Court Opinion

ID: 9659121
Source: CourtListenerOpinion
Date Created: 2023-08-23 21:32:52.130493+00
Date Added: 2024-06-11T18:14:04.262475
License: Public Domain

*466Brickley, J.
(dissenting). This case raises two relatively straightforward questions. The first is whether granting a deduction to companies on the basis of a percentage that changes depending upon the amount of a company’s Michigan property and payroll relative to the total amount of its property and payroll is constitutional. The second, similarly, is whether providing an incentive in the form of a tax deduction for activity within Michigan, but declining to provide it for activity in other states, can withstand constitutional scrutiny. Because the United States Supreme Court has unequivocally declared that basing a deduction on the percentage of a company’s in-state activity relative to its interstate activity is unconstitutional, I would answer the first question in the negative. However, because the United States Supreme Court has also consistently reaffirmed the propriety of uniformly available tax incentives, the latter question should be resolved in favor of constitutional validity.
i
Historically, the Commerce Clause has played an important role in guaranteeing the free flow of commerce among the states. Adopted in response to attempts by the legislatures of many states to *467exploit their natural advantages, the Commerce Clause created a national market for goods and services. H P Hood & Sons, Inc v Du Mond, 336 US 525; 69 S Ct 657; 93 L Ed 865 (1949). It did this by neutralizing the ability of states to extract wealth from other states. By linking the states together economically, the Commerce Clause fosters a strong political union.
The most blatant form in which states attempted to capture revenues from other states is the exaction of a duty. The Commerce Clause prohibits placing duties on the movement of goods in interstate commerce and few states engage in such crude discrimination. When they do, such statutes are struck down as a matter of course. Chemical Waste Management, Inc v Hunt, 504 US —; 112 S Ct 2009; 119 L Ed 2d 121 (1992); Philadelphia v New Jersey, 437 US 617; 98 S Ct 2531; 57 L Ed 2d 475 (1978). A more subtle version of the duty is a discriminatory tax. Instead of imposing the extra cost directly, the state relies on a company’s ability to pass the tax on to its customers in other states. A company subject to a discriminatory tax thus becomes a conduit for extracting revenue from producers and consumers in other jurisdictions just as if an explicit duty had been placed on each transaction. Trinova Corp v Dep’t of Treasury, 498 US 358, —; 111 S Ct 818; 112 L Ed 2d 884, 913 (1991) (the Commerce Clause defends against taxes that "attempt to capture tax revenues that . . . belong of right to other jurisdictions”).
The Supreme Court has long recognized the danger discriminatory taxes pose to political union. Welton v Missouri, 91 US (23 Wall) 275; 23 L Ed 347 (1876); Robbins v Shelby Co Taxing Dist, 120 US 489; 7 S Ct 592; 30 L Ed 694 (1887). Whenever a state has attempted to use a tax to *468extract revenue or coerce another’s sovereign authority, the Court has invalidated the statute. Kraft General Foods, Inc v Iowa Dep’t of Revenue & Finance, 505 US —; 112 S Ct 2365; 120 L Ed 2d 59 (1992); New Energy Co of Indiana v Limbach, 486 US 269; 108 S Ct 1803; 100 L Ed 2d 302 (1988); Westinghouse Electric Corp v Tully, 466 US 388; 104 S Ct 1856; 80 L Ed 2d 388 (1984); Maryland v Louisiana, 451 US 725; 101 S Ct 2114; 68 L Ed 2d 576 (1981); Halliburton Oil Well Cementing Co v Reily, 373 US 64; 83 S Ct 1201; 10 L Ed 2d 202 (1963); McLeod v J E Dilworth Co, 322 US 327; 64 S Ct 1023; 88 L Ed 1304 (1944). Conversely, when the Court has upheld state taxes, it has done so because the state was not using its leverage to divert revenue impermissibly from other states’ citizens into its coffers. Trinova Corp v Michigan Dep’t of Treasury, supra; Dep’t of Revenue v Ass’n of Washington Stevedoring Cos, 435 US 734; 98 S Ct 1388; 55 L Ed 2d 682 (1978); Standard Pressed Steel Co v Washington Dep’t of Revenue, 419 US 560; 95 S Ct 706; 42 L Ed 2d 719 (1975); General Trading Co v Iowa Tax Comm, 322 US 335; 64 S Ct 1028; 88 L Ed 1309 (1944); Henneford v Silas Mason, 300 US 577; 57 S Ct 524; 81 L Ed 814 (1936); Western Union Telegraph Co v Attorney General of Massachusetts, 125 US 530; 8 S Ct 961; 31 L Ed 790 (1888). Multiplying examples serves no useful purpose except to reinforce both the logical and historical linkage of the use of leverage and invalidity under the Commerce Clause.
Only in light of this background can the phrases "discrimination,” "economic protectionism,” and "burden interstate commerce” have any meaning.1 *469Each phrase refers to the use of a state’s political power over activity within its jurisdiction to exert power over activity beyond its borders. Whether in the form of isolation of in-state markets from the broader national economy, Wyoming v Oklahoma, 502 US —; 112 S Ct 789; 117 L Ed 2d 1 (1992), or participation in in-state markets under unequal conditions, Westinghouse Electric Corp v Tully, supra, the Commerce Clause nullifies any extraterritorial exertion of power over commerce.
