Michigan Supreme Court 

Lansing, Michigan 

Chief Justice: Justices: 

Clifford W. Taylor Michael F. Cavanagh 

Elizabeth A. Weaver Opinion Marilyn Kelly 

Maura D. Corrigan 

Robert P. Young, Jr. 

Stephen J. Markman 

FILED MAY 2, 2007 

FLUOR ENTERPRISES, INC., 

Plaintiff-Appellee/ 

Cross-Appellant 

v No. 129149 

REVENUE DIVISION, DEPARTMENT OF 

TREASURY, STATE OF MICHIGAN, 

Defendant-Appellant/ 

Cross-Appellee. 

BEFORE THE ENTIRE BENCH 

TAYLOR, C.J. 

This case requires us to construe the provision of the Single Business Tax 

Act (SBTA) found at MCL 208.53 that explicates how to allocate sales of 

intangible personal property so as to determine whether they can be taxed by 

Michigan. Specifically, we must decide whether receipts for plaintiff’s services, 

performed entirely outside Michigan for construction projects located in 

Michigan, are deemed taxable sales under the statute and, if they are, whether that 

interpretation of the statute results in the statute’s being unconstitutional as a 
violation of the Commerce Clause, US Const, art I, § 8, cl 3. The Court of 

Appeals held that the services were taxable but that this section of the statute 

violates the Commerce Clause of the constitution and thus is unenforceable. Fluor 

Enterprises, Inc v Dep’t of Treasury, 265 Mich App 711; 697 NW2d 539 (2005). 

We reverse in part and affirm in part, agreeing that such receipts are taxable under 

the statute, but holding that this provision is not unconstitutional and thus is 

enforceable. 

I 

The Court of Appeals accurately summarized the facts in this case: 

The facts in this case are undisputed. The receipts at issue 

were received by plaintiff for engineering and architectural services 

related to real estate improvement projects constructed in Michigan. 

The services were performed by plaintiff’s employees at out-of-state 

facilities. Plaintiff timely filed single business tax (SBT) returns for 

the years at issue. However, plaintiff did not report the receipts at 

issue as Michigan receipts. Following an audit, defendant issued 

three bills for taxes due (intents to assess) totaling $182,312. 

Plaintiff requested an informal conference with defendant’s 

Hearings Division. Following an informal conference, the 

department referee issued a recommendation to the Commissioner of 

Revenue. The hearing referee agreed with plaintiff’s interpretation 

of § 53(c). However, the Commissioner of Revenue disagreed with 

the referee’s analysis and directed that the taxes be assessed as 

originally determined. Following the commissioner’s order, 

defendant issued three bills for taxes due (final assessments) for total 

tax and interest of $343,340.96, which plaintiff then paid under 

protest. Plaintiff subsequently paid an additional $3,077.35 in 

interest. 

Plaintiff filed this action in the Court of Claims to recover 

$346,618.31 paid under protest plus additional statutory interest, 

costs, and attorney fees. The parties both filed motions for summary 

disposition. Plaintiff moved for summary disposition pursuant to 

2
 
 

 

MCR 2.116(A) (judgment on stipulated facts). Defendant moved for 

summary disposition pursuant to MCR 2.116(C)(8) and (10). The 

Court of Claims concluded that the plain language of the statute 

supported plaintiff’s position and entered judgment in favor of 

plaintiff, ordering defendant to pay $346,418.31 and interest. [Id. at 

713-714.] 

On appeal, the Court of Appeals reversed with regard to the Court of 

Claims construction of § 53 of the SBTA and held that the receipts for services 

performed for a construction project located in Michigan, even if the services were 

performed in another state, were “Michigan receipts,” but that this section of the 

statute was unconstitutional as a violation of the Commerce Clause. 

Defendant sought leave to appeal in this Court, seeking to have the ruling 

of unconstitutionality reversed. Plaintiff sought leave to cross-appeal, arguing that 

the Court of Appeals construction of the statute was erroneous. We granted the 

parties’ applications for leave to appeal and cross-appeal.1 

II 

This Court reviews de novo a trial court’s decision to grant or deny a 

motion for summary disposition. City of Taylor v Detroit Edison Co, 475 Mich 

109, 115; 715 NW2d 28 (2006). Likewise, questions of constitutional and 

statutory construction are reviewed de novo by this Court. Id. When interpreting 

a statute, we examine the language of the statute itself. “If the statute is 

1

 474 Mich 1097 (2006). 

3
 
 

unambiguous it must be enforced as written.” Title Office, Inc v Van Buren Co 

Treasurer, 469 Mich 516, 519; 676 NW2d 207 (2004). 

III 

The SBTA, MCL 208.1 et seq., is a business activity tax that was enacted 

“to provide for the imposition, levy, computation, collection, assessment and 

enforcement . . . of taxes on certain commercial, business, and financial 

activities . . . .” 1975 PA 228. As provided by the act: 

“Business activity” means a transfer of legal or equitable title 

to or rental of property, whether real, personal, or mixed, tangible or 

intangible, or the performance of services, or a combination thereof, 

made or engaged in, or caused to be made or engaged in, within this 

state, whether in intrastate, interstate, or foreign commerce, with the 

object of gain, benefit, or advantage, whether direct or indirect, to 

the taxpayer or to others . . . . [MCL 208.3(2).] 

