TEI files amicus brief regarding Michigan Court of Appeals decision in Gillette v. Dept of Treasury.

• Position: Tax Executives Institute

On January 5, 2016, TEI filed an amicus brief in support of the taxpayer's application for leave to appeal the Michigan Court of Appeals' decision in Gillette Commercial Operations North America v. Department of Treasury, Case No. 152588, and its four companion cases. Gillette upheld the validity of 2014 PA 282, which the Michigan Legislature enacted to retroactively overrule the Michigan Supreme Court's decision in International Business Machines Corp v Department of Treasury, 496 Mich. 642 (2014).

The IBM case held that IBM was entitled to elect three factor apportionment under the Multistate Tax Compacts alternative apportionment provision for its 2008 tax year. By upholding 2014 PA 282, the Gillette decision eliminated refunds that IBM had determined were due and revived assessments that IBM had determined were invalid by denying taxpayers the right to elect three factor apportionment. Gillette rationalized these outcomes were warranted because the Legislature "clarif[ied] through statutory amendment the intended meaning of a statutory provision that had been misread" by the Michigan Supreme Court in IBM when the Legislature enacted 2014 PA 282.

TEI's brief argues that 2014 PA 282 and Gillette cannot be squared with the limitations on retroactive tax legislation imposed by the Due Process and Separation of Powers Clauses of the United States and Michigan Constitutions. Further, the rationale employed by the Court of Appeals in Gillette decision places virtually no limit on the Michigan Legislature's ability to retroactively amend tax laws and invalidate court decisions it disagrees with, and thus interferes with the judicial power vested in the courts. The Gillette decision, if left to stand, will thus embolden the Michigan Legislature to continue a pattern of neglecting provisions in Michigan's tax law and forcing taxpayers to litigate them, knowing the Legislature can retroactively overrule any court decision it disagrees with. This tactic creates uncertainty for taxpayers, is inconsistent with sound tax policy and administration, and wastes judicial resources.

TEI's brief was prepared under the aegis of TEI's State & Local Tax Committee, whose chair is Jamie Fenwick. TEI Tax Counsel Pilar Mata and John Schoenecker are the principal authors of the brief. Paul McCord and Graham Crabtree of Fraser Trebilcock Davis & Dunlap, P.C. served as local counsel for TEI in this matter.

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ALLEGATIONS OF ERROR AND RELIEF SOUGHT

This case raises a number of state and federal constitutional questions relating to the enactment and application of 2014 PA 282. As discussed in the following pages, the Court of Appeals' opinion in Gillette cannot be squared with the limitations on retroactive tax legislation imposed by the Due Process and Separation of Powers Clauses of the United States and Michigan Constitutions, or the United States Supreme Courts decision in United States v Carlton, 512 US 26; 114 S Ct 2018; 129 L Ed2d 22 (1994). In these respects, among others, the Court of Appeals erred in holding that:

1. 2014 PA 282 did not violate Gillettes and all of the similarly situated taxpayers' right to due process protected by the Fourteenth Amendment of the United States Constitution, US Const, Am XIV and the Michigan constitutional guarantee, Const 1963, art 1, [section] 17, that no state shall deprive any person of "life, liberty or property, without due process of law," and

2. 2014 PA 282 did not reverse a judicial decision or repeal a final judgment in violation of the Separation of Powers Clause of the Michigan Constitution. Const 1963, art 3, [section] [section] 2.

   Amicus Curiae Tax Executives Institute, Inc. (TEI) respectfully submits this brief in support of Gillette's Application for Leave to Appeal. In addition to Gillette, there are four companion cases where approximately fifty similarly situated taxpayers filed Applications for Leave to Appeal involving the enactment and application of 2014 PA 282. Those companion cases are:

1. Sonoco Products Company, et al. v Department of Treasury, MSC Docket Nos. 152598-152610 (consolidated) (app for lv filed November 10, 2015);

2. Lubrizol Corp v Department of Treasury, at MSC Docket No. 152613 (app for lv filed November 10, 2015);

3. Yaskawa America, Inc, et al. v Department of Treasury, at MSC Docket Nos. 152615-152648 (consolidated) (app for lv filed November 10, 2015); and

4. International Business Machines Corp Inc v Department of Treasury, at MSC Docket No. 152650 (app for lv filed November 10, 2015).

   TEI requests the Court to consider this brief in support of the similarly situated taxpayers that filed applications in the companion cases. For all of the reasons discussed more fully to follow, TEI respectfully requests that this Honorable Court GRANT Gillette's Application, and REVERSE the Court of Appeals.