Several propositions of law follow directly from the Commerce Clause’s protection of interstate enterprise. No state may tax "a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.” Armco, Inc v Hardesty, 467 US 638, 642; 104 S Ct 2620; 81 L Ed 2d 540 (1984); see also Boston Stock Exchange v State Tax Comm, 429 US 318; 97 S Ct 599; 50 L Ed 2d 514 (1977). Because it is likely to represent protectionism, American Trucking Ass’ns, Inc v Scheiner, 483 US 266; 107 S Ct 2829; 97 L Ed 2d 226 (1987) (Scalia, J., dissenting), any cost imposed selectively on interstate commerce runs afoul of the Commerce Clause. From license fees borne in greater amounts by interstate salesmen, Welton v Missouri, supra; Robbins v Shelby Co Taxing Dist, supra, to lump-sum taxes falling more heavily on interstate trucking, American Trucking Ass’ns v Scheiner, supra; United States v Sperry Corp, 493 US 52, 61, n 7; 110 S Ct 387; 107 L Ed 2d 290 (1989), to tax codes that, through an interlocking system of credits and deductions, unequally burden interstate commerce, Halliburton Oil Well Cementing Co v Reily, supra; Boston Stock Exchange v State Tax Comm, supra; Maryland v Louisiana, supra; Westinghouse Electric Corp v Tully, supra, no tax treating interstate commerce unequally and disadvantageously has *470survived scrutiny under the Commerce Clause.2 The rule is simple and absolute: Interstate commerce is not, and may not be made, a means for the export of tax burdens or the import of tax revenues. Trinova Corp, supra.
The beguiling simplicity of these rules makes straying from their purpose and rationale easy. Because discrimination involves the use of power in a way hostile to political and economic union, once a tax is found to discriminate, the amount of discrimination is irrelevant. Other states’ tax laws cannot validate discrimination, Armco Inc v Hardesty, supra at 644-645; Freeman v Hewit, 329 US 249; 67 S Ct 274; 91 L Ed 265 (1946),3 because these laws in no way repair the damage to union caused by the initially improper exercise of power. Furthermore, if a credit discriminates, it is irrelevant whether a tax or formula fairly reflects the in-state component of business activity. Westinghouse Electric Corp, supra. Such an inquiry *471"serves only to obscure,” id. at 398, and make' more difficult the determination whether a particular statute threatens the values protected by the Commerce Clause.
The specific question before us involves two deductions provided by the single business tax. One deduction, the capital acquisition deduction for personal property, is offered to companies and is dependent on the amount of property and payroll in Michigan relative to the amount elsewhere. The other, the cad for real property, is offered to all companies regardless of the interstate or intrastate character of their property when they purchase depreciable real property in Michigan. The first deduction is provided on an impermissible basis, and a precisely analogous deduction has been condemned by the Supreme Court. In light of Westinghouse Electric Corp v Tully, supra, I would hold the cad for personal property unconstitutional. The second deduction, however, is provided wholly independent of a company’s interstate character. Because this deduction does not, and cannot be made to, tax extraterritorial value, I would hold that the cad for real property does not violate the Commerce Clause.
II
A'multistate company may deduct a portion of its capital acquisition costs from its apportioned tax base. To arrive at the apportioned .tax base, a company uses an apportionment formula provided by statute. This formula is the average of the company’s sales factor, property factor, and payroll factor. MCL 208.45; MSA 7.558(45).4 This ad*472justment allocates a share of a company’s gross tax base to Michigan, as required by the Due Process and Commerce Clauses. Quill Corp v North Dakota, 504 US —; 112 S Ct 1904; 119 L Ed 2d 91 (1992); Moorman Mfg Co v Bair, 437 US 267; 98 S Ct 2340; 57 L Ed 2d 197 (1978); Complete Auto Transit, Inc v Brady, 430 US 274; 97 S Ct 1076; 51 L Ed 2d 326 (1977).
After calculating its apportioned tax base, a company deducts the cost of its capital acquisitions. The single business tax treats acquisitions of depreciable real property5 and personal property differently. A company may deduct the entire cost of real property located in Michigan but may deduct none of the cost of real property located elsewhere. MCL 208.23(c); MSA 7.558(23)(c). The portion of the cost of personal property a company may deduct depends upon the value of another apportionment formula. Unlike the three-factor formula, this formula is merely the average of a company’s property and payroll factors. MCL 208.23(a); MSA 7.558(23)(a).
Caterpillar contends that this statutory arrangement is unconstitutional. The cad offered for depreciable personal property is assailed on two grounds. First, it is suggested that a company having a larger initial investment in Michigan receives a greater deduction than a company having a lesser investment. Second, Caterpillar argues that the cad for personal property is a form of percentage-based deduction specifically condemned *473in Westinghouse Electric Corp v Tully, supra. The cad for real property is challenged on separate grounds. Caterpillar contends that encouraging companies to locate productive resources in Michigan violates the Commerce Clause. The first contention is correct; the cad for personal property is an impermissible percentage-based deduction. The cad for real property, however, is available to all companies regardless of their interstate activity and does not discriminate in violation of the Commerce Clause.
A. THE CAD FOR PERSONAL PROPERTY