Thus, the act by definition encompasses taxation of services that are 

performed not only within the state (“engaged in . . . within this state”) but also 

some that are performed out of state, as long as the reason those services are 

engaged in has its source within this state (“caused to be . . . engaged in[] within 

this state”). When business activity is partially performed out of state, the statute 

establishes a system of apportionment, MCL 208.40 et seq., so that only those 

receipts appropriate to be taxed in Michigan are taxed here. Apportioning is based 

on a formula whereby a fraction reflecting the ratio of Michigan activity to out-ofstate activity, i.e., Michigan sales/total sales, is established. Jefferson Smurfit 

Corp v Dep’t of Treasury, 248 Mich App 271, 273 n 1; 639 NW2d 269 (2001). In 

4
 
 

 

this case, where the sales factor is at issue, the question is which sales of plaintiff’s 

total sales should be included in its “Michigan sales” numerator.2 

To ascertain whether receipts for intangible property, such as services, 

comprise “Michigan sales,” we turn to MCL 208.53. It provides: 

Sales, other than sales of tangible personal property, are in 

this state if: 

(a) The business activity is performed in this state. 

(b) The business activity is performed both in and outside this 

state and, based on costs of performance, a greater proportion of the 

business activity is performed in this state than is performed outside 

this state. 

(c) Receipts derived from services performed for planning, 

design, or construction activities within this state shall be deemed 

Michigan receipts. 

Plaintiff asserts, and the Court of Claims agreed, that § 53(c) deems 

receipts for services taxable as Michigan receipts only if the services are 

performed within this state. That is, the phrase “within this state” modifies not 

just “activities” but also “planning,” “design,” and “construction.” Because 

2

 See MCL 208.51: 

(1) The sales factor is a fraction, the numerator of which is 

the total sales of the taxpayer in this state during the tax year, and 

the denominator of which is the total sales of the taxpayer 

everywhere during the tax year. 

(2) For a foreign person, the sales factor is a fraction, the 

numerator of which is the total sales of the taxpayer in this state 

during the tax year, and the denominator of which is the total sales 

of the taxpayer in the United States during the tax year. 

5
 
plaintiff’s planning and design services were not performed within this state, 

plaintiff argues, its receipts for those servives should not be taxable. We 

respectfully disagree with this approach. Plaintiff is essentially rewriting the 

statute so that “within this state” modifies “services performed.” This is not how 

the statute reads. 

The subject of § 53(c) is “receipts”; the statute states that certain “receipts” 

“shall be deemed Michigan receipts.” Section 53(c) then narrows the category of 

receipts that will be “deemed Michigan receipts.” The term “receipts” is modified 

by the phrase “derived from services performed.” Thus, the statute specifies that 

to be “deemed Michigan receipts,” “receipts” must be “derived from services 

performed.” Section 53(c) further specifies which “services performed” will allow 

“receipts” to be “deemed Michigan receipts,” namely, services performed “for 

planning, design, or construction activities within this state.” The prepositional 

phrase “for planning, design, or construction activities” modifies “performed,” and 

indicates the purpose for which the services must be performed. The phrase 

“within this state” modifies the term “activities.” The term “activities” is the 

object of the preposition “for,” and is modified by the preceding phrase “planning, 

design, or construction.” The use of the term “or” in the phrase “planning, design, 

or construction” indicates that all three terms are correlative to each other. The 

term “construction” is clearly an adjective modifying the term “activities.” 

Consequently, the terms “planning” and “design” are also adjectives that modify 

6
 
 

 

the term “activities.” Parsing the grammar otherwise would make “construction” 

an adjective, and “planning” and “design” nouns, and a grammatical construction 

that would make correlative terms unequal in this way should be avoided. 

Therefore, “activities” is modified by each of the terms “planning,” “design,” and 

“construction.” As a result, the statute indicates that “[r]eceipts derived from” 

“services performed for planning activities within this state,” “services performed 

for design activities within this state,” and “services performed for construction 

activities within this state” are to be “deemed Michigan receipts.” The statute thus 

subjects to taxation receipts for “services performed” in support of planning 

activities, design activities, or construction activities, as long as those activities 

take place “within this state.” The statute does not state that the “services 

performed” must themselves be performed “within this state” in order for 

“[r]eceipts derived from” such services to be deemed Michigan receipts.3 

3

 The concurrence finds the statute ambiguous because other interpretations 

have been proposed, citing People v Adair, 452 Mich 473, 479; 550 NW2d 505 

(1996), for the rule that ambiguity exists when there can be reasonable 

disagreement over a statute’s meaning. However, our current law is set forth in 

Lansing Mayor v Pub Service Comm, 470 Mich 154, 166; 680 NW2d 840 (2004), 

where this Court held: “[A] provision of the law is ambiguous only if it 

‘irreconcilably conflict[s]’ with another provision or when it is equally susceptible 

to more than a single meaning.” (citation omitted; emphasis in original). “[A] 

finding of ambiguity is to be reached only after ‘all other conventional means of [] 

interpretation’ have been applied and found wanting.” Id. at 165, quoting Klapp v 

United Ins, 468 Mich 459, 474; 663 NW2d 447 (2003). The meaning of MCL 

208.53 can be determined from the text of the statute and by using conventional 

means of statutory construction. Nothing in the statute irreconcilably conflicts or 

makes it equally susceptible to more than one meaning. 

