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Keywords

liabilityappealcorporationdue process

appealcorporationdue process

Related Cases

Trinova Corp. v. Michigan Dept. of Treasury, 498 U.S. 358, 111 S.Ct. 818, 112 L.Ed.2d 884, 59 USLW 4097

Facts

Trinova, an Ohio corporation, maintained a sales office in Michigan and had significant sales in the state during 1980. Despite a federal taxable income loss of nearly $42.5 million, Trinova's SBT computation resulted in a tax liability of over $293,000. After the Department of Treasury denied Trinova's claim for a refund based on the argument that the SBT's apportionment provisions did not fairly represent its business activity in Michigan, Trinova sued for a refund. The Court of Claims ruled in favor of Trinova, but the Court of Appeals reversed this decision, leading to the Supreme Court's review.

During 1980, the tax year in question, petitioner Trinova, an Ohio corporation, maintained a 14–person sales office in Michigan.

Issue

Whether the three-factor apportionment formula of the Michigan single business tax (SBT) violates the Due Process Clause or the Commerce Clause of the Federal Constitution.

The applicability of a three-factor formula to a state income tax is well settled, but we have not considered whether a similar apportionment formula may be applied to a value added tax (VAT).

Rule

A state tax levied upon multistate businesses is valid under the Commerce Clause if it is fairly apportioned, does not discriminate against interstate commerce, and has a rational relationship between the income attributed to the state and the intrastate values of the enterprise.

Under the test stated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326, a state tax levied upon multistate businesses is valid under the Commerce Clause if, as relevant here, it is fairly apportioned and does not discriminate against interstate commerce.

Analysis

The court applied the Complete Auto test to determine the constitutionality of the SBT's apportionment formula. It found that the SBT's formula, which includes payroll, property, and sales factors, does not violate the Due Process or Commerce Clauses. The court reasoned that the formula fairly represents Trinova's business activity in Michigan, as it reflects the company's significant sales in the state despite its overall loss. The court also noted that Trinova failed to provide clear evidence that the formula was unfair or discriminatory.

Because the SBT attempts to tax a base that cannot be assigned to one geographic location with any precision, the decision to apportion the tax is not unconstitutional.

Conclusion

The Michigan Supreme Court affirmed the Court of Appeals' decision, holding that the SBT's three-factor apportionment formula does not violate either the Due Process Clause or the Commerce Clause.

Held: As applied to Trinova during the tax year at issue, the SBT's three-factor apportionment formula does not violate either the Due Process Clause or the Commerce Clause.

Who won?

The Department of Treasury prevailed in the case because the court upheld the validity of the SBT's apportionment formula, finding it constitutional and fair in its application to Trinova.

The Michigan Supreme Court affirmed the Court of Appeals' decision that Trinova was not entitled to statutory relief.

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