In Westinghouse Electric Corp v Tully, supra, the Supreme Court considered a credit New York offered for using New York facilities for exporting goods to other countries: the greater the New York-based exports, compared to a company’s total exports, the greater the credit the company was offered. The Supreme Court unanimously invalidated the credit.
The Court found that the credit not only " 'provide[d] a positive incentive for increased business activity in New York State,’ but also it penalize^] increases in . . . shipping activities in other States.” Id. at 401 (internal quotation and citation omitted). The penalty, the Court found, arose because New York decreased the incentive it awarded for in-state activity as out-of-state activity increased. This effect occurred because increases in out-of-state activity lowered the relative percentage of New York-based exports to the company’s total exports. Id. at 400, n 9. Summing up its analysis of the credit, the Court wrote: "[T]he credit is awarded in a discriminatory manner on the basis of the percentage of a [company’s] shipping conducted from within the State of New *474York.” Id. at 402, n 9. Because a company’s tax would increase if it took advantage of an incentive offered by another state, New York impaired the free flow of interstate commerce and clogged competition among the states for the export trade.
In deciding the case, the Court noted that the, opinion might cast doubt on investment credits generally. Because all investment credits reward in-state activity while denying a reward to out-of-state activity, it might be suggested that discrimination necessarily results. Denying the validity of this interpretation, the Court wrote: "We reiterate that it is not the provision of the credit that offends the Commerce Clause, but the fact that it is allowed on an impermissible basis, i.e., the percentage of a specific segment of the corporation’s business that is conducted in New York.” Id. at 406, n 12. The rule emerging from Westinghouse Electric Corp is clear-cut: Basing a deduction on a change in a subset of a company’s instate activity relative to its total activity is unconstitutional.6
Applying this rule to the cad for personal property leads to the conclusion that it is invalid. The amount of the deduction is determined by multiplying the cost of the asset by a percentage defined as the average percentage of property and payroll a company has in Michigan. This percentage, reflects only a portion of a company’s economic *475activity in Michigan. As such, the formula falls for the same reason as the credit in Westinghouse Electric Corp: it lowers a company’s incentive as it acquires and locates more property or payroll outside of Michigan.
A simple numerical example should illustrate this effect. Suppose a company purchases a new asset in another state costing $100,000. It has 50 percent of its property and payroll in Michigan before the purchase. By placing the asset in another state,, the percentage of its Michigan property and payroll will necessarily decrease. If the percentage decreases to 45 percent, the company only receives a $45,000 deduction, suffering a penalty of $5,000. If, however, the company places the new asset in Michigan, the percentage of Michigan property will increase. Instead of suffering a $5,000 penalty, the company will receive a $5,000 bonus. If the company continues to purchase new assets and to place them out of state, the amount of its deduction for each new purchase decreases because its percentage of Michigan property and payroll decreases. Worse, the cad for personal property can punish economic efficiency and growth. If the relative amount of property and payroll in Michigan decreases because a company grows, the effect is the same as when the company purchased a new asset: a lesser deduction for activity qualifying for one because it grew in other states and not in Michigan.7 Just as it was in Westinghouse Electric Corp, this method of granting a credit is unconstitutional.
The Attorney General and amici curiae defend the cad for personal property with four argu*476ments. None, however, show how the cad can escape the rule of Westinghouse Electric Corp. First, the Attorney General argues that the Commerce Clause does not require the state to use symmetrical formulas to apportion the tax base and the cad for personal property. While not requiring symmetry, the Commerce Clause does require that the statute not be discriminatory. Westinghouse Electric Corp v Tully, supra, clearly holds that formulas that lower the amount of a deduction because the percentage of a company’s property and payroll in state decreases relative to its total property and payroll are discriminatory. The cad for personal property is such a formula. It is, therefore, unconstitutional. The Attorney General’s argument does not even address this syllogism.
Secondly, the Attorney General suggests that the cad for personal property is available to all taxpayers. This observation is as irrelevant as it is correct. All taxpayers can qualify for a cad for personal property. The amount of the cad, however, is determined by the percentage of a company’s property and payroll in Michigan, relative to its total property and payroll. But, as Westinghouse Electric Corp makes clear, the federal constitution does not permit the deduction to be offered on that basis. This characteristic means that the cad is available on different, less favorable terms to companies depending on the amount of their interstate activities. The constitution does not permit such distinctions.
