DANA CORP V DEPT OF TREASURYAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
August 18, 2005
Court of Claims
LC No. 04-000035-MT
DEPARTMENT OF TREASURY,
Official Reported Version
Before: Fort Hood, P.J., and Meter and Schuette, JJ.
Defendant appeals as of right from an order granting partial summary disposition to
plaintiff. Plaintiff sought a refund of taxes paid to defendant under the Single Business Tax Act
(SBTA), MCL 208.1 et seq., for the years 1997, 1998, and 1999. Plaintiff alleged that the sitespecific and apportioned capital acquisition deduction (CAD) codified at MCL 208.23(e) is not
fairly apportioned under the Commerce Clause of the United States Constitution, US Const, art I,
§ 8, cl 3. The Court of Claims agreed with plaintiff that the CAD is unconstitutional and ordered
defendant to refund plaintiff $4,864,436, plus statutory interest. We reverse.
The SBTA is a "consumption-type value-added tax" that is subject to certain exemptions,
exclusions, and adjustments. Caterpillar, Inc v Dep't of Treasury, 440 Mich 400, 408-409; 488
NW2d 182 (1992). Among these adjustments is the CAD. Id. at 409. The CAD statute allows
taxpayers to reduce their tax base by the amount expended during the tax year to acquire capital
assets. Id. Since the enactment of the SBTA in 1975, the CAD statute has been altered several
times. See Jefferson Smurfit Corp v Dep't of Treasury, 248 Mich App 271, 274-276; 639 NW2d
269 (2001). At issue in this case is the CAD statute effective during the years 1997, 1998, and
1999; it is contained in MCL 208.23(e), which reads as follows:
Except as provided in subdivisions (g), (h), and (i), for a tax year
beginning after December 31, 1996 and before January 1, 2000, deduct cost,
including fabrication and installation, paid or accrued in the taxable year of
tangible assets of a type that are, or under the internal revenue code will become,
eligible for depreciation, amortization, or accelerated capital cost recovery for
federal income tax purposes, provided that the assets are physically located in this
state for use in a business activity in this state and are not mobile tangible assets.
This deduction shall be multiplied by the apportionment factor for the tax year as
prescribed in chapter 3.
The SBTA provides that if subsection 23(e) is declared unconstitutional on appeal and
that decision is not under appeal, the subsection becomes ineffective and MCL 208.23(i) takes
effect. MCL 208.23(i); MCL 208.23a. MCL 208.23(i) allows a CAD for the apportioned cost of
tangible assets but removes the requirement that the assets be located in Michigan.
Plaintiff is a Virginia corporation that supplies "components, modules, and complete
systems to vehicle manufacturers and related aftermarkets." Plaintiff conducts business in
Michigan; this includes the operation of eleven manufacturing facilities and several sales offices.
During the years at issue, however, approximately 90 percent of the products plaintiff sold to
Michigan customers were produced outside Michigan.
Plaintiff filed amended SBTA returns for the years 1997, 1998, and 1999, claiming that
refunds were owed it for each year because the CAD is not fairly apportioned and discriminates
against interstate commerce. Defendant denied the refund claimed in the 1999 amended return,
and plaintiff filed suit based on that denial in June 2001. That claim was held in abeyance
pending resolution of Jefferson Smurfit and remained in abeyance at the time of the filing of the
After the resolution of Jefferson Smurfit, defendant denied all three requests for refunds,
stating that the CAD was constitutional. Defendant filed suit again, claiming that it was entitled
to a refund of $4,864,436 for the three years at issue. The Court of Claims granted partial
summary disposition in favor of plaintiff, holding that the CAD violates the Commerce Clause
because it is not internally consistent and thus not fairly apportioned; the court awarded plaintiff
the requested refund.
Defendant argues that the decision of the Court of Claims must be reversed because it is
contrary to the holding in Jefferson Smurfit, supra at 281, a case in which the Court deemed the
CAD constitutional. Plaintiff, in contrast, argues that Jefferson Smurfit did not address the
central question at issue in the present case, i.e., whether the CAD is fairly apportioned.1
Plaintiff contends that defendant "has waived any argument that the site-specific, apportioned
CAD meets the fair apportionment internal consistency test" because defendant did not make a
proper argument below and did not submit an affidavit below to rebut plaintiff 's affidavit. See
MCR 2.116(G). This argument is without merit. Defendant explicitly argued below that the
CAD statute was constitutional. Moreover, plaintiff 's affidavit merely reiterated information
from its complaint, and defendant then argued that the law was in its favor, even though plaintiff
moved for summary disposition under MCR 2.116(C)(10), which, in general, focuses on facts
rather than law. Defendant focused on the law and argued that it was entitled to summary
disposition under MCR 2.116(I)(2) and MCR 2.116(C)(8). Defendant was not required to
submit an affidavit to make its law-based argument, and, in failing to assert a factual dispute,
We review de novo a trial court's grant of summary disposition. Spiek v Dep't of
Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). The constitutionality of a statute is
a question of law that is also reviewed de novo on appeal. Tolksdorf v Griffith, 464 Mich 1, 5;
626 NW2d 163 (2001). All statutes are presumed to be constitutional. Jefferson Smurfit, supra
at 277. If tax legislation is at issue, then the presumption is especially strong. Id. Until a taxing
statute has been shown to "clearly and palpably violate the fundamental law," it will not be
declared unconstitutional. Id. (citation and quotation marks omitted).
