1. Home
  2. |Insights
  3. |Think Compact Apportionment Election

Think Compact Apportionment Election

Client Alert | 2 min read | 07.15.14

In Int'l Bus. Machs. Corp. v. Mich., Dep't of Treasury, No. 146440 (Mich. July, 14, 2014) (IBM), the Michigan Supreme Court held that the taxpayer was entitled to elect the Multistate Tax Compact's three-factor apportionment formula to apportion its income for purposes of the Michigan Business Tax (MBT) and was not required to use the "mandatory" single sales factor formula provided in a separate statutory provision. In overruling the Court of Appeals' 2012 decision that the Michigan legislature had repealed the Compact election provision by implication -- a decision that was widely criticized by many state tax experts including the authors of this Alert (see here) -- the Supreme Court found no clear indication that the Legislature intended to repeal the Compact election provision for the years at issue. Accordingly, reading the Compact election provision and the MBT's statutory apportionment provision in pari materia, the Court held that two statutes were compatible and could be read harmoniously. That is, if a taxpayer makes the Compact election, the three-factor formula is mandatory; if a taxpayer does not make the Compact election, the statutory single sales factor formula is mandatory. The Court also held that the MBT's gross receipts tax meets the definition of an income tax, and that the taxpayer could use the Compact's three-factor formula for both the Gross Receipts Tax and the Business Income Tax parts of the MBT.

The IBM decision marks the first high court to rule on the Compact election issue. We continue to await the California Supreme Court's decision on appeal in The Gillette Company, et. al. v. California Franchise Tax Board, No. A130803 (Cal. Ct. App. Oct. 2, 2012). In that case, the California Court of Appeal had concluded that taxpayers may elect to use the Compact's evenly-weighted three factor apportionment formula, and are not required to use the statutory three factor formula with double-weighted sales, to apportion business income under the Corporation Franchise Tax.Similar litigation is also ongoing in Oregon, Minnesota, Texas, and other jurisdictions. Taxpayers should continue to evaluate whether refund claims may be available based on making a retroactive Compact apportionment election. For help evaluating your apportionment options, contact one of the authors of this Alert.

For additional coverage of the Compact election litigation, see our earlier Alerts:

"High Courts in California and Michigan Mull Review in Gillette and IBM, Respectively"
"Let's Build a Smarter [Apportionment Formula]"
"Gillette: 'The Best a [Taxpayer] Can Get!'"

Insights

Client Alert | 7 min read | 08.19.26

CMS’s Final Rule Bans Federal Medicaid Funding for Youth Gender-Affirming Care

On August 13, 2026, the Centers for Medicare and Medicaid Services (CMS) published its final rule banning the use of federal funds — through Medicaid and the Children’s Health Insurance Program (CHIP) — to pay for gender-affirming care for children and youth. The final rule takes effect October 13, 2026 (“Prohibition on Federal Medicaid and Children's Health Insurance Program Funding for Sex-Rejecting Procedures Furnished to Children”). While CMS finalized several key elements of its late-2025 proposed rule (Client Alert December 24, 2025), the proposed Medicare hospital Condition of Participation rule remains in proposed form....

View All Insights