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Michigan Court will not reconsider business tax ruling

Chad Livengood
The Detroit News

Lansing — The Michigan Supreme Court has denied a request by Attorney General Bill Schuette to reconsider its ruling in a business tax case that officials originally feared could blow a massive hole in the state's budget.

The high court ruled in a narrow 4-3 decision in July that IBM could avail itself of a different formula for calculating its state business taxes for 2008, 2009 and 2010, making the New York-based information technology entitled to an extra $4.7 million tax refund.

Schuette and Gov. Rick Snyder's administration feared the ruling could open the floodgates to 134 other out-of-state businesses — from Colgate-Palmolive to Google — seeking millions in new tax refunds under the former Michigan Business Tax, which lawmakers repealed in 2011.

In September, the Legislature fast-tracked a bill to Snyder's desk intended to close a loophole in the law that IBM used to argue it was entitled to a larger tax refund. The Treasury Department estimated the state's budget could be exposed to nearly $1 billion in unexpected tax refunds from thousands of different firms.

State officials have said they believe the law change should shield Michigan from other tax refund claims, but the governor and attorney general still wanted the Supreme Court to reconsider its ruling.

In an order signed Friday and released Saturday, the justices declined to hold another hearing on the matter and denied the state's request for a stay to halt IBM's pursuit of a refund.

"At this point, due to the legislative change, we don't believe this issue presents any budget ramifications beyond IBM," Treasury Department spokesman Terry Stanton said in an email Saturday. "We will continue to monitor other cases as they work through the judicial process."

Joy Yearout, a spokeswoman for Schuette, declined to comment Saturday on the Supreme Court's decision.

The Supreme Court overturned lower court decisions in favor of the Treasury Department, which argued IBM was entitled only to a $1.2 million refund. The Treasury Department argued IBM had to pay taxes based solely on its sales through the MBT''s formula.

But the justice agreed with IBM the company should be able to spread out its Michigan tax liability through a three-factor formula under the Multistate Tax Compact, a nearly 50-year-old system establishing uniform taxing practices for multi-state businesses.

The three-factor formula takes into account an out-of-state corporation's property, payroll and sales in Michigan, allowing it to lower its tax liability from a single-factor calculation based on sales.

On Sept. 16, Snyder signed legislation clarifying the Legislature's intent with regard to the multi-state compact when it passed the Michigan Business Tax in 2007.

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