The plaintiff in Jefferson Smurfit challenged the CAD statute, MCL 208.23(e), that was
in effect during the years 1997 and 1998 and requested a refund of taxes paid, alleging that the
site-specific and apportioned CAD violates the Commerce Clause "because it burdens out-ofstate businesses and thus discriminates against interstate commerce." Jefferson Smurfit, supra at
276-277. The Court ruled that the CAD did not discriminate against interstate commerce, and it
therefore rejected the plaintiff 's claim of unconstitutionality. Id. at 278-281.
At least in broad terms, the facts and issues were the same in Jefferson Smurfit as they are
in this case—an interstate company requested a refund for taxes paid in 1997 and 1998 (and
1999 in this case) on the basis of a claim that MCL 208.23(e) violates the Commerce Clause.
However, plaintiff asserts that there is a crucial difference between this case and Jefferson
Smurfit. Specifically, plaintiff claims that this case concerns fair apportionment, whereas
Jefferson Smurfit concerned the discriminatory effect on interstate commerce of MCL 208.23(e).
In Complete Auto Transit, Inc v Brady, 430 US 274, 279; 97 S Ct 1076; 51 L Ed 2d 326
(1977), the United States Supreme Court noted the existence of a four-part test for determining
the constitutionality of state taxing statutes under the Commerce Clause. Under this analysis, a
tax must be (1) applied to an activity with a substantial nexus with the taxing state, (2) fairly
apportioned, (3) nondiscriminatory, and (4) fairly related to the services provided by the state.
Id. Plaintiff argues that, while the claim in Jefferson Smurfit was generally the same as that
raised here—i.e., that MCL 208.23(e) is unconstitutional under the Commerce Clause—Jefferson
Smurfit only considered the discrimination aspect of the Commerce Clause analysis and did not
address whether the site-specific and apportioned CAD is fairly apportioned under the
Commerce Clause. Defendant, on the other hand, contends that the substance of the Court's
analysis in Jefferson Smurfit was identical to the issue currently raised by plaintiff.
The pertinent question, then, is whether the specific Jefferson Smurfit analysis—which,
nominally at least, focused on "discrimination"—and an analysis focusing on "fair
apportionment" can be considered substantively identical.
A "discrimination" analysis involves deciding whether a statute "(1) is facially
discriminatory against interstate commerce, (2) has a discriminatory effect, or (3) was enacted
defendant did not lose its right to assert a legal dispute. We note that MCR 2.116(C)(10) states
that summary disposition may be granted when "there is no genuine issue as to any material fact,
and the moving party is entitled to judgment or partial judgment as a matter of law." (Emphasis
for a discriminatory purpose." Jefferson Smurfit, supra at 278. In Jefferson Smurfit, the Court
briefly concluded that the CAD statute was not facially discriminatory and was not enacted for a
discriminatory purpose. Id. at 279-280. With regard to "discriminatory effect," the Court's entire
analysis was as follows:
States may compete with one another for a share of interstate commerce,
they just may not discriminatorily tax the products manufactured or the business
operations performed in other states. Boston Stock Exchange [v State Tax Comm,
429 US 318, 336-337; 97 S Ct 599; 50 L Ed 2d 514 (1977)]. Here, the CAD is
available to all Michigan taxpayers who locate new property in Michigan,
whether intrastate or multistate businesses, and it is available at the same
apportioned rate as is applied to the taxpayer's overall tax base. The three-factor
apportionment formula of the SBTA has survived constitutional challenge, see
Trinova [Corp v Dep't of Treasury, 498 US 358, 387; 111 S Ct 818; 112 L Ed 2d
884 (1991)], and the availability of an apportioned CAD in a given tax year is not
dependent on the initial location of the taxpayer's assets, but rather turns on the
taxpayer's election to increase its Michigan investment.
We conclude, therefore, that the CAD provision is not designed to punish
multistate taxpayers who choose not to increase their Michigan presence.
