Our client was one of the United States leading engineering and manufacturing companies, specialized in water and wastewater treatment and industrial processes, defense electronics and services, electronic components such as connectors and switches, and a wide range of other industrial products.
When our client sold a subsidiary that provided components to automotive manufacturers, the State of Michigan charged the firm with a very large Single Business Tax (“SBT”) liability. The SBT is a value-added tax (VAT), unique within the United States, though common in Europe and Canada. For a suit filed against the State of Michigan, we prepared a report and affidavit which described how the application of the tax in this manner would violate the Commerce Clause of the United States Constitution. For the report, we:
-Reviewed value-added taxation in general
-Reviewed Michigan’s SBT in particular
-Reviewed the past interstate commerce cases relating to taxation and state actions violating interstate commerce
-Summarized the structure of the auto industry
-Analyzed how the application of the Michigan SBT in this matter infringed interstate commerce, was contrary to the purpose of the SBT, and resulted in perverse tax treatment of this company and, potentially, many others.
Before the report was presented in court, the State made an acceptable settlement with our client, based partially on the record established by our report.