The Attorney General’s final two contentions are more substantial. The first suggestion is that providing a credit on the basis of the percentage of in-state property relative to a company’s total property and payroll benefits all companies that increase their in-state business. But "[t]he fact *477that this discrimination is in favor of nonresident, in-state sales which may also be considered as interstate commerce, does not save [the statute] from the restrictions of the Commerce Clause.” Boston Stock Exchange v State Tax Comm, supra at 334 (citation omitted). One of those restrictions is a prohibition of percentage-based deductions. A deduction granted on this basis necessarily penalizes increases in out-of-state activity. Absent such a penalty, a credit is constitutional, but the cad for personal property inevitably decreases the incentive offered for Michigan activity as interstate activity increases. This the state may not do.
The Attorney General’s last argument attempts to make a virtue out of necessity. It is suggested that limiting the deduction according to the relative percentage of a company’s in-state property "closely approximates” that company’s business activity generally. Michigan does have a strong and legitimate interest in not being "overly generous” with the cad for personal property. Westinghouse Electric Corp, supra at 399. That interest, however, does not justify using a segment of the company’s activity to apportion the deduction. By using a formula based only on a company’s property and payroll in Michigan as compared to property and payroll elsewhere, the sbt guarantees that companies moving assets out of state suffer a discriminatory penalty. This penalty renders the cad for personal property, MCL 208.23(a); MSA 7.558(23)(a), unconstitutional.
B. THE CAD FOR DEPRECIABLE REAL PROPERTY
The cad for real property offers a deduction of the cost of depreciable real property located in Michigan in the year of acquisition. The purchase of depreciable real property in other states does *478not qualify for the deduction. MCL 208.23(c); MSA 7.558(23)(c). Caterpillar attacks the cad because it encourages companies to locate assets in Michigan by lowering the effective cost on intrastate transactions. The Supreme Court has, however, unequivocally indicated that encouraging intrastate investment does not violate the Commerce Clause when nondiscriminatory means are used. Because the cad for real property treats all acquisitions of real property in Michigan without regard to a company’s interstate activity, I would find the cad constitutional.
The constitutionality of the cad for real property depends on whether it facially discriminates against interstate commerce. Facial discrimination results when a statute creates two categories of jurisdictional activity, one that is composed of intrastate activity and one that is composed of interstate activity, and imposes a burden on the interstate activity not shared by intrastate taxpayers. See e.g., Kraft General Foods, Inc v Iowa Dep’t of Revenue & Finance; Maryland v Louisiana; Boston Stock Exchange v State Tax Comm, supra.8 The inquiry is essentially the same when a statute providing a credit is challenged. Westinghouse Electric Corp v Tully, supra. The question is whether two companies engaging in the qualifying *479activity receive the same credit regardless of their interstate activity. If they do, the statute does not discriminate. If, however, an interstate enterprise receives a lesser credit because it operates in interstate commerce, the credit is unconstitutional. Once the statute is found not to discriminate facially, the inquiry shifts to whether it, in effect, taxes extraterritorial value. Trinova Corp v Michigan Dep’t of Treasury, supra. To resolve this question, one looks to whether the tax is fairly apportioned.9 Trinova Corp, supra; Container Corp of America v Franchise Tax Bd, 463 US 159; 103 S Ct 2933; 77 L Ed 2d 545 (1983). If it is fairly apportioned, the tax cannot tax extraterritorial value because no extraterritorial value is available for taxation. The tax would therefore be constitutional.
The cad for real property does not discriminate against interstate commerce. If a company acquires new depreciable real property in Michigan, it receives a cad equal to the cost of that asset. This is true whether the company is overwhelmingly multistate or overwhelmingly intrastate.10 The company’s status as an interstate or intrastate *480enterprise is wholly irrelevant to the operation of the tax. Although Caterpillar does not dispute the uniform application of the credit, Chief Justice Cavanagh in dissent does. He observes that when a company acquires an asset in Michigan it receives a deduction and that when a company acquires an asset in another state it does not. From this, he concludes that the cad facially discriminates.11
I do not share this view for two reasons. First, it is entirely permissible to grant a credit using instate activity as a criterion. As the Chief Justice discusses in detail, the Supreme Court has never said that providing, incentives for the growth of intrastate industry violates the Commerce Clause. In fact, the consistent theme of the Court’s decisions has been that such incentives promote free trade among the states. As the Supreme Court noted in Trinova Corp v Michigan Dep’t of Treasury, supra, 112 L Ed 2d 912, "It is a laudatory goal in the design of a tax system to promote investment that will provide jobs and prosperity to the citizens of the taxing state. States are free to 'structure] their tax systems to encourage the growth and development of intrastate commerce and industry,’ ” quoting Boston Stock Exchange v State Tax Comm. Far from threatening interstate commerce, investment incentives enhance the competition that "lies at the heart of a free trade policy.” Boston Stock Exchange v State Tax Comm, supra at 337; Metropolitan Life Ins Co v *481Ward, 470 US 869; 105 S Ct 1676; 84 L Ed 2d 751 (1985). Encouraging intrastate industry is not an impermissible purpose.12