7
 
 

 

Consequently, we must look at whether the receipts are derived from “services 

performed for” one of the enumerated activities, with no geographic limit on 

where the services took place, and no limit on what type of services are being 

performed.4 

The statute thus establishes a two-part analysis. First, it must be 

determined whether the actions sought to be taxed were “services performed” for 

“planning activities,” “design activities,” or “construction activities.” Second, if 

the actions are “services performed” for such activities, it must be determined 

whether the activities occurred “within this state.” If the activities occurred 

“within this state,” then the actions are taxable under MCL 208.53(c). If the 

activities did not occur in Michigan, then the actions are not taxable under MCL 

208.53(c). 

In this case, plaintiff engaged in architectural and engineering services 

performed for various Michigan construction activities. Because these actions 

constitute “services performed” for “construction activities,” and those 

“construction activities” took place “within this state,” the state may tax plaintiff’s 

architectural and engineering services. Although plaintiff attempts to describe 

4

 We note that the phrase “deemed Michigan receipts” itself reinforces the 

extraterritoriality of this provision, because this phrase suggests that receipts for 

activities that would not ordinarily be considered Michigan receipts will be 

considered, or treated as, Michigan receipts for purposes of the statute. Because 

receipts for Michigan activities would ordinarily be considered Michigan receipts, 

(continued...) 

8
 
 

what it did as performing design and planning activities, and that those activities 

took place in California, this ignores language in the statute that indicates receipts 

are paid for services, and services are engaged in for activities. It is undisputed 

that plaintiff performed its architectural and engineering services in support of 

“construction activities” that occurred in Michigan. Consequently, plaintiff’s 

services fall within the language of MCL 208.53(c), and plaintiff’s receipts for 

such services are taxable in Michigan. Plaintiff’s attempt to construe its services 

as “planning or design activities” fails to recognize that plaintiff performed its 

services for “construction activities” within the state of Michigan. The receipts, 

pursuant to MCL 208.53(c), are therefore deemed Michigan receipts. 

IV 

Having determined that the statute allows plaintiff’s receipts for services to 

be taxed as Michigan receipts, we turn to the question whether such a construction 

results in a tax that violates the Commerce Clause, US Const, art I, § 8, cl 3. As 

we have explained before, a state tax withstands scrutiny under a Commerce 

Clause challenge and will be found constitutionally valid if it meets the fourpronged test articulated in Complete Auto Transit, Inc v Brady, 430 US 274, 279; 

97 S Ct 1076; 51 L Ed 2d 326 (1977). See Caterpillar, Inc v Dep’t of Treasury, 

440 Mich 400, 415; 488 NW2d 182 (1992). A valid tax: (1) is applied to an 

(...continued) 

this implies that receipts that are “deemed Michigan receipts” are for activities that 

(continued...) 

9
 
 

 

activity having a substantial nexus with the taxing state, (2) is fairly apportioned, 

(3) does not discriminate against interstate commerce, and (4) is fairly related to 

the services provided by the state. Id. 

Plaintiff first argues that it does not have a sufficient nexus with this state to 

be subject to the tax. “The requisite ‘nexus’ is supplied if the corporation avails 

itself of the ‘substantial privilege of carrying on business’ within the State . . . .” 

Mobil Oil Corp v Comm’r of Taxes of Vermont, 445 US 425, 437; 100 S Ct 1223; 

63 L Ed 2d 510 (1980). “‘[The] fact that a tax is contingent upon events brought 

to pass without a state does not destroy the nexus between such a tax and 

transactions within a state for which the tax is an exaction.’” Id., quoting 

Wisconsin v J C Penney Co, 311 US 435, 445; 61 S Ct 246; 85 L Ed 267 (1940). 

See also Caterpillar, Inc, supra at 416-417. The receipts at issue in this case were 

for services that plaintiff provided for construction projects in Michigan, and 

therefore “the incidence of the tax as well as its measure is tied to the earnings 

which the State . . . has made possible . . . .” J C Penney Co, supra at 446. Thus, 

there is a substantial nexus between the state and the activity being taxed. 

Also at issue in this case is whether the tax imposed by MCL 208.53(c) is 

fairly apportioned. That is, the tax is not fairly apportioned if it allows Michigan 

to tax more than its fair share of interstate business activity. Caterpillar, supra at 

(...continued) 

take place outside the state. 

10
 
 

417. A tax is not fairly apportioned if it is not internally consistent. “‘To be 

internally consistent, a tax must be structured so that if every State were to impose 

an identical tax, no multiple taxation would result,’ . . . or, in other words, no more 

than one hundred percent of the taxpayer’s business activity would be taxed.” Id. 

at 419, quoting Goldberg v Sweet, 488 US 252, 261; 109 S Ct 582; 102 L Ed 2d 

607 (1989).5

 As the United States Supreme Court has said, internal consistency 

simply looks to the structure of the tax at issue to see whether its 

identical application by every State in the Union would place 

interstate commerce at a disadvantage as compared with commerce 

intrastate. A failure of internal consistency shows as a matter of law 

that a State is attempting to take more than its fair share of taxes 

from the interstate transaction, since allowing such a tax in one State 

would place interstate commerce at the mercy of those remaining 

States that might impose an identical tax. [Oklahoma Tax Comm v 

Jefferson Lines, Inc, 514 US 175, 185; 115 S Ct 1331; 131 L Ed 2d 

261 (1995).] 