   INTRODUCTION

   Amicus Curiae Tax Executives Institute Inc. (TEI) respectfully submits this brief in support of the taxpayers that filed applications for leave to appeal the Michigan Court of Appeals' decision in Gillette Commercial Operations North America v Department of Treasury,_Mich App_;_NW2d_(2015) (Gillette).0F (1) Left to stand, the Court of Appeals' decision would embolden the Michigan Legislature to continue a disturbing pattern--neglecting provisions in Michigan's tax law and forcing taxpayers to litigate them, knowing the Legislature can retroactively overrule any court decision it disagrees with. This tactic creates uncertainty for taxpayers, is inconsistent with sound tax policy and administration, and wastes judicial resources.

   The Court of Appeals' decision also raises a host of constitutional and legal concerns. Gillette cannot be squared with the limitations imposed by the Due Process and Separation of Powers Clauses of the United States and Michigan Constitutions, or the United States Supreme Court's decision in United States v Carlton, 512 US 26(1994); 114 S Ct 2018; 129 L Ed2d 22 (1994). TEI thus respectfully submits this Amicus Curiae brief and urges this Court to grant the taxpayers' applications for leave to appeal and reverse the Court of Appeals' erroneous decision.

   STATEMENT OF INTEREST

   Gillette upholds 2014 PA 282 (the "2014 Legislation), which retroactively amended Michigan's business tax for over six years. The 2014 Legislation overruled this Court's decision in International Business Machines Corp v Department of Treasury, 496 Mich 642; 852 NW2d 865 (2014)) (IBM), invalidated refunds this Court determined were due, and revived assessments this Court determined were invalid in that case. The Court of Appeals rationalized that these outcomes were warranted because the Legislature "clarif[ied] through statutory amendment the intended meaning of a statutory provision that had been misread by the courts." Gillette_Mich App at_; slip op at 27 (emphasis added). The Court of Appeals' decision places virtually no limit on the Legislature's ability to retroactively amend tax laws and invalidate court decisions it disagrees with, and interferes with the judicial power vested in the courts. This creates substantial uncertainty for taxpayers doing business in the state.

   TEI is a voluntary, nonprofit association of business executives, managers, and administrators responsible for the tax affairs of their employers. TEI was organized in 1944 under the laws of the State of New York and is exempt from taxation under section 501(c)(6) of the Internal Revenue Code. TEI is dedicated to the development of sound tax policy, compliance with and the uniform enforcement of tax laws, and the minimization of administration and compliance costs for governments and taxpayers.

   TEI's members are employed by a broad cross-section of the business community. As in-house tax professionals, TEI's members evaluate tax laws, advise their companies regarding the tax consequences of various transactions and business decisions, and make practical decisions regarding whether to challenge tax assessments and denied refund claims. TEI's members thus have a vital interest in state legislatures' power to enact retroactive tax legislation and remedies for unlawfully imposed and collected taxes. The Court of Appeals' decision in Gillette undermines these basic protections.

   GROUNDS FOR APPEAL

   This Court's intervention and acceptance of the taxpayers' appeals is crucial. Gillette is the most recent Court of Appeals decision addressing and upholding retroactive tax legislation in Michigan IF (2) and imposes no meaningful constraints on when retroactive legislation is permitted. The Legislature's passage of the 2014 Legislation demonstrates that the Legislature, if left unchecked, will not exercise restraint voluntarily and will continue its practice of retroactively overruling court decisions. This legislative ploy creates uncertainty for Michigan taxpayers and undermines their ability to make informed business judgments and decisions.

   The taxpayers' applications for leave to appeal easily meet the requisite grounds for appeal in Michigan Court Rule 7.305(B).). First, Gillette involves a substantial question about the validity of the 2014 Legislation, which retroactively amended Michigan's business tax for over six years and legislatively overruled the Court's carefully considered decision in IBM. See MCR 7.305(B)(1).

   Second, whether the Legislature can retroactively change tax laws to eliminate refund claims and revive assessments, particularly after taxpayers spent years in litigation and this Court ruled on their validity, is an issue of significant public interest. See MCR 7.305(B) (2) .. Third, the 2014 Legislation implicates important Due Process and the Separation of Powers principles of foremost significance to Michigan's jurisprudence. See MCR 7.305(B) (3). Finally, the Court of Appeals' decision is clearly erroneous and will cause material injustice by invalidating refunds this Court determined were due and reviving assessments this Court...