formula, neither
does the Compact surrender the state’s right to do so. When the state’s sovereign power
of taxation is implicated, as it is here, any uncertainty should be resolved in favor of
concluding that the state did not cede that power. See Tarrant, 133 S Ct at 2132(recognizing that states “do not easily cede their sovereign powers”). Admittedly, any
sovereignty concerns are abated by the fact that a member state may withdraw from the
Compact, unilaterally and without repercussion, at any time. MCL 205.581, Art X(2).
But this withdrawal provision is equally strong evidence that the member states did not
7
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 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.
13
intend to be contractually bound, as it demonstrates the member states’ desire to retain
control over their sovereignty with respect to taxation. Moreover, if continued
participation in the Compact is, essentially, completely voluntary, I fail to see how its
terms can be construed as creating binding contractual obligations, especially in light of
the presumption against such an interpretation. Studier, 472 Mich at 661.8
IV. CONCLUSION
I would affirm the judgment of the Court of Appeals because the Legislature
expressly provided that taxes established under the BTA “shall be in accordance with”
the BTA’s sales-only apportionment formula. Allowing taxpayers to apportion their
multistate income in accordance with the Compact’s formula violates this unambiguous
directive. And because the state was not contractually obligated to allow taxpayers to
make the Compact election, the BTA does not offend the state or federal constitutions.
Bridget M. McCormack
Robert P. Young, Jr.
Mary Beth Kelly
8
In arguing that unilateral amendment of the Compact would offend the state and federal
constitutions, IBM cites Green, 21 US 1, in which the Supreme Court analyzed an
interstate compact under the Contract Clause, US Const, art I, § 10, cl 1. While I
conclude that the Compact did not create a contractual obligation that precluded
Michigan from unilaterally amending its election provision, it is important to note that the
Supreme Court has since retreated from the “any deviation” standard it applied in Green.
See US Trust Co v New Jersey, 431 US 1, 21; 97 S Ct 1505; 52 L Ed 2d 92 (1977).
Because IBM does not engage these post-Green developments, it has failed to explain
how a constitutional violation arises under a modern analysis.
14