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- Subject: TRINOVA CORP. v. MICHIGAN DEPT. OF TREASURY, Syllabus
-
-
-
- NOTE: Where it is feasible, a syllabus (headnote) will be released, as
- is being done in connection with this case, at the time the opinion is
- issued. The syllabus constitutes no part of the opinion of the Court
- but has been prepared by the Reporter of Decisions for the convenience
- of the reader. See United States v. Detroit Lumber Co., 200 U.9S. 321,
- 337.
- SUPREME COURT OF THE UNITED STATES
-
-
- Syllabus
-
-
- ATRINOVA CORP. v. MICHIGAN DEPARTMENT
- OF TREASURY
-
-
- Bcertiorari to the supreme court of michigan
-
- CNo.989-1106. Argued October 1, 1990--Decided February 19, 1991
-
- DMichigan's single business tax (SBT) is a value added tax (VAT) levied
- against entities having "business activity" within the State. As part of
- the SBT computation, a taxpayer doing business both within and without the
- State must determine its apportioned tax base by multiplying its total
- value added--which consists of its profit, as represented by its federal
- taxable income, plus compensation paid to labor, depreciation on capital,
- and other factors--by the portion of its business activity attributable to
- Michigan--which consists of the average of three ratios: (1) Michigan
- payroll to total payroll, (2) Michigan property to total property, and (3)
- Michigan sales to total sales. During 1980, the tax year in question,
- petitioner Trinova, an Ohio corporation, maintained a 14person sales office
- in Michigan. Under the SBT formula, its 1980 payroll and property
- apportionment factors were only .2328% and .0930% respectively, while its
- sales factor was 26.5892%, representing Michigan sales of over $100
- million. Although its 1980 federal taxable income showed a loss of almost
- $42.5 million, Trinova's SBT computation resulted in a tax of over
- $293,000. Trinova paid the tax, but subsequently filed an amended return
- and refund claim, alleging that it was entitled to relief under Michigan
- law because the SBT's apportionment provisions did not fairly represent the
- extent of its business activity within the State. The amended return
- proposed that Trinova's company-wide compensation and depreciation be
- excluded from its pre-apportionment value added, and that its actual
- Michigan compensation and depreciation be added back into its apportioned
- tax base, which would result in a negative value added apportioned to
- Michigan and entitle the company to a refund for its entire 1980 SBT
- payment. When respondent Department of Treasury denied relief, Trinova
- sued for a refund in the State Court of Claims, which ruled in its favor.
- However, the State Court of Appeals held that Trinova was not entitled to
- statutory relief, and the State Supreme Court affirmed, holding, among
- other things, that the SBT's three-factor apportionment formula did not
- violate either the Due Process Clause or the Commerce Clause of the Federal
- Constitution.
-
- EHeld: As applied to Trinova during the tax year at issue, the SBT's
- threefactor apportionment formula does not violate either the Due Process
- Clause or the Commerce Clause. Pp.911-26.
-
- F(a) Under the test stated in Complete Auto Transit, Inc. v. Brady, 430
- U.9S. 274, 279, 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.
- Moreover, the Complete Auto test encompasses the Due Process Clause
- requirement that, inter alia, a rational relationship exist between the
- income attributed to the State and the intrastate values of the
- enterprise. See, e.9g., Mobil Oil Corp. v. Commissioner of Taxes of
- Vt., 445 U.9S. 425, 436-437. Pp.911-13.
