Michigan will save $1 billion because of ruling on out-of-state companies' business deductions.

CHICAGO - The Michigan Supreme Court last week upheld the constitutionality of the capital acquisition deduction portion of Michigan's single-business tax.

That action will save the state about $1 billion in refunds to out-of-state businesses, according to Nick Khouri, Michigan's chief deputy treasurer.

The 4-to-3 decision by the state's high court on Friday was a victory for the Michigan Department of Treasury in a case brought by Illinois-based Caterpillar Inc.

The Treasury had appealed a February 1991 state appellate court decision that found the capital acquisition deduction for out-of-state businesses unconstitutional, while Caterpillar had simultaneously appealed a portion of the ruling that disallowed any retroactive refund of what it had been assessed from 1980 to 1989.

According to Mr. Khouri, the high court ruled only on the state's appeal of the constitutionality decision, which automatically rendered the retroactivity appeal by Caterpillar moot. He added that if the court had concurred with the appellate court and ruled in favor of retroactivity, the state would have been liable for up to $1 billion in refunds to hundreds of businesses.

Jeff Hawkinson, a spokesman fir Caterpillar, said yesterday that the company was reviewing the high court's decision and had not decided whether to appeal the decision to the U.S. Supreme Court.

Caterpillar had originally charged that businesses headquartered outside of Michigan were not treated the same as in-state businesses in terms of the kinds of deductions they could take for capital investments. Both a lower court and the appellate court agreed with Caterpillar, but the appellate court's remedy greatly expanded the scope of the deduction at a cost to the state of about $450 million a year.

The state averted the financial loss by passing legislation last year that revamped the capital acquisition deduction to remove any question of unconstitutionality, Mr. Khouri said.

The state high court's decision followed a ruling last year by the U.S. Supreme Court that upheld the constitutionality of Michigan's single-business tax in a case brought against the state by an Ohio-based automotive parts manufacturer.

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