Additionally, the Court has emphasized that providing credits to encourage particular kinds of in-state activity is constitutional. As the Court paused to note in Westinghouse Electric Corp v Tully, 466 US 406, n 12, the only recent case to consider a tax credit specifically, "We reiterate that it is not the provision of the credit that offends the Commerce Clause, but the fact that it is allowed on an impermissible basis, i.e., the percentage of a specific segment of the corporation’s business that is conducted in New York.” If the Chief Justice’s analysis is correct, this statement is incorrect because any credit necessarily creates a difference between those who qualify for it and those who do not qualify for it. This kind of difference is not constitutionally significant.
More importantly, Chief Justice Cavanagh’s analysis hinges on a faulty comparison of in-state, jurisdictional activity and out-of-state, nonjurisdictional activity. For the purposes of the Commerce Clause, these activities are noncomparable. The essential prohibition of the Commerce Clause is that a state may not treat jurisdictional activity differently simply because one company operates *482in interstate commerce and another does not. Two cases illustrating this proposition are Maryland v Louisiana and Kraft General Foods, Inc v Iowa Dep’t of Revenue & Finance.
In Maryland v Louisiana, the Supreme Court considered a challenge to a Louisiana tax, known as the First-Use Tax. The tax was imposed on all natural gas refined in Louisiana. Additionally, the tax provided credits for numerous uses of natural gas consumed in Louisiana. Louisiana had thus effectively distinguished between two types of natural gas: interstate natural gas (which, by definition, cannot be consumed in Louisiana) and domestic natural gas. The Court struck this statute down unanimously because Louisiana had taxed two types of jurisdictional activity differently and reserved the higher rates for interstate commerce. The Court compared treatment of jurisdictional activity; it did not compare treatment of natural gas refined in Texas and shipped interstate with the credits Louisiana offered, as the Chief Justice’s analysis suggests would have been appropriate.
The most recent case illustrating this analysis is Kraft General Foods. In that case, the Supreme Court considered whether Iowa’s taxation of dividends paid by a foreign corporation to an Iowa parent corporation but exemption of dividends paid by a domestic corporation to an Iowa parent corporation was constitutional. The Court invalidated the tax using the same analysis it had in Maryland v Louisiana. Iowa had divided the activities within its jurisdiction into two categories and treated the category containing foreign dividends less favorably than the category containing domestic dividends. When analyzing whether a. tax is discriminatory, then, - the proper inquiry is whether the state treats types of activity within its jurisdiction differently because of "some interstate *483element.” Armco, Inc v Hardesty, supra. If so and the interstate group bears a burden from which the intrastate group is exempted, the tax is unconstitutional. The cad for real property simply does not discriminate facially.
The final question is whether the cad for real property has discriminatory effects. This analysis focuses on whether the tax is a means to "export tax burdens or import tax revenues.” Trinova Corp v Michigan Dep’t of Treasury, 112 L Ed 2d 912. As the Supreme Court has noted, however, a tax does not have a discriminatory effect if it is fairly apportioned. Trinova Corp, supra. This conclusion follows directly from the concept of fair apportionment. If a tax is fairly apportioned, it distinguishes accurately between value-added properly attributable to Michigan and value-added properly attributable to other states. Container Corp of America v Franchise Tax Bd, supra. In other words, the burden of the tax is imposed only on value-added attributable to Michigan.13 As such, extraterritorial value is not taxed, and Michigan does not export burdens or unfairly import revenues. Because the sbt generally is fairly apportioned, the cad for real property does not import revenue or export burdens to other states. Absent either facial *484discrimination or a discriminatory effect, I would find the cad for real property to be constitutional.
The federal constitution prohibits Michigan from penalizing interstate commercial activity. The cad for personal property is awarded on an impermissible percentage basis. As such, it provides an incentive for investing in Michigan and punishment for investing elsewhere. The cad for real property is different. Any company purchasing depreciable real property in Michigan receives the deduction for the asset’s full cost no matter whether the company operates in several states or operates only in Michigan. I conclude, then, that the cad for real property is constitutional while the cad for personal property is not. In view of the majority’s resolution of this issue, I will not speculate at this juncture about what an appropriate remedy might be.

