Opinion ID: 4535167
Heading Depth: 3
Heading Rank: 3

Heading: “rendered” in context

Text: To resolve this dispute, we must consider the definitions of relevant statutory terms and central to this is the definition of “rendered.” In particular, the revenue factor requires the calculation of “gross revenue of the taxpayer derived from sales made and services rendered in the city[.]” MCL 141.623 (emphasis added). The statute does not define “rendered,” but this Court generally gives undefined terms their plain and ordinary meanings and may certainly, and properly, consult dictionary definitions in giving such meaning. Oakland Co Bd of Co Rd Comm’rs v Mich Prop & Cas Guaranty Ass’n, 456 Mich 590, 604; 575 NW2d 751 (1998). The parties strongly disagree as to how we should define “rendered.” Honigman argues that this Court should affirm that “render” means “to transmit to another: DELIVER.”20 Merriam-Webster’s Collegiate Dictionary (11th ed). Applying this definition, Honigman asserts that “services rendered in the city” under the 20 It is not altogether clear which rule Honigman is urging us to adopt. According to its brief, Honigman allocates its revenue based upon the client’s billing address. (Presumably, although it is unclear from the record, this would include all such receipts, regardless of whether the work was performed by Honigman’s attorneys in Detroit or elsewhere.) Moreover, Honigman’s Director of Financial Services has stated in a sworn affidavit that to prepare its income tax return, “Honigman’s accounting system compiled a summary of revenue by client. All revenue from clients located within the city was treated as in-city revenue.” The percentage of revenue from Detroit clients represented roughly 11% of the total revenue for all clients. However, Honigman urges us to affirm the Court of Appeals, which held that the relevant consideration is the delivery location, i.e., “where the service is delivered to the client.” Honigman, 322 Mich App at 675. But these understandings represent distinctive approaches to market-based sourcing. See Schadewald, supra note 15. 17 revenue factor encompasses only services that are actually delivered to a client located in Detroit. In contrast, the city argues that “render” means “to do (a service) for another,” id., encompassing all services done within the city.21 And the difference between these respective interpretations lies in their contrary verbal understandings-- “deliver” versus “to do”-- which, not surprisingly, lead to markedly disparate tax consequences.22 Both parties’ arguments appear to articulate plausible interpretations of the statute. However, in order to determine the most reasonable meaning of statutory language, such language cannot be read in isolation or in a manner disregardful of context; this Court will not extract words and phrases from within their context or otherwise defeat their import as drawn from such context. G C Timmis & Co v Guardian Alarm Co, 468 Mich 416, 421; 662 NW2d 710 (2003). A statute should be interpreted in light of the overall statutory scheme, and “[a]lthough a phrase or a statement may mean one thing when read in isolation, it may mean something substantially different when read in context.” Sweatt, 468 Mich at 179-180. And in this case, where “rendered” is read in context, we believe 21 This approach effectively aligns with the origin test, i.e., where the service was performed or completed. 22 The Tribunal concluded that because the revenue factor is capable of being understood in distinctive ways and, as a result, its proper understanding is not altogether certain, the statute is “ambiguous” and “judicial construction” is necessary. Under this rationale, however, most statutes, in particular those that culminate in litigation, could be characterized as ambiguous. However, it is entirely commonplace that a statutory term or provision is susceptible to multiple not-unreasonable definitions. “[A]mbiguity is a finding of last resort” and it should “be reached only after all other conventional means of interpretation have been applied and found wanting.” Kendzierski v Macomb Co, 503 Mich 296, 311; 931 NW2d 604 (2019), quoting Mayor of the City of Lansing v Pub Serv Comm, 470 Mich 154, 165 & n 6; 680 NW2d 840 (2004) (quotation marks omitted). After assessing the disputed language in context, we believe that MCL 141.623 is unambiguous. 18 that the city’s definition constitutes the more appropriate understanding and that the Court of Appeals erred by reversing the Tribunal. The term “render,” in our judgment, most precisely means “to do (a service) for another,” Merriam-Webster’s Collegiate Dictionary (11th ed), and thus the revenue factor does not focus upon where the services are delivered but where they are done or carried out.23 To reach this conclusion, it is necessary that we view “rendered” in context and analyze, respectively: (1) the revenue factor to determine how it treats “services rendered” and (2) the language within broader provisions of the relevant tax framework to assess which definition of “render,” among several that might be viewed in isolation as “reasonable,” most closely harmonizes with the overall statute.
