915 N.W.2d 383
Mich. Ct. App.2018Background
- Petitioner: Honigman Miller Schwartz & Cohn LLP, a law firm with a primary office in Detroit and other offices elsewhere; it represents in-city and out-of-city clients.
- Tax issue: Under Detroit’s City Income Tax Act (CITA) petitioner must allocate business income to the city using three factors (property, payroll, sales) and average them.
- Dispute focuses on the sales factor (MCL 141.623) for tax years 2010–2014: whether “services rendered in the city” is determined by where the service is performed (city’s position) or where the client receives the service (petitioner’s position).
- Practical effect: Using the city’s method (location of performance) yields ~51% in-city revenue; petitioner’s client-location/destination method yields ~11%, with over $1 million at stake for the subject years.
- Procedural posture: Cross-motions for summary disposition in the Michigan Tax Tribunal; tribunal sided with the city, but the Court of Appeals reversed and remanded.
Issues
| Issue | Plaintiff's Argument (Petitioner) | Defendant's Argument (City) | Held |
|---|---|---|---|
| Whether “services rendered in the city” in § 23 is measured by where the client receives the service or where the work is performed | “Rendered” means delivered to the client — use a destination test (where client receives service) | “Rendered” synonymous with “performed”; measure services by where work is done (in-city if attorney physically in Detroit) | Court holds “rendered” refers to where the service is delivered to the client (destination test) |
| Whether § 23 is ambiguous so tribunal’s construction should be upheld | Statute is clear; favors taxpayer where ambiguity exists | Tribunal found § 23 ambiguous and deferred to city’s construction | Court finds § 23 unambiguous and reverses tribunal’s ambiguity conclusion |
| Whether differences in word choice between § 22 and § 23 matter | Different terms (“performed” v. “rendered”) imply different meanings; Legislature would have reused “performed” if intended same test | Same meaning should be inferred; services cannot be “delivered” like goods so ‘‘rendered’’ means performed | Court applies statutory-construction principle that different words carry different meanings and adopts petitioner’s distinction |
| Proper interpretive context for § 23 (textual/destination analogies) | § 23 should be read in context with § 23’s explicit definition of “sales made in the city” (destination test for goods); analogously apply destination test to services | Context does not require destination test; services are intangible and better measured by where work occurs | Court reads § 23 in context with the statute’s sale/destination rules and adopts a destination-based test for services |
Key Cases Cited
- GC Timmis & Co v Guardian Alarm Co, 468 Mich 416 (statutory language must be read in context of entire act)
- Whitman v City of Burton, 493 Mich 303 (plain statutory text controls interpretation)
- United States Fidelity & Guaranty Co v Michigan Catastrophic Claims Ass'n, 484 Mich 1 (different words in statutes typically have different meanings)
- Michigan Bell Telephone Co v Dep’t of Treasury, 445 Mich 470 (tax statutes' ambiguities are construed in favor of the taxpayer)
- McCarthy v Bronson, 500 US 136 (text may change meaning when read in statutory context)