 As Justice Cardozo eloquently warned, "Catch words and labels, such as the words 'protective tariff,’ are subject to the dangers that lurk in metaphors and symbols, and must be watched with circumspection lest they put us off our guard.” Henneford, supra at 586.

 As a leading scholar aptly remarked:
Aside from Justice Scalia ... no sitting Supreme Court Justice would dissent from the view that the commerce clause prohibits taxes that bear more heavily on the interstate than the intrastate enterprise merely because the former does business across state lines. [Hellerstein, Is "internal consistency” foolish?: Refections on an emerging Commerce Clause restraint on state taxation, 87 Mich L R 138, 164 (1988).]

 The majority indicates that business behavior should never be analyzed in what it describes as a "theoretical vacuum.” Ante at 410, n 14. The United States Supreme Court has never relied on empirical evidence to nullify a tax law. In Westinghouse Electric Corp v Tully, supra, the Supreme Court struck down New York’s tax on income from domestic international sales corporations (disc) on the basis of abstract algebraic analysis, not on any empirical evidence relating to the tax. Id. at 400, n 9. In fact, the Court ignored empirical evidence provided by amicus curiae State of California suggesting that New York’s tax did not encourage increased shipping from New York. The Supreme Court has rejected other attempts to provide empirical evidence. Maryland v Louisiana, supra at 760. See also Boston Stock Exchange v State Tax Comm, supra at 331; Armco v Hardesty, supra at 645, n 8.

