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Michigan Legislature responds to MBT Apportionment case

September 12, 2014

Public Act 282 of 2014, which makes a number of “technical fixes” to the Michigan Business Tax (MBT), was quickly passed by the Legislature and signed by Governor Snyder last night. Taxpayer advocates have pushed for the MBT changes for several years now, but the sudden movement of the bill is really the result of a special enacting section that was added this week. 

The enacting section repeals the Multistate Tax Compact (MTC), (PA 343 of 1969), retroactively to January 1, 2008. The MTC provides rules for the apportionment of the tax base of multistate taxpayers. The repeal of the MTC is intended to overturn the Michigan Supreme Court’s recent decision in IBM Corp v Department of Treasury, where the Court held that the taxpayer could elect to use the MTC’s three-factor apportionment formula, instead of the single factor sales formula dictated by the MBT. Although the MBT was replaced in 2011 and the MTC was amended that year to remove the election, the Department of Treasury claims that the state would be liable for an estimated $1.1 billion in tax refunds if the decision were allowed to stand. However, even though the legislation has become law, there are unresolved questions regarding whether the MTC changes are constitutionally valid. If you have an MBT apportionment case pending or are considering filing for a refund based on the IBM case, we suggest you contact one of our SALT attorneys to discuss the available options.

PA 282 also makes the following changes to the MBT. These changes are retroactive to January 1, 2010. The amendment requires that any taxpayer filing a claim for refund as a result of these changes must do so during the 2015 calendar year and provides that refunds will be paid in annual installments over 6 years beginning in 2016.

  • Allows gross receipts to be adjusted to exclude amounts attributable to a taxpayer arising from discharge of indebtedness per Section 61 (A)(12) of the Internal Revenue Code, including the forgiveness of nonrecourse debt.
  • Provides that, if the Investment Tax Credit (ITC) is claimed, the adjusted proceeds from the sale or other disposition of assets would be recaptured only to the extent that the credit was used and would be based on the ITC rate in effect when the credit was claimed.
  • Provides taxpayers more flexibility in calculating the MBT Renaissance Zone credit, if they were located within that zone prior to December 1, 2002.
  • Clarifies that, for purposes of sales apportionment, dock sales that are picked up by the purchaser within 60 days of the sale transaction are not considered to have been delivered to the purchaser at the dock and thus not treated as a sale made within the state. 

If you have any questions about the new law, please contact one of our SALT attorneys.