In applying the “internal consistency” test, the United States Supreme 

Court has considered the entire taxing scheme, and not simply the individual tax 

provision at issue in a specific case. See, e.g., D H Holmes Co, Ltd v McNamara, 

486 US 24; 108 S Ct 1619; 100 L Ed 2d 21 (1988) (considering a provision of the 

larger tax scheme). If the entirety of MCL 208.53 is considered, the statute is 

internally consistent. When we survey the statute as a whole, we conclude that 

§ 53(c) is a more specific exception to the general subsections that precede it 

5

 A taxing statute must also be externally consistent, Caterpillar, Inc, supra 

at 419, but because plaintiff does not challenge this, we examine only its internal 

consistency. 

11
 
(§§ 53[a] and 53[b]). See, e.g., Jones v Enertel, Inc, 467 Mich 266, 270; 650 

NW2d 334 (2002) (“‘[W]here a statute contains a general provision and a specific 

provision, the specific provision controls.’” [Citation omitted.]). In other words, 

§ 53(a) applies to business activity that is solely performed in Michigan; § 53(b) 

applies to business activity that occurs both in and outside Michigan; and § 53(c) 

applies a special rule to planning, design, and construction activities, which is that 

as long as the services are performed for one of those activities, and the activity is 

located within this state, the receipts for the services are taxable regardless of 

where the services are performed. This language excepts certain receipts from the 

broad rules of § 53(a) and (b). It is, then, a specific exception to a general rule and 

falls within the Jones test. Therefore, if California had a tax statute identical to 

MCL 208.53, in order to determine whether California could tax plaintiff’s 

receipts for the services in this case, it would first have to consider whether the 

services were performed for planning activities, design activities, or construction 

activities. Because the services in this case were performed for construction 

activities, California would be precluded from considering whether its counterpart 

to either § 53(a) or (b) allowed the receipts for the services to be taxed, because 

the more specific provisions of § 53(c) would govern. Having determined that the 

services were performed for “construction activities,” California would then 

consider whether these activities occurred within that state. Because the 

construction activities, in fact, occurred in Michigan, California would be unable 

12
 
to tax these under its counterpart statute. Consequently, because the planning 

activity, design activity, or construction activity can take place only in one state at 

a time, only one state can tax the receipts for the “services performed for” those 

activities. Therefore, if every state had a counterpart statute to MCL 208.53, 

interstate commerce would not be unfairly burdened or placed at any 

disadvantage. Therefore, because MCL 208.53 does not discriminate against 

interstate commerce, the statute does not violate the “internal consistency” test. 

V 

We conclude that MCL 208.53 is not ambiguous and that plaintiff’s 

receipts for the services are taxable, regardless of where the services occurred, 

because they were performed for construction projects located in Michigan. We 

also hold that this interpretation does not violate the “fair apportionment” prong of 

the Commerce Clause because the statute is internally consistent. Likewise, we 

hold that plaintiff and its taxed activity have a substantial nexus with this state. 

We therefore affirm in part the Court of Appeals judgment but reverse it in part 

with regard to the analysis of fair apportionment, and we remand the case to the 

Court of Claims for further proceedings not inconsistent with this opinion. 

Clifford W. Taylor 

Maura D. Corrigan 

Robert P. Young, Jr. 

Stephen J. Markman 

13
 
v 

S T A T E O F M I C H I G A N 

SUPREME COURT 

FLUOR ENTERPRISES, INC., 

Plaintiff-Appellee/Cross-Appellant 

No. 129149 

REVENUE DIVISION, DEPARTMENT OF 

TREASURY, STATE OF MICHIGAN, 

Defendant-Appellant/Cross-Appellee. 

KELLY, J. (concurring). 

This case involves the Michigan single business tax (the SBT). There are 

two issues. The first is whether the Single Business Tax Act (SBTA), at MCL 

208.53(c), allows the defendant Department of Treasury to characterize receipts 

from planning and design services rendered entirely outside Michigan as Michigan 

sales. If it does, we must also address whether this interpretation renders the 

statute unconstitutional as violative of the Commerce Clause. US Const, art I, § 8, 

cl 3. I conclude that MCL 208.53 is ambiguous and that plaintiff’s receipts for 

services are taxable. I conclude, also, that the statute does not violate the 

Commerce Clause. 

Although I agree with the majority’s decision to affirm in part and reverse 

in part the judgment of the Court of Appeals, I write separately because I disagree 
 

with the majority’s statutory interpretation. In addition, I see flaws in its analysis 

of the constitutional issue. 

FACTS AND PROCEDURAL HISTORY 

This case concerns the SBT imposed on plaintiff for the fiscal years ending 

October 31, 1989, through October 31, 1994. Plaintiff is a multinational 

engineering, construction, and technical service company having its principal 

place of business in Irvine, California. At issue are services plaintiff undertook for 

Michigan construction projects.1

 Plaintiff performed construction management 

and material procurement activities in Michigan for these projects. It also 

conducted engineering and architectural services for the projects at facilities 

outside Michigan. 

Plaintiff timely filed its SBT annual returns for the years in issue. 

However, it did not attribute to Michigan, as Michigan sales, the receipts for 

engineering and architectural services that occurred outside the state but were 

performed for Michigan projects. Following an audit, defendant issued plaintiff 

three bills, called “intents to assess,” for taxes due for the years in issue. The 

intents to assess were based on defendant’s position that the receipts for the 

1

 The Michigan projects for which plaintiff performed services include the 

cogeneration plant in Midland, a refinery modification for Marathon Oil Company 

in Detroit, and a steam building expansion for what was then the Upjohn 

Company in Kalamazoo. 