 The sales factor is the percentage of a company’s sales made in Michigan. MCL 208.51; MSA 7.558(51). Analogously, the property and payroll factors are the percentages of property and payroll in Michi*472gan respectively. MCL 208.46; MSA 7.558(46), MCL 208.49; MSA 7.558(49).

 Technically, which formula a company uses to determine its deduction depends upon the classification of that property for federal income tax purposes. Property falling under 26 USC 1250 qualifies for a deduction pursuant to MCL 208.23(c); MSA 7.558(23)(c), i.e, the cad for depreciable real property. Depreciable property not falling under § 1250 qualifies for a deduction pursuant to MCL 208.23(a); MSA 7.558(23)(a), i.e., the cad for tangible personal property.

 It is important to emphasize that one looks to the entire tax statute to define the range of economic activity relevant to a particular tax. Regarding the sbt, that range is defined in terms of a sales factor, a property factor, and a payroll factor. The cad for personal property is based only on the payroll factor and the property factor. By focusing on only two-thirds of a company’s jurisdictionally relevant activity, the combination of the multistate apportionment formula and the cad for personal property necessarily has the effect condemned in Westinghouse Electric Corp, supra. Thus, a deduction apportioned with the same formula as multistate activity generally would reflect the change in the entire activity in Michigan. The result would likely be constitutional.

 The absolute decrease alone is insufficient to require a finding of unconstitutionality. The problem is that the cad for personal property decreases faster than the apportioned tax base. For every 10 percent decrease in the cad for personal property, the apportioned tax base decreases by 6.6 percent.

