U.S. High Court Denies Ford's Bid For $16M Tax Refund From Michigan

The U.S. Supreme Court today rejected Ford Motor Credit's appeal seeking a $16 million refund on its Michigan state taxes for vehicles sold between 2002 and 2007.

The decision likely will end the appeals of 90 other auto finance companies that have sought $100 million in refunds in state taxes, and is a big win for cash-strapped Michigan.

The Supreme Court, without comment, dismissed an appeal of a state appeals court decision that rejected Ford Motor Co unit's argument that it was owed refunds on taxes paid for vehicles financed over a period of months and years, when owners defaulted on the loans, reported The Detroit News.

Michigan requires that the sales tax for the vehicle's full purchase price be paid up front, even when the vehicle is being purchased over several years.

But in 2006, the state court of appeals, ruled in the case of DaimlerChrysler North America LLC vs Department of Treasury that motor vehicle financing companies were entitled to refunds when customers defaulted. That could have cost the state $100 million in refunds.

The Michigan Legislature responded in October 2007 with legislation denying refunds to auto finance companies in bad-debt cases.

Outgoing Michigan Attorney General Mike Cox told the Supreme Court last month that if the state Legislature hadn't acted to fix the ruling "this error would have caused an unanticipated $100 million shortfall in an already tenuous state budget."

The law was upheld by the Michigan Court of Appeals and state Supreme Court.

Ford said the state court decision "establishes a dangerous precedent at a time when legislatures nationwide are looking for easy and creative ways to address budget shortfalls."

The U.S. Chamber of Commerce, Michigan Manufacturers' Association and other groups had urged the Supreme Court to take the case. "Efforts like those in Michigan and other states to retroactively increase tax liability after losing tax cases in the courts bring to mind the famous running gag in Peanuts — the widely known comic strip — where Lucy offers to hold the football for Charlie Brown to kick, only to pull it away at the last moment," they wrote in a brief.

But Cox said in defending the law that the legislature was not "retroactively" applying the tax, but clarifying the original intent of the state and "meant to correct the misinterpretation of the bad-debt statute of the Michigan Court of Appeals."