Moreover, we are not convinced that the CAD provision is responsible for any
deleterious effects suffered by multistate taxpayers who opt to increase activity
outside Michigan. Accordingly, we note agreement with an analysis adopted by
our Supreme Court in Caterpillar, supra at 425:
"Generally speaking, the overall tax consequences to a multistate taxpayer
will be dependent upon the nature of its business activities and whether it is
eligible and elects to avail itself of the tax reduction incentives afforded by the
[SBT]." [Pollock, Multistate taxpayers under the Single Business Tax Act, 22
Wayne L R 1101, 1113 (1976).]
We hold that the site-specific CAD available pursuant to subsection 23(e)
has no discriminatory effect on interstate commerce. [Jefferson Smurfit, supra at
The Court in Jefferson Smurfit, supra at 280, emphasized that the CAD "is available at
the same apportioned rate as is applied to the taxpayer's overall tax base." The Court, citing
Trinova, supra at 387, noted that "[t]he three-factor apportionment formula of the SBTA has
survived constitutional challenge . . . ." Jefferson Smurfit, supra at 280. In Trinova, the United
States Supreme Court considered whether the rate applied to the taxpayer's overall tax base under
the SBTA was fairly apportioned. Id. at 380-387. The Trinova Court mentioned "the
requirement of fair apportionment, as expressed in the tests of internal and external consistency."
Id. at 385.2 The Court indicated that Michigan must only tax "its fair share of an interstate
transaction," id. at 386 (citation and quotation marks omitted), and the Court concluded that, "as
applied to Trinova during the tax year at issue, the Michigan SBT[A] does not violate the . . .
Commerce Clause of the Constitution." Id. at 387. Clearly, the Trinova Court addressed the
elements of "fair apportionment." See Caterpillar, supra at 417-419 (indicating that a fair
apportionment analysis focuses on whether an entity is taxed only for activity attributable to the
taxing state and uses the concepts of "internal consistency" and "external consistency").
The Jefferson Smurfit Court's discussion of Trinova and its statement regarding
apportionment convinces us that the Court in Jefferson Smurfit did in fact conclude that the CAD
is fairly apportioned. As noted in W A Foote Mem Hosp v City of Jackson, 262 Mich App 333,
341; 686 NW2d 9 (2004), "[t]he rule of stare decisis generally requires courts to reach the same
result when presented with the same or substantially similar issues in another case with different
parties." The rule of stare decisis mandates that published decisions of this Court are
precedential and binding on lower courts and tribunals. MCR 7.215(C)(2). "[A] case is stare
decisis on a particular point of law if the issue was 'raised in the action decided by the court, and
its decision made part of the opinion of the case.'" Terra Energy, Ltd v Michigan, 241 Mich App
393, 399; 616 NW2d 691 (2000), quoting 20 Am Jur 2d, Courts, § 153, p 440. We conclude that
because the issue of the CAD's constitutionality was raised, in general, in Jefferson Smurfit, and
because the Jefferson Smurfit Court made the issue of apportionment "part of the opinion of the
case," we are bound to follow its holding regarding apportionment. The CAD is fairly
apportioned, and the Court of Claims erred in concluding otherwise.
Plaintiff emphasizes that the Jefferson Smurfit Court explicitly stated that the "issue here
is the third prong of the Complete Auto test," i.e., whether the CAD discriminates against
interstate commerce. See Jefferson Smurfit, supra at 278. Plaintiff contends that Jefferson
Smurfit therefore does not constitute precedent for purposes of the instant case. Regardless of
how the Jefferson Smurfit Court framed the issue initially, however, the Court made a conclusion
regarding fair apportionment. To accept plaintiff 's argument would be equivalent to elevating
form over substance. The substance of the Court's holding makes clear that it was addressing the
issue we face in this case.
Moreover, the concepts of discrimination and fair apportionment are related; a fair
apportionment analysis essentially constitutes a part of a discrimination analysis. As noted in
Armco, Inc v Hardesty, 467 US 638, 644; 104 S Ct 2620; 81 L Ed 2d 540 (1984), "[a] tax that
unfairly apportions income from other States is a form of discrimination against interstate
commerce." See also Trinova, supra at 385 (indicating that a fair apportionment analysis is a
primary component of a discrimination analysis). If we were to agree with plaintiff that the sitespecific and apportioned CAD is not fairly apportioned, then we would be finding that the CAD
The concept of "internal consistency" addresses whether, if every state were to use the same
taxing scheme, no more than 100 percent of a taxpayer's business activity would be taxed.
Caterpillar, supra at 419. "External consistency" addresses whether the tax in question covers
only that portion of value attributable to business activity within the taxing state. Id.
discriminates against interstate commerce, which would contradict this Court's conclusion in
Jefferson Smurfit, supra at 281. We instead find that the CAD is fairly apportioned, does not
discriminate against interstate commerce, and is constitutional.
/s/ Patrick M. Meter
/s/ Karen Fort Hood
/s/ Bill Schuette