In response to the Michigan Supreme Court's opinion in International Business Machines Corp. v. Department of Treasury, which held that IBM could use the three-factor formula provided in the Multistate Tax Compact (Compact) instead of the single sales factor formula required under the Michigan Business Tax (MBT) statutes, Gov. Rick Snyder has signed legislation repealing Michigan's adoption of the Compact retroactive to January 1, 2008 (see S.B. 156, Laws 2014).
In 1969, Michigan enacted the Compact, which contains an equally weighted three-factor apportionment formula. However, the Compact also gives taxpayers the option of apportioning income "in the manner provided by the laws of" Michigan. Effective January 1, 2008, Michigan enacted a separate law requiring use of a single sales factor apportionment formula for MBT purposes. In IBM, the court upheld the Compact provision permitting taxpayers to choose between the two apportionment formulas.
The new legislation takes away a taxpayer's ability to choose between the two formulas. So, only the single sales formula is available. Finally, the legislation also clarifies that the Compact's election provision is not available for purposes of the Michigan corporate income tax, which replaced the MBT effective January 1, 2012.