2
 
engineering and architectural services should have been reported as having come 

from Michigan sales. 

Plaintiff requested and was granted a departmental informal conference on 

its objections to the intents to assess. Following the informal conference, the 

hearing referee recommended that all three bills be canceled in their entirety. The 

referee determined that the receipts should not be considered as coming from 

Michigan sales for SBT apportionment purposes. The Commissioner of Revenue 

disagreed with the referee’s recommendation and ordered the intents to assess 

made final as originally prepared. The commissioner affirmed the assessment in 

conformity with the department’s long-held interpretation of § 53 of the SBTA. 

Plaintiff paid the taxes under protest and filed an appeal in the Court of 

Claims. When the parties filed cross-motions for summary disposition, the Court 

of Claims denied the defendant’s motion and granted plaintiff’s. The court 

adopted plaintiff’s construction of § 53 of the SBTA that limited Michigan sales to 

services performed in Michigan for construction projects in Michigan. 

Defendant appealed as of right in the Court of Appeals, which reversed the 

judgment of the Court of Claims in a published opinion. It held that the Court of 

Claims incorrectly determined that § 53 of the SBTA limits Michigan sales to 

services performed in Michigan, but that the statute was unconstitutional. The 

Court of Appeals decided that the tax violated the Commerce Clause because it 

was not fairly apportioned. After holding that summary disposition had been 

3
 
 

 

 

erroneously granted, the Court of Appeals remanded for reconsideration of the tax 

calculations. 

Defendant applied for leave to appeal in this Court, seeking to reverse the 

ruling of unconstitutionality. Plaintiff applied for leave to cross-appeal, seeking to 

reinstate the Court of Claims statutory interpretation. This Court granted both 

parties’ applications. 474 Mich 1097 (2006). 

STANDARD OF REVIEW 

An interpretation of a statute is a question of law that this Court reviews de 

novo. Lincoln v Gen Motors Corp, 461 Mich 483, 489-490; 607 NW2d 72 

(2000). Constitutional questions are also reviewed de novo. Michigan 

Chiropractic Council v Comm'r of the Office of Financial & Ins Services, 475 

Mich 363, 369; 716 NW2d 561 (2006). Likewise, this Court reviews de novo a 

trial court’s decision on a motion for summary disposition. Ostroth v Warren 

Regency, GP, LLC, 474 Mich 36, 40; 709 NW2d 589 (2006). 

When interpreting a statute, this Court must give effect to the intent of the 

Legislature. Ford Motor Co v Woodhaven, 475 Mich 425, 438; 716 NW2d 247 

(2006). At times, it is possible to discern that intent from the language used. Id. 

However, where a statute is ambiguous, it is necessary to engage in judicial 

construction to ascertain intent. In re MCI Telecom Complaint, 460 Mich 396, 

411; 596 NW2d 164 (1999). A statute is ambiguous when there can be reasonable 

4
 
 

 

disagreement over its meaning. People v Adair, 452 Mich 473, 479; 550 NW2d 

505 (1996). 

THE SINGLE BUSINESS TAX ACT 

The SBT is a value-added tax imposed on any person undertaking business 

activity in the state of Michigan. MCL 208.31. This includes companies that do 

all their business in Michigan as well as companies, like plaintiff, whose business 

activity is predominantly outside Michigan. A value-added tax measures a firm’s 

total business activity. Trinova Corp v Michigan Dep’t of Treasury, 498 US 358, 

364; 111 S Ct 818; 112 L Ed 2d 884 (1991). “The tax is on what a business has 

added to the Michigan economy, not on what the business has derived from this 

state’s economy.” Columbia Assoc, LP v Dep’t of Treasury, 250 Mich App 656, 

666-667; 649 NW2d 760 (2002). 

In order to determine the proper SBT for a multistate taxpayer, the tax base 

must be apportioned to Michigan. MCL 208.41. The formula used for 

apportioning the tax base consists of the sum of the sales factor, the payroll factor, 

and the property factor, divided by three.2

 At issue in this case is the calculation 

2

 The apportionment factor for the tax years beginning before January 

1991 was the average of three factors each weighted at 33-1/3 percent. See 

Corning, Inc v Dep’t of Treasury, 212 Mich App 1, 3; 537 NW2d 466 (1995). For 

the tax years beginning after December 31, 1990, and before January 1, 1993, the 

apportionment formula consisted of the sum of the following percentages: 

(a) The property factor multiplied by 30%. 

(b) The payroll factor multiplied by 30%. 

(continued...) 

5
 
 

of plaintiff’s sales factor. “The sales factor is a fraction, the numerator of which 

is the total sales of the taxpayer in this state during the tax year, and the 

denominator of which is the total sales of the taxpayer everywhere during the tax 

year.” MCL 208.51(1). 

Section 52 of the SBTA, MCL 208.52, dictates when the sale of tangible 

personal property is in Michigan, while § 53 covers other sales, such as the sale of 

services. This case involves the application of § 53, which provides as follows: 

Sales, other than sales of tangible personal property, are in 

this state if: 

(a) The business activity is performed in this state. 

