In a split decision, the Michigan Supreme Court rejected a taxpayer’s assertion that applying the standard apportionment formula to gain derived from a deemed asset sale led to a grossly distorted, unconstitutional result. The court held in Vectren Infrastructure Services Corporation v. Department of Treasury, No. 163742 (July 31, 2023), that applying the standard single sales factor apportionment formula—which did not include any receipts from the deemed asset sale—to apportion the gain did not violate the U.S. Constitution’s Due Process Clause or Commerce Clause.
A very interesting and heartening decision was just handed down by the Michigan Court of Appeals in Vectren Infrastructure Services Corp. v. Department of Treasury in connection with a sale of an out-of-state business. Copy attached. In Vectren, the Court of Appeals held that the Department of Treasury’s (DOT) removal of the gain from the sale of the business from the denominator of the sales factor, while including the gain in the income base, violated the Due Process and Commerce Clauses. Notably, during the year in question, Michigan used a single sales factor apportionment formula. The decision underscores the potential unfair apportionment inherent in a single sales factor apportionment formula.