Posted tagged ‘U.S. Supreme Court’

Update on Supreme Court Retroactivity Litigation

April 6, 2017

By Adam Koelsch

As previously reported on the SALT Blawg, Chamberlain Hrdlicka attorneys Stewart M. Weintraub and Adam M. Koelsch, together with Peter L. Faber of McDermott, of Will & Emery LLP, filed in the U.S. Supreme Court an amicus brief on behalf of the American College of Tax Counsel in support of the petitioners challenging a retroactive repeal of tax legislation by the state of Michigan.  Although the petitioners and the amici had asserted various reasons for granting certiorari, the most prominent of those assertions was that the repeal, stretching seven years into the past, violates the Due Process Clause of the U.S. Constitution.

Subsequent to those submissions, the Supreme Court removed from its conference calendar the petition submitted in another pending retroactive tax legislation case from Washington state (Dot Foods, Inc. v. State of Washington), presumably to consider it jointly with the Michigan cases at a later date, and also ordered Michigan to submit a response to the petitions filed — moves widely seen as signaling that the Court is interested in addressing Due Process issue.

Michigan has since submitted its response, setting forth a novel basis for denying cert.:  that the 2014 legislation challenged by the petitioners — which repealed retroactive to 2008 a statute authorizing a three-factor apportionment election that had existed since 1970 — was a “legislative clarification” of a 2008 Business Tax statute that had supposedly mandated single-factor apportionment for all prospective years, and was therefore not retroactive at all.  Thus, according to Michigan, application of that principle of state statutory-construction law constitutes an adequate and independent state law ground to uphold the decision of the Michigan state court, thereby depriving the Supreme Court of jurisdiction to review the issue.

Not so, replied the petitioners.  IBM and Skadden Arps submitted reply briefs on March 24 and 27, respectively.  IBM’s brief challenged the assertion that the doctrine of “legislative clarification” in fact exists, and asserted that the any new law that applies to activities (or tax years) in the past is, by definition, retroactive.  Skadden Arps, in its brief, added that the Michigan Court of Appeals had never mentioned the doctrine in its decision, while explicitly acknowledging the statute’s retroactive effect, and that, in any event, “the Supremacy Clause does not allow federal retroactivity doctrine to be supplanted by the invocation of a contrary approach to retroactivity under state law.”  On March 28, a brief filed on behalf of Goodyear Tire, Deluxe Financial Services, and Monster Beverage reiterated the arguments of IBM and Skadden Arps.

The briefs for the Michigan petitioners and for the petitioners in Dot Foods will all be considered during the Court’s conference on April 13, and the Court’s decisions could be announced as early as April 17.

Here, you can find copies of:  the Michigan response briefthe IBM reply briefthe Skadden Arps reply brief, and the Goodyear et al. reply brief.

Virginia Allocation Apportionment Ruling Inconsistent with U.S. Supreme Court’s Decision in Meadwestvaco

June 2, 2011

  by Stewart Weintraub and Jennifer Weidler

The U.S. Supreme Court’s decision in Meadwestvaco Corp. v. Illinois Dept. of Revenue calls into question a recent Virginia Ruling relating to allocation apportionment. Virginia Public Document Ruling No. 11-52, 04/05/2011.  Pursuant to established case law, a state may tax an apportioned share of the value generated by a multistate enterprise’s activities that form part of a “unitary business.”  In Allied-Signal, Inc. v. Director, the U.S. Supreme Court enunciated the factors to be considered in establishing the existence of a unitary relationship: (1) functional integration; (2) centralization of management; and (3) economies of scale.

In Allied-Signal and Container Corp. of America v. Franchise Tax Bd., the Court further observed that an asset could form part of a taxpayer’s unitary business if it served an “operational rather than an investment function” in the business.  However, in Meadwestvaco, the Court held that the operational function reference was not intended to modify and expand upon the unitary business principle by adding a new apportionment ground.  As the Court explained, the decision “did not announce a new ground for the constitutional apportionment of extrastate values in the absence of a unitary business.”

The recent Virginia Ruling, involved a Taxpayer who acquired stock in Corporation A through four separate transactions.  The Taxpayer ultimately sold its stock in Corporation A, recognizing a capital gain, the subtraction of which the Virginia Department of Revenue disallowed.  The Tax Commissioner’s Ruling concluded that the Taxpayer and Corporation A: lacked any common or centralized sales, marketing or advertising functions; did no conduct common research or maintain common facilities; did not have common or centralized management; did not have common employees or transfers of employees; and did not maintain common pension or employee benefit plans.

Relying upon Allied-Signal, the Tax Commissioner explicitly stated that, “it is clear that no unitary relationship existed between the Taxpayer and Corporation A.  As such, the issue to be addressed in this case centers upon whether the Taxpayer’s investment in Corporation A fulfilled an operational function rather than a passive investment function.”  However, pursuant to Meadwestvaco, this decision and analysis is wholly inaccurate.  Absent a unitary relationship between the Taxpayer and Corporation A, there was no ground for constitutional apportionment of the gain.