The Michigan Business Tax (MBT); Taxing the gain on the sale of an out-of-state business that conducted some business activity in Michigan; MCL 208.1201(1); MCL 208.1301; Whether applying the statutory formula resulted in imposition of a tax violating the Commerce & Due Process Clauses; Fairness; Container Corp. of Am. v. Franchise Tax Bd.; Hans Rees’ Sons, Inc. v. North Carolina; Alternative apportionment under MCL 208.1309; Rebutting the presumption that the statutory apportionment formula is fair; Trinova Corp. v. Department of Treasury; Panhandle E. Pipe Line Co. v. Michigan Corp. & Sec. Comm’n; Apportioning a tax to the activities within the state; Asarco, Inc. v. Idaho Sate Tax Comm’n; Mobil Oil Corp. v. Commissioner of Taxes; Moorman Mfg. Co. v. Bair; Nullification of a formula that has a palpably disproportionate result patently taxing out-of-state activity; International Harvester Co. v. Evatt; Effect of plaintiff’s failure to follow the statute’s procedural requirements; Trying an issue by implied consent; Fraser Twp. v. Haney (On Remand); Minnesota Ltd., Inc. (MLI)

The court held that the statutory apportionment formula was unconstitutional as applied to plaintiff-MLI under the circumstances, because it did not fairly determine the portion of the income from its sale that was reasonably attributed to activities in Michigan. Thus, it reversed summary disposition for defendant, vacated the tax assessment and penalty, and “remanded for the parties to determine an alternate method of apportionment.” MLI was headquartered in Minnesota, with a 24-state service territory. It provided services in Michigan on a contract-by-contract basis, and did not maintain a permanent location or permanent employees here. While it was working on a project here, MLI sold all of its assets (the Sale) on 3/31/11. It filed an “MBT return for the period before the sale, i.e., the short year between” 1/1/11 and 3/31/11 (the Short Year). After an audit, defendant issued an intent to assess for tax deficiency, and it denied MLI’s request for alternative apportionment for the Short Year. The court concluded that applying the statutory formula to the circumstances here “would result in the imposition of a tax in violation of the Commerce Clause.” Thus, permitting an alternative formula “would be necessary to avoid the constitutional violation.” It found that this was “an exceptional case where the taxpayer has met its burden of providing clear and cogent evidence that the business activity attributed to it ‘is out of all appropriate proportion to the actual business activity transacted in this state and leads to a grossly distorted result.’ MCL 208.1309. The statutory formula as applied,” which included 100% “of the gain on the Sale in MLI’s preapportioned tax base, includes income from the Sale” not related to its business activities here. Applying the statutory formula resulted in an allocation of 70% of the gain to Michigan. “While some of MLI’s value can” and should undoubtedly be attributed to its Michigan business activity, the undisputed history of its sales here averaged about 7% of its total. There was “evidence that well over a majority of the value inherent in MLI stemmed, not from its activity in Michigan during the Short Year or even over the years, but from intangible assets built-up in multiple other states over time.”