(b) The business activity is performed both in and outside this 

state and, based on costs of performance, a greater proportion of the 

business activity is performed in this state than is performed outside 

this state. 

(c) Receipts derived from services performed for planning, 

design, or construction activities within this state shall be deemed 

Michigan receipts. [MCL 208.53.] 

(...continued) 

(c) The sales factor multiplied by 40%. [MCL 208.45(2), as 

amended by 1991 PA 77, § 1.] 

And for the years at issue beginning after December 31, 1992: 

(a) The property factor multiplied by 25%. 

(b) The payroll factor multiplied by 25%. 

(c) The sales factor multiplied by 50%. [MCL 208.45(4), as 

amended by 1991 PA 77, § 1.] 

6
 
 

 

It is subsection c that controls the disposition of this case. 

INTERPRETING THE STATUTE 

The first task is to decide whether subsection c of MCL 208.53 allows 

defendant to characterize receipts from planning and design services rendered 

entirely outside Michigan as Michigan sales. Four separate entities have 

interpreted this provision in the course of these proceedings. 

The hearing referee and the Court of Claims adopted the interpretation 

advocated by plaintiff and found that § 53(c) does not allow defendant to 

characterize the out-of-state services as Michigan sales. The Commissioner of 

Revenue and the Court of Appeals agreed with defendant’s interpretation and 

determined that § 53(c) does allow defendant to characterize the out-of-state 

services performed for Michigan construction projects as Michigan sales. The 

nonuniformity of these conclusions signals that the correct construction of this 

statute is not obvious.3 

When the correct construction of a statute is unclear and reasonable minds 

differ about its interpretation, it is necessary to engage in judicial construction to 

3

 The drafting of this statute is awkward and renders the meaning of 

subsection c less clear than it might be if it stood alone. The statute’s parallel 

structure is flawed. Subsection c was grafted onto a standard provision from the 

Uniform Division of Income for Tax Purposes Act, § 1 et seq. (UDITPA). 7A, 

part I, ULA, p 141. However, its wording does not conform to the structure of the 

UDITPA provision. The introduction to all three subsections is a conditional 

definition of sales receipts as Michigan receipts, using the word “if.” The wording 

(continued...) 

7
 
 

 

 

ascertain the Legislature’s intent.4 In re MCI, 460 Mich at 411. In construing a 

statutory provision, courts must reconcile the provision with other provisions of 

the statute, if possible. And one part of a statute should not be construed so as to 

render another part nugatory or ineffective. See, e.g., Altman v Meridian, 439 

Mich 623, 635; 487 NW2d 155 (1992); Farrington v Total Petroleum, Inc, 442 

Mich 201, 209; 501 NW2d 76 (1993). 

According to plaintiff, receipts derived from planning activities, design 

activities, or construction activities are deemed Michigan sales only if the 

activities occur in this state. This interpretation must be rejected. Subsection a 

(...continued) 

of subsections a and b naturally completes the conditional phrase. However, 

subsection c does not. 

4

 The majority proceeds as if the statutory provision is unambiguous and 

needs no interpretation. It is a bizarre notion that the language of a statute can 

have only one reasonable meaning when four separate independent entities have 

split on its correct interpretation. 

The majority claims that my definition of ambiguity is inconsistent with 

current law. The majority is within its rights to disagree with the definition I use 

for that word. But it is off base in suggesting that its definition of “ambiguity” is 

the current law of the state. It appears that the majority believes that only the 

definition of “ambiguity” that it favors may be used for statutory interpretation. I 

know of no legal authority that supports that position. The majority appears to 

confuse the binding effect of a legal holding necessary for the determination of a 

case with the nonbinding effect of the statutory analysis used to reach it. The 

justices who comprise the majority are entitled to favor one form of analysis or 

one definition of a word used in analysis over another. But they cannot mandate 

that all other justices use only their chosen approach or definitions for these 

words. “Ambiguous” is one such word. Differing modes of analysis and 

definitions may be considered disfavored in the sense that the majority prefers 

(continued...) 

8
 
 

expressly addresses services performed in Michigan. If § 53(c) were to be 

interpreted to mean that the services had to be performed in Michigan in order to 

be considered Michigan sales, then subsection c would be reduced to a 

redundancy. 

By finding that services performed for construction projects located in 

Michigan are Michigan sales, each provision of the statute is given effect. When 

the statute is interpreted in this fashion, § 53(a) provides that when the business 

activity is in Michigan, the sales of other than tangible personal property are 

Michigan sales. Section 53(b) covers the situation where business activities are 

both in Michigan and outside Michigan. If a greater proportion of the business 

activity is in Michigan, then the sales of other than tangible personal property are 

characterized as Michigan sales. Section 53(c) addresses the situation where 

services are performed for planning, design, or construction projects in Michigan. 

Another consideration that weighs in my determination is that a 

construction that nullifies the effectiveness of a statute should be avoided if 

possible. In re Petition of State Hwy Comm, 383 Mich 709, 714-15; 178 NW2d 

923 (1970). Rather, when engaging in judicial construction, a court must bear in 

mind the purpose of the statute. “When faced with two alternative reasonable 

(...continued) 

others. But, the minority’s definitions, when acceptable in current dictionaries, 

cannot be banned. 

9
 
 

interpretations . . . , we should give effect to the interpretation that more faithfully 

advances the legislative purpose behind the statute.” Adair, 452 Mich at 479-480. 

