Supreme Court Sets Date to Review Retroactive Tax Petitions

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By Che Odom

The U.S. Supreme Court is a step closer to possibly considering challenges brought by IBM Corp., Dot Foods Inc. and several other companies against what they deem retroactive tax laws in Michigan and Washington.

Justices will consider petitions for review from both states on April 13.

Several out-of-state companies are asking the Supreme Court to review state-court opinions that uphold statutes in the two states that impact tax assessments stretching back years before the enactment of the laws. In Michigan the companies are DirecTV Group Holdings, Goodyear Tire & Rubber Co., Gillette Commercial Operations North America, Sonoco Products Co., and Skadden, Arps, Slate, Meagher & Flom LLP.

Through Washington-based attorneys at Crowell & Moring LLP, IBM said in an email March 28 that it is “hopeful that the Court will turn its attention to the important issue of retroactive taxation, which affects state legislatures and businesses across the nation.”

Michigan Law

The Michigan Legislature in 2014 amended the Michigan Business Tax Act and repealed the Multistate Tax Compact.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. They are:

  • IBM Corp. v. Mich. Dep’t of Treasury, U.S., No. 16-698, reply brief filed 3/24/17 ;
  • Gillette Commercial Ops. N. Amer. v. Mich. Dep’t of Treasury, U.S., No. 16-697, reply brief filed 3/28/17 ;
  • Goodyear Tire & Rubber Co. v. Mich. Dep’t of Revenue , U.S., No. 16-699, reply brief filed 3/28/17 ;
  • DirecTV Grp. Holdings, LLC v. Mich. Dep’t of Treasury, U.S., No. 16-736, reply brief filed 3/28/17 ;
  • Skadden, Arps, Slate Meagher & Flom LLP v. Mich. Dep’t of Treasury, U.S., No. 16-688, reply brief filed 3/27/17 ; and
  • Sonoco Prods. Co. v. Mich. Dep’t of Treasury, U.S., No. 16-687, petition for review filed 11/21/16 .


In a March 13 brief, Michigan Solicitor General Aaron Lindstrom said the U.S. Supreme Court lacks jurisdiction over the issue brought by the companies because the 2014 Michigan law is merely a corrective measure and not retroactive “at all” ( Sunoco Prods. Co. v. Mich. Dep’t of Treasury , U.S., No. 16-687, 3/13/17 ).

IBM argued, however, that most states that have withdrawn from the compact have done so prospectively. Michigan, on the other hand, applied it retroactively to get added tax revenue out of companies, which is “unprecedented” ( IBM Corp. v. Mich. Dep’t of Treasury , U.S., No. 16-698, reply brief filed 3/24/17 ).

Michigan’s claim that the law is corrective and not retroactive demonstrates a “fundamental misunderstanding of retroactivity, whether considered through the lens of due process or under the Contracts Clause,” according to the brief.

DirecTV, Gillette, Goodyear and Skadden Arps also have filed responses to Michigan’s brief. Counsel for Sonoco told Bloomberg BNA they hadn’t yet filed a brief.

Washington Law

Dot Foods has challenged 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 Dec. 21 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, reply in support of petition for review filed 12/21/16 ).

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

Several parties have filed briefs in support of the petition, including prominent taxpayer groups such as the Council On State Taxation and Tax Executives Institute Inc.

After Dot Foods successfully challenged the Washington Department of Revenue’s revised interpretation of the statutory exemption provisions ( Dot Foods I), state lawmakers responded by retroactively narrowing the scope of the business-and-occupation exemption and prospectively repealing it in 2010. The state’s high court sided with the revenue department in the second round of litigation, finding no constitutional violation with the retroactive legislation.

With assistance from Jennifer McLoughlin in Washington.

To contact the reporter on this story: Che Odom at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the Michigan Department of Revenue's March 13 brief is at

Text of the IBM brief is at

Text of the Skadden Arps brief is at

Text of the DirectTV, Gillette and Goodyear briefs is at

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