 Chief Justice Cavanagh reads Boston Stock Exchange, supra, as being inconsistent with this statement. Cavanagh, C.J., ante at 458. This overlooks how the New York Transfer Tax worked. Most securities are transferred in New York. New York places a small tax on each transfer. Before a transfer happens, a sale or trade occurs. New York divided New York transfers into two groups: a non-New York sale or a New York sale. It penalized the non-New York sales with unfavorable tax rates and terms. The essential pattern is present here: division of jurisdictional activity into two groups and unfavorable treatment for the group containing non-New York activity. The Supreme Court specifically rejected the contention that because some investors might sell in New York instead of in other states, thereby increasing interstate commercial activity, such clear discrimination was justified. Thus, Boston Stock Exchange, supra, supports the text, instead of contradicting it.

 This reading of the relevant cases does not create an inconsistency between Trinova Corp v Michigan Dep’t of Treasury, supra, and Amerada Hess Corp v New Jersey Dep’t of Treasury, 490 US 66; 109 S Ct 1617; 104 L Ed 2d 58 (1989), and Westinghouse Electric Corp v Tully, supra. The latter two cases merely reinforce the principle that facial discrimination is prohibited, even if extraterritorial value has not been taxed directly. The former establishes that absent facial discrimination, analysis must focus on the danger of extraterritorial taxation.

 Chief Justice Cavanagh points out what he describes as a primary "discriminatory effect” deriving from whether a company is predominantly Michigan-based or predominantly multistate. For the cad for personal property, this effect reflects the percentage basis upon which the deduction is offered.. With respect to the cad for real property, this effect, as he indicates, derives from the proportionate change in the general multistate apportionment formula. Ante, Appendix ii(b), p 465, n 34. In light of the numerous decisions of the United States Supreme Court upholding the three-factor formula, Trinova Corp, supra, this effect cannot be labeled discriminatory. *480However, even if it could, the presence of the effect would condemn the three-factor formula, not the cad for real property.

 I note that the Chief Justice’s discussion is framed in terms of net effective tax rates. Ultimately, however, the difference in net effective tax rates derives from the fact that one company qualified for the deduction while another did not. If the Commerce Clause allows a state to use in-state location as a criterion for deductibility, the difference would clearly be justified.

 Chief Justice Cavanagh suggests that showing a permissible purpose does not necessarily demonstrate constitutional validity. This is true when the means are unconstitutional. However, the United States Supreme Court has indicated that providing a credit based on in-state activity, as long as it does not penalize interstate commerce, is constitutional. Westinghouse Electric Corp, supra at 400-401 ("[N]ot only does the New York tax scheme 'provide a positive incentive for increased business activity in New York State,’ but also it penalizes increases in the disc’s shipping activities in other States”). (Citation omitted.) Because the cad for real property does not penalize increases in activity in other states, it is a legitimate, nondiscriminatory tax incentive. In light of this, the only question is whether the purpose behind the cad for real property is legitimate. Given the cases described above, the answer is clearly yes.

 The other dissent suggests that the company will be taxed to a certain extent on the value-added derived from out-of-state operations. Ante at 453-454. The three-factor formula, however, allocates value-added to other jurisdictions so that extraterritorial values are not taxed. As such, the statement that Michigan taxes "a non-Michigan-based company’s productive activities conducted at out-of-state factories with out-of-state employees and equipment,” id. at 454, and then fails to provide a deduction for those activities would appear incorrect. Michigan does not tax any of those activities. To the extent that a company believes it is subjected to such taxation in spite of the change in the three-factor formula, the single business tax offers the company an opportunity to apportion its activities to reflect more accurately its jurisdictional activity. MCL 208.69; MSA 7.558(69); Trinova Corp v Dep’t of Treasury, 433 Mich 141; 445 NW2d 428 (1989).