Apparently, the Legislature added subsection c in response to a concern 

advanced by Michigan-based engineering and architectural firms that, without it, 

they would be at a competitive disadvantage with out-of-state firms. They feared 

that out-of-state architects and engineers would gain a competitive advantage 

when bidding on Michigan construction projects if their services for in-state 

projects were not treated as Michigan sales.5 The interpretation advocated by 

defendant addresses the concerns that appear to have prompted the enactment of 

this statute. 

Finally, we defer to the construction given a statute by the agency chosen to 

enforce it. Breuhan v Plymouth-Canton Community Schools, 425 Mich 278, 283; 

389 NW2d 85 (1986). Defendant has historically interpreted § 53(c) as ascribing 

services performed for construction projects to the state in which the construction 

occurs.6 I give weight to this interpretation. 

5

 A July 17, 1975, letter from the Consulting Engineers Council of 

Michigan, Inc., to Senator John Bowman proposed the addition of § 53(c). The 

letter and circumstances surrounding the adoption of the subsection demonstrate 

the intent in enacting it. It was enacted so that all the services performed for 

construction projects would be attributed to the state where the services are 

consumed. 

6

 Defendant instructs its audit staff that services related to Michigan 

construction activities are by statute Michigan receipts. Defendant does not 

(continued...) 

10
 
 

ANALYZING THE COMMERCE CLAUSE
 

The decision that the statute allows the revenues at issue to be taxed is not 

the end of the inquiry. It is also necessary to decide whether the tax violates the 

Commerce Clause of the United State Constitution.7 

The Commerce Clause provides that “Congress shall have Power . . . [t]o 

Regulate Commerce . . . among the several States . . . .” US Const, art I, § 8, cls 1 

and 3. “Though phrased as a grant of regulatory power to Congress, the Clause 

has long been understood to have a ‘negative’ aspect that denies the States the 

power unjustifiably to discriminate against or burden the interstate flow of articles 

of commerce.” Oregon Waste Systems, Inc v Oregon Dep’t of Environmental 

Quality, 511 US 93, 98; 114 S Ct 1345; 128 L Ed 2d 13 (1994). 

The United States Supreme Court has held that a state tax will survive a 

Commerce Clause challenge when the tax (1) is applied to an activity having a 

substantial nexus to the taxing state, (2) is fairly apportioned, (3) does not 

discriminate against interstate commerce, and (4) is fairly related to the services 

provided by the state. Complete Auto Transit, Inc v Brady, 430 US 274, 279; 97 S 

(...continued) 

attribute to Michigan similar receipts received by a Michigan-based company for 

construction activities in other states. 

7

 I cannot join the majority’s constitutional analysis because I find it to be 

incomplete and conclusory. 

11
 
 

Ct 1076; 51 L Ed 2d 326 (1977). Plaintiff claims that the tax at issue violates the 

first two prongs of this test.8 

Several principles should be kept in mind when analyzing the 

constitutionality of a tax. States have great latitude when enacting tax provisions. 

See Trinova Corp, 498 US at 386. Also, a statute is presumed constitutional 

absent a clear showing to the contrary. Lehnhausen v Lake Shore Auto Parts Co, 

410 US 356, 364; 93 S Ct 1001; 35 L Ed 2d 351 (1973). This presumption of 

constitutionality is especially strong with respect to taxing statutes. Washtenaw 

Co v State Tax Comm, 422 Mich 346, 371; 373 NW2d 697 (1985), citing Thoman 

v City of Lansing, 315 Mich 566, 576; 24 NW2d 213 (1946). 

Plaintiff argues that the construction defendant gives to this statutory 

provision permits the imposition of a tax on activities that do not have a 

substantial nexus with Michigan. It claims that no substantial nexus exists in this 

case because plaintiff’s activities occurred outside Michigan, and a state cannot 

tax activities that occur outside that state. I find that plaintiff misconstrues the 

connection necessary for a state to have a substantial nexus with the taxpayer and 

the activity being taxed. 

8

 Plaintiff also claims that the tax discriminates against interstate commerce 

because the tax is not fairly apportioned. Because this argument is based on the 

tax violating fair apportionment, plaintiff really argues only that the tax violates 

the first two prongs of the test. 

12
 
 

 

“[I]n the case of a tax on an activity, there must be a connection to the 

activity itself, [and] a connection . . . to the actor the State seeks to tax . . . .” 

Allied-Signal, Inc v Director, Div of Taxation, 504 US 768, 778; 112 S Ct 2251; 

119 L Ed 2d 533 (1992). Accordingly, two different inquiries may arise in 

determining whether the substantial nexus prong is satisfied. Id. First, the state 

must have the authority to tax. Id. For this authority to exist the taxpayer must 

have a physical presence in the taxing jurisdiction. See Quill Corp v North 

Dakota, 504 US 298, 311; 112 S Ct 1904; 119 L Ed 2d 91 (1992). Second, the 

state must not exceed its legitimate power to tax. Allied-Signal, Inc, 504 US at 

778. “[T]he State’s power to tax an individual’s or corporation’s activities is 

justified by the ‘protection, opportunities and benefits’ the State confers on those 

activities.” Id., quoting Wisconsin v J C Penney Co, 311 US 435, 444; 61 S Ct 

246; 85 L Ed 267 (1940). 

