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Officials: Corporate Tax Case Could Cost Michigan $1 Billion

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LANSING (AP) – A recent Michigan Supreme Court ruling in favor of IBM in a corporate tax case could cost the state more than $1 billion – an amount that could have a “budget-busting” impact, according to the state’s attorney general.

The 4-3 ruling came in a long-standing tax dispute about how corporations that do business in several states can calculate their Michigan taxes, the Detroit Free Press reported.

The ruling means IBM would get a $6 million tax refund for 2008, rather than the $1.3 million calculated by Michigan’s Department of Treasury. The decision could also affect other companies could be affected along with Michigan Business Tax cases in the 2009 and 2010 tax years, the newspaper reported.

The state Treasury Department estimates Michigan’s exposure from the decision at $1.1 billion, plus interest.

In a post-opinion motion seeking a rehearing of the case, state Attorney General Bill Schuette said the ruling “results in the state potentially owing a budget-busting aggregated tax refund in the hundreds of millions of dollars (not including interest) to mostly out of state corporations.”

In a separate motion, Schuette said there are 134 similar cases filed by out-of-state corporations pending in Michigan courts and thousands of potential claims.

Kurt Weiss, a spokesman for the Michigan Department of Technology, Management and Budget, said officials believe most of the impact would be felt in the 2014-15 fiscal year, though there could also be some impact this year.

“It creates a significant problem for the budget,” Weiss said. “We are hoping for reconsideration from the Supreme Court.”

At the heart of the cases is state corporate income tax policies designed to favor local corporations at the expense of out-of-state corporations, said Amy Hamilton, a senior writer for Tax Analysts, a publication that caters to tax professionals in law and accounting firms.

The Michigan Business Tax, which was repealed in 2011, required out-of-state corporations to calculate their taxes based on sales, she said. But since 1970, Michigan has belonged to a multistate compact that was intended to make things easier for out-of-state corporations.

“That’s a huge chunk of money for any state and that’s why it’s been watched so closely,” Hamilton said.

© Copyright 2014 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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