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A tax-related decision from the Michigan Supreme Court has spurred legislation.

(File Photo)

LANSING, MI -- Legislation that passed the state House today aims to fix a potential $1 billion liability on the State of Michigan’s balance sheets that came to light after a Michigan Supreme Court decision.

It's a tax dispute rooted in previous legislation that some companies have taken to court.

“It’s important because we’re looking at a billion dollar hole in the budget, which is about 10 percent of the general fund. So we had to deal with it. It’s unfortunate the Supreme Court made the ruling they did. We disagree with it,” said House Appropriations Chair Joe Haveman, R-Holland.

The Supreme Court decided on a tax case involving International Business Machines (IBM) in July. Afterward, the Department of Treasury crunched some numbers and claimed the state would be out more than $1 billion. The state has asked the court to reconsider the case, but hasn't heard back yet.

In the Supreme Court lead opinion, justices outlined two ways the legislature could have avoided this issue: either by expressly repealing the Multistate Tax Compact in 2008 or by retroactively repealing a provision of the compact in 2011.

Haveman wouldn't say that the Legislature in either case had made a mistake.

"No legislature, no matter who the administration was or who was here ever would put together a piece of tax legislation that would benefit out of state companies versus in-state companies," he said.

At issue in the case was whether IBM could use a formula in the Multistate Tax Compact to apportion its business income tax base and modified gross receipts tax base for its 2008 Michigan taxes, or whether it was required to use a formula laid out in the Michigan Business Tax Act. The court ruled IBM was within its rights to use the Multistate Tax Compact.

Assuming the decision stands, the state would owe IBM $6 million. But the state would also be on the hook for about $1 billion to other companies disputing their taxes on the same grounds.

It’s that second part that Haveman said the legislation approved by the House on Tuesday was designed to stop.

“With the fix, it’s not going to cost us much. I think the settlement on IBM was about $6 million. That sounds like a pretty small number when you’re talking about $1 billion tax liability,” Haveman said.

The House substituted an existing bill, SB 156, and passed it 100-10. Now it’s up to the Senate to approve the legislation, which Senate Majority Leader Randy Richardville, R-Monroe, said would come soon.

“I think the Legislature will get it fixed before September is over,” Richardville said.

Emily Lawler is a Capital/Lansing business reporter for MLive. You can reach her at elawler@mlive.com, subscribe to her on Facebook or follow her on Twitter: @emilyjanelawler.