In this case, the parties stipulated that plaintiff performed construction 

management and material procurement activities in Michigan. On the basis of this 

presence, the state clearly has the power to tax plaintiff. The question becomes 

whether the state exceeded the legitimate reach of its power. 

A taxpayer arguing that a tax lacks a substantial nexus to the activity taxed 

cannot rely on the argument that the source of the income is attributable to another 

state. Mobil Oil Corp v Vermont Comm’r of Taxes, 445 US 425, 438; 100 S Ct 

1223; 63 L Ed 2d 510 (1980). Rather, to mount a successful challenge on this 

13
 
ground, the taxpayer must show that the income taxed was “earned in the course 

of activities unrelated to [the taxing] State.” Id. at 439. 

Plaintiff cannot make this showing. Because the receipts at issue arose 

from services that plaintiff provided for Michigan construction projects, there is a 

substantial nexus between the state and the activity being taxed. As long as 

plaintiff has some physical presence in the state, the state may tax services that 

plaintiff performs out of state but that are generally consumed within Michigan. 

See Trinova Corp, 498 US at 374-377. 

Plaintiff also claims that the interpretation advocated by defendant violates 

the Commerce Clause requirement of fair apportionment. According to plaintiff, 

the tax is not internally consistent. It reasons that, under this interpretation, every 

state with a similar statute could tax all of a business’s receipts for planning and 

design activities. The result would be duplicative taxation, unconstitutionally 

putting interstate commerce at a competitive disadvantage. 

In 1992, this Court ruled that “[f]air apportionment requires that each state 

tax only its fair share of interstate business activity.” Caterpillar, Inc v Dep’t of 

Treasury, 440 Mich 400, 417; 488 NW2d 182 (1992). Before that, the United 

States Supreme Court ruled that, to ascertain whether a tax is fairly apportioned, it 

must be examined for both internal and external consistency. Goldberg v Sweet, 

488 US 252, 261-262; 109 S Ct 582; 102 L Ed 2d 607 (1989). Plaintiff does not 

14
 
 

challenge the external consistency of the tax; therefore, in deciding whether this 

tax is fairly apportioned, it is examined for internal consistency only. 

The United States Supreme Court discussed internal consistency in 

Oklahoma Tax Comm v Jefferson Lines, Inc, 514 US 175; 115 S Ct 1331; 131 L 

Ed 2d 261 (1995). It stated: 

Internal consistency is preserved when the imposition of a tax 

identical to the one in question by every other State would add no 

burden to interstate commerce that intrastate commerce would not 

also bear. This test asks nothing about the degree of economic reality 

reflected by the tax, but simply looks to the structure of the tax at 

issue to see whether its identical application by every State in the 

Union would place interstate commerce at a disadvantage as 

compared with commerce intrastate. A failure of internal consistency 

shows as a matter of law that a State is attempting to take more than 

its fair share of taxes from the interstate transaction, since allowing 

such a tax in one State would place interstate commerce at the mercy 

of those remaining States that might impose an identical tax. [Id. at 

185.] 

Applying these principles to MCL 208.53, I conclude that the tax is 

internally consistent. Subsection c of the statute specifically deals with 

construction projects. When a construction project is involved, subsection c, 

being the more specific provision, applies and subsections a and b do not. 

Subsection c ascribes the business activity9

 for construction projects to the state 

where the construction occurs. Therefore, when a construction project is involved, 

9

 When I speak of business activity, I refer not just to the physical labor that 

goes into building the project but also to the planning and design that take place 

beforehand. 

15
 
 

 

only the state where the construction occurs taxes the business activity, and there 

is no double taxation. 

An example is helpful to illustrate why there is no internal-consistency 

problem. Consider the situation where a company performed services both in 

Michigan and Ohio for a construction project in Michigan. If Ohio adopted the 

same tax apportionment formula as Michigan, both states would ascribe all the 

business activity to the state where the construction occurs. Because the 

construction occurred in Michigan, only Michigan would tax the services. As a 

result, only one state would tax the business activity and there would be no 

internal-consistency problem.10 

CONCLUSION 

MCL 208.53(c) allows defendant to characterize receipts from services 

performed for construction projects in Michigan as Michigan sales. Accordingly, 

defendant properly assessed taxes on the revenue for the engineering and design 

10 The Court of Appeals applied the internal-consistency test as if other 

states that adopted the same statute would ascribe construction activities under 

subsections a or b. This was error. When a construction project is involved, 

Michigan ascribes all business activity to the state where construction occurs. 

Therefore, for purposes of the test, other states that adopt the same statute would 

also ascribe all business activity to the state where construction occurs. 

Subsections a and b would be inapplicable. Admittedly, it is possible that another 

state could enact a statute that would allow for double taxation, which seems to be 

what the Court of Appeals was concerned about. However, the internalconsistency test does not say a taxpayer shall never be subject to double taxation. 

It says that, if every state emulates the state tax at issue, a taxpayer shall not be 

subject to double taxation. 

16
 
services plaintiff provided for construction projects in Michigan, regardless of 

which services occurred outside Michigan. Because a substantial nexus exists 

between Michigan and the activity of plaintiff that is being taxed, and because the 

tax is fairly apportioned, the tax is constitutional. As a result, I concur in 

affirming in part and reversing in part the judgment of the Court of Appeals. 

 Marilyn Kelly 

Michael F. Cavanagh 

Elizabeth A. Weaver 

17