-
- (b) 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. Although Trinova's compensation and
- depreciation may appear in isolation to be susceptible of geographic
- designation, those elements cannot be separated from income, which
- cannot be located in a single State. The SBT is not a combination or
- series of several smaller taxes on compensation, depreciation, and
- income, but is an indivisible tax upon a different, bona fide measure
- of business activity, the value added. This conclusion is no different
- than the one this Court has reached in upholding the validity of state
- apportionment of income taxes. The same factors that prevent
- determination of the geographic location where income is
- generated--such as functional integration of the intrastate and
- extrastate activities of a unitary business enterprise, centralization
- of management, and economies of scale--make it impossible to determine
- the location of value added with exact precision. See, e.9g., Mobil
- Oil Corp., supra, at 438; Amerada Hess Corp. v. Director, Div. of
- Taxation, New Jersey Dept. of Treasury, 490 U.9S. 66, 74. Thus,
- although Trinova had no federal income during 1980, it cannot be
- relieved of tax upon its Michigan business. Such relief would be
- incompatible with the rationale of a VAT, under which tax becomes due
- even if the taxpayer was unprofitable, and is unsupported by the
- record. Trinova's approach would require the conclusion that it added
- value only at the factory through the consumption of capital and labor,
- while the record would as easily support a finding that its production
- operations added little value and its sales offices added significant
- value. Although Trinova's 14 Michigan sales personnel need not be
- relied on as the sole, or even a substantial, source of all the value
- added that can be apportioned fairly to Michigan, it cannot be doubted
- that, without the company's $100 million in Michigan sales, its total
- value added would have been lower to a remarkable degree. It distorts
- the SBT both in application and theory to confine value added
- consequences of the Michigan market solely to the labor and capital
- expended by the resident sales force. Pp.913-19.
-
- (c) The SBT's three-factor apportionment formula cannot be ruled
- unfair, since Trinova has failed to meet its burden of proving, by
- clear and cogent evidence, that there is no rational relationship
- between its tax base measure attributed to Michigan and the
- contribution of its Michigan business activity to the entire value
- added process. Cf., e.9g., Container Corp. of America v. Franchise Tax
- Bd., 463 U.9S. 159, 169, 180-181; Moorman Mfg. Co. v. Bair, 437 U.9S.
- 267, 274. This Court has approved the same formula for apportionment
- of income, see, e.9g., Butler Bros. v. McColgan, 315 U.9S. 501, and the
- formula has gained wide acceptance in that context "because payroll,
- property, and sales appear in combination to reflect a very large share
- of the activities by which value is generated," Container Corp., supra,
- at 183 (emphasis added). Trinova's argument--that the formula leads to
- a distorted result, out of all proportion to the company's Michigan
- business, because sales have no relationship to, and add nothing to,
- the value that compensation and depreciable plant contribute to the
- Michigan tax base--is rejected, since sales (as a measure of market
- demand) do have a profound impact upon the amount of an enterprise's
- value added, and since there is no basis for distinguishing similar
- arguments that were pressed, and rejected by this Court, with regard to
- the apportionment of income. Because the three-factor formula causes
- no distortion, the SBT does not tax value earned outside Michigan. The
- argument that the value was added in Ohio, by labor and capital, and
- that no value has been added in Michigan, wrongly assumes that value
- added is subject to geographic ascertainment and that a sales factor is
- inappropriate in apportionment. Trinova gives no estimate of the value
- added that would take account of both its Michigan sales activity and
- Michigan market demand for its products, whereas the State has
- consistently applied the three-factor formula and has enacted further
- provisions giving relief to labor intensive taxpayers like Trinova.
- Pp.919-24.
-
- (d) The SBT does not discriminate against interstate commerce. Trinova
- cannot point to any treatment of in-state and out-of-state firms that
- is discriminatory on its face. Although American Trucking Assns. v.
- Scheiner, 483 U.9S. 266, 281, states that the Commerce Clause has a
- "deeper meaning" that may be implicated even absent facial
- discrimination, that meaning is embodied in the requirement of fair
- apportionment and does not encompass Trinova's vague accusation of
- discrimination. Nor is that accusation supported by a statement of
- Michigan's Governor that the SBT was enacted to promote business
- development and investment within the State. Such promotion is a
- laudatory goal in the absence of evidence of an impermissible motive to
- export tax burdens or import tax revenues. Pp.924-26.
-
- G433 Mich. 141, 445 N. W. 2d 428, affirmed.
-
- HKennedy, J., delivered the opinion of the Court, in which Rehnquist,
- C.9J., and White, Marshall, and O'Connor, JJ., joined. Scalia, J., filed
- an opinion concurring in the judgment. Stevens, J., filed a dissenting
- opinion, in which Blackmun, J., joined. Souter, J., took no part in the
- consideration or decision of the case.
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