The state high court heard oral argument in Case No. 167608, Nationwide Agribusiness Insurance Company v. Department of Treasury, over whether chapter 12 of the Income Tax Act allows insurance companies that form a unitary business group (UBG) to file combined returns for premiums and to compute the retaliatory tax on a unitary basis.

Assistant attorney David Thompson, appearing for the Department of Treasury, told the court that "Treasury wins this case because the income tax act and the insurance code provide for unique treatment of insurance companies, which must each individually report and pay a premiums tax as well as a retaliatory tax in certain instances and take any available credits for payments made to the assigned claims plan." He argued the statutory structure treats insurance business and premiums differently from ordinary business income and that chapter 12 contains no parallel provision to the unitary combined-filing rules that govern corporate business income.

Thompson told the bench that, even if an insurance company is part of a larger UBG for business-income purposes, "that combined filing is strictly for business income purposes" and that premiums and retaliatory liabilities remain separate obligations that each constituent entity must file and account for "one by one." He warned that allowing the combined treatment Nationwide proposes would let entities "benefit from [credits] anyway," make Michigan an outlier, and risk 'credit cherry-picking' that would inflate retaliatory calculations across states.

Jeff Lipps, counsel for Nationwide, replied that the statutory text and legislative history point the other way. Lipps said the legislature amended the tax code in 2011 to include insurance companies within the UBG definition and that several provisions (including the statutory taxpayer definition and unitary filing provisions) support combined returns for UBGs composed of insurers. He noted a unanimous Court of Appeals decision in Nationwide's favor, two amici briefs (the Michigan State Bar Taxation Section and the Council on State Taxation), and a department frequently asked question and prior processed returns that, in his view, show the department has treated unitary filings as practicable.

Lipps told the court the question before it is statutory: "does chapter 12 authorize a UBG, the Unitary Business Group of insurance companies to file combined returns for collective premiums and retaliatory tax." He argued the integrated statutory scheme across chapters 10'16, department guidance, and historical practice support Nationwide's reading and that if the department dislikes the administrative consequences it can seek legislative change.

Justices pressed both sides on mechanics and policy. One justice asked whether a UBG could mix insurance and non-insurance entities; Thompson agreed it could but said the combined filing would be limited to business income while premiums remain on separate filings. Bench members also asked whether the retaliatory tax could be calculated on a unitary basis and raised concerns about interstate effects if credits were combined while liabilities were not.

Both sides stressed the narrowness of the legal question. Treasury framed the dispute as a matter of statutory interpretation and administrative practice, emphasizing the insurance code's retaliatory tax purpose to preserve equal burdens across state lines. Nationwide emphasized the 2011 statutory language incorporating insurers into UBG definitions and pointed to appellate decisions, amici, and departmental materials it says support combined filings.

The argument concluded with counsel reserving time for rebuttal and the court taking the case under submission. No decision was announced from the bench.