High Court Punts Again on Retroactive Tax Appeals

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By Jennifer McLoughlin

The U.S. Supreme Court isn’t rushing to grant or deny IBM, Goodyear and other companies’ requests for review of “retroactive” tax laws in Michigan and Washington state.

For the third time in a month, the high court has relisted the petitions for conference—deferring consideration after its April 21 and 28 conferences. The petitions could be rescheduled for the next conference on May 11.

Several out-of-state companies are asking the Supreme Court to review state court opinions upholding statutes in the two states that retroactively impact tax assessments years before the laws were enacted. The number of companies challenging the Michigan law increased in mid-April with another petition filed by R.J. Reynolds Tobacco Co., the second-largest tobacco company in the U.S.

Reasons for Relisting?

In an April 23 posting on SCOTUSBlog.com, John Elwood, a partner and appellate attorney at Vinson and Elkins LLP, discussed the Supreme Court’s relist streak. Several cases recently granted argument in the next term followed at least one rescheduled conference.

During the May 1 live blog on the same site, Amy Howe said the high court “has been giving most cases a second look before granting.” If a case wasn’t on the May 1 order list, it could indicate that:

  •  a justice is attempting to pick up a fourth vote to grant review;
  •  there are four votes approving review, but the justices want to do their due diligence; or
  •  a case will be denied review, but a justice is writing a dissent or statement regarding the denial.

Another potential factor? Justice Neil Gorsuch just joined the high court on April 10, giving it the full nine members.

Michigan Cases

The Michigan litigation dates back to 2014, when the state Legislature amended the Michigan Business Tax Act and repealed the Multistate Tax Compact. Under the compact, business taxpayers could elect to apportion income using “an equally-weighted, three-factor apportionment formula based on a business’s sales, property, and payroll.”

Under the amendment, businesses would need to apportion their tax base using a “sales-factor apportionment formula,” retroactive to Jan. 1, 2008.

Multiple out-of-state businesses have asked the high court to review several Michigan Court of Appeals rulings that upheld the 2014 statute against alleged constitutional violations. They are:

  • IBM Corp. v. Mich. Dep’t of Treasury , U.S., No. 16-698 ;
  • Gillette Commercial Ops. N. Amer. v. Mich. Dep’t of Treasury , U.S., No. 16-697 ;
  • Goodyear Tire & Rubber Co. v. Mich. Dep’t of Treasury , U.S., No. 16-699 ;
  • DirecTV Grp. Holdings, LLC v. Mich. Dep’t of Treasury , U.S., No. 16-736 ;
  • Skadden, Arps, Slate Meagher & Flom LLP v. Mich. Dep’t of Treasury , U.S., No. 16-688 ; and
  • Sonoco Prods. Co. v. Mich. Dep’t of Treasury , U.S., No. 16-687

In a March 13 brief, Michigan Solicitor General Aaron Lindstrom said the Supreme Court lacks jurisdiction over the issue because the 2014 Michigan law is merely a corrective measure and not retroactive “at all.”

Tobacco Adds to Attack

R.J. Reynolds Tobacco Co. on April 19 joined the chorus of companies contesting the Michigan law. The company’s appeal arises from another Michigan Court of Appeals decision denying Lorillard Tobacco—acquired by R.J. Reynolds in 2015—the use of the three-factor apportionment formula ( R.J. Reynolds Tobacco Co. v. Michigan Dep’t of Treasury , U.S., No. 16-1260, petition for review filed 4/19/17 ).

A response to the petition for review is due May 22.

Washington Case

In the Washington litigation, Dot Foods Inc. is challenging a Washington Supreme Court ruling that the retroactive application of a statutory amendment narrowing a business and occupation tax exemption didn’t violate due process. In a December 2016 reply, the company reiterated that the case is prime for review—arguing that the state court’s decision “deepens a conflict” among lower courts and implicates “millions, if not billions, of dollars” ( Dot Foods, Inc. v. Wash. Dep’t of Revenue , U.S., No. 16-308 ).

The company also argued that its petition directly relates to an open question highlighted by former Justice Sandra Day O’Connor in 1994, the last time the high court considered the legality of retroactive taxation.

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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