Opinion ID: 4535167
Heading Depth: 4
Heading Rank: 2

Heading: tax framework

Text: We next turn to a review of the UCITO’s overall framework to determine which definition of “render” best harmonizes with the statute as a whole. To be sure, language in a statute “must be read in context with the entire act, and the words and phrases used there must be assigned such meanings as are in harmony with the whole of the statute, construed in the light of history and common sense.” Sweatt, 468 Mich at 179 (quotation marks and citation omitted). In doing so, we also look beyond the revenue factor to other provisions of the statute that are relevant for the purpose of giving meaning to the term “rendered.” In particular, the phrase “services rendered in the city,” and slight variations of this phrase, appear numerously in provisions that pertain to the apportionment of the net profits of a business, and we believe the Legislature’s use of this language is further indicative of an intention to calculate revenue from “services rendered,” based upon where the service is done or carried out. This phrasing first appears in MCL 141.612(b), which provides that for resident individuals the tax at issue applies to “a distributive share of the net profits of a resident owner of an unincorporated business, profession, enterprise, undertaking or other activity, as a result of work done, services rendered and other business activities wherever conducted.”30 (Emphasis added.) In other words, for resident individuals, the tax applies to pass-through income regardless of where the revenue-producing business activity 30 A “resident” is defined as “an individual domiciled in the city.” MCL 141.609(1). 24 occurs. As it applies, however, to nonresident individuals and corporations, the UCITO is less agnostic about the situs of the revenue-producing income activity. In that regard, the act provides that the tax only applies to net profits resulting from “work done, services rendered, and other business activities conducted in the city.” MCL 141.613(b) (emphasis added). And for “a corporation doing business in the city,” the tax similarly applies only to “such part of the taxable net profits as is earned by the corporation as a result of work done, services rendered and other business activities conducted in the city . . . .” MCL 141.614 (emphasis added). In other words, for these categories of taxpayers, the tax only applies where the profit-earning business activity takes place in the city. Similar phrasing appears in MCL 141.618, which provides the road map for determining which portion of the net profit of a business, such as that of Honigman, is attributable to the city. It provides that “the portion of the entire net profit, earned as a result of work done, services rendered or other business activity conducted in the city” (emphasis added), shall be determined by the separate accounting method, MCL 141.619; the business allocation percentage method, MCL 141.620 through MCL 141.624; or an alternative method of accounting approved by the administrator, MCL 141.625. And the phrase appears yet again in MCL 141.620, the provision setting forth, inter alia, how the business allocation percentage method is calculated: “The entire net profits of such taxpayer earned as a result of work done, services rendered or other business activity conducted in the city shall be ascertained by determining the total ‘in-city’ percentages of property, payroll and sales.” (Emphasis added.) Together, §§ 18 and 20 establish the framework upon which city taxes are to be calculated under the business allocation percentage method where the net profits of a business derive from activities conducted both 25 inside and outside of the city. Stated otherwise, only that portion of net profits from business activities conducted within the city is subject to the city tax. An assessment of these provisions makes reasonably clear that the general inquiry relating to the apportionment of the net profits of a business focuses upon where the profitearning business activity takes place. And that is also the specific inquiry dictated by the first two apportionment factors. In calculating the property factor, it must be determined which properties are “situated within the city.” MCL 141.621. And in calculating the payroll factor, it must also be determined which services were “performed within the city.” MCL 141.622. Each of these factors-- concerning a taxpayer’s capital investment and labor costs-- are clearly focused upon the location of the profit-earning business activity. Returning again to the revenue factor, we believe that the phrase “services rendered in the city” is also focused upon the location of the profit-earning business activity, which in the instant case is comprised of the legal work performed, i.e., done or carried out, by Honigman attorneys. In other words, where the revenue factor is read in context alongside the other two apportionment factors, in addition to other broader provisions of the UCITO that employ the same phrase “services rendered,” we are convinced that the apportionment of revenue under this factor is also determined on the basis of the location at which the business activity-- in this case, the legal work-- has taken place. Accordingly, “services rendered” under the revenue factor encompasses revenue for all services performed, i.e., done or carried out within the city, even when those services were performed for out-of- 26 city clients. And in this way, the Legislature has effectively adopted an “origin test” for services under the revenue factor.31