We look first to § 23, the revenue factor, because it contains the pertinent language in dispute, encompassing revenue earned for both “sales made and services rendered in the city . . . .”24 Specifically, § 23 provides that “the taxpayer shall ascertain the percentage which the gross revenue of the taxpayer derived from sales made and services rendered in the city is of the total gross revenue from sales and services wherever made or rendered during the period covered by the return.” MCL 141.623 (emphasis added). “When interpreting a statute, we must ‘consider both the plain meaning of the critical word or 23 We recognize the similarity between the definitions we give to “rendered” and “performed”-- “rendered” means “to do (a service) for another” while “performed” means “to carry out an action . . . ,” Merriam-Webster’s Collegiate Dictionary (11th ed). We also recognize that these terms commonly refer to the location at which the service is done or carried out. 24 See Danse Corp, 466 Mich at 181-182 (“We are required to examine the plain language of the involved statutes.”). 19 phrase as well as its placement and purpose in the statutory scheme.’ ” Sweatt, 468 Mich at 179 (some quotation marks and citation omitted). And the entirety of the revenue factor’s consideration of “services rendered” is contained in this single sentence. In contrast, the Legislature affords considerable additional guidance regarding “sales made,” more clearly specifying what is meant by “sales made in the city” as it pertains to the “delivery” of goods: “In the case of delivery of goods in the city to a common or private carrier or by other means of transportation, the place at which the delivery has been completed is considered as the place at which the goods are received by the purchaser.” MCL 141.623(1) (emphasis added). The Legislature then sets forth five nonexhaustive examples to give further illustration, e.g., “[s]ales to an out-of-city customer with shipments or deliveries to the customer’s location within the city are considered sales made in the city,” MCL 141.623(1)(d), but “[s]ales to an out-of-city customer with shipments to an out-of-city destination are considered out-of-city sales,” MCL 141.623(1)(e). The Court of Appeals concluded that because gross revenue from the sale of goods is predicated on where those goods are delivered, gross revenue from “services rendered” should also be predicated on such delivery on the basis that goods and services are both accounted for under the revenue factor. Honigman, 322 Mich App at 671-673. However, “words in a statute should not be construed in [a] void, but should be read together to harmonize [their] meaning, giving effect to the act as a whole.” Gen Motors Corp v Erves (On Rehearing), 399 Mich 241, 255; 249 NW2d 41 (1976) (opinion by COLEMAN, J.). And in the instant regard, the guidance afforded by the Legislature was specifically for the purpose of determining “sales made in the city,” which pertains to the delivery of goods, not services. MCL 141.623(1). Respectfully, we do not believe the Court of Appeals was 20 correct in relying upon the guidance of the Legislature in connection with “sales made” to conclude that “services rendered,” focused upon the delivery of services, must be understood in the same manner. Rather, we conclude that even though revenue from “sales made in the city” is focused upon where the goods are delivered, revenue from “services rendered in the city” is instead focused upon where the services are done or carried out. Indeed, if the Legislature had intended to treat services in a similar manner to the sale of goods, it might well have seen fit to provide similar, if not identical, guidance and similar, if not identical, examples by which to illustrate how such services are delivered and when the delivery of services should be considered in-city versus out-of-city, while clarifying difficult or counterintuitive situations that might occur in relation to where services are being “delivered” to clients.25 Instead, the Legislature made clear that the calculation of sales made in the city looks to the place at which the delivery has been completed and § 23 then provides illustrations that “may serve as a guide for determining sales made in the city[.]” MCL 141.623(1). Thus, for the sale of goods, this provision expressly adopted a market-based sourcing rule that focuses upon the delivery location of 25 At oral argument, this Court presented the attorneys with a number of factual scenarios involving the “delivery” of services in an effort to better understand just how one “delivers” an intangible service to another. For example, how does one “deliver” services that relate to no tangible object at all, such as the repair of a dishwasher? Or what if the service is being delivered to a client with principal locations both inside and outside of the city? Or is the taxpayer allowed to select which among a client’s locations a service is to be delivered? And what if the client is an out-of-state insurance company and the law firm is charged with the representation of the client’s insured who is located inside or outside of the city, or in both? These questions are indicative that the delivery of services is not in all instances an intuitive concept or one easily understood absent statutory guidance. See Pomp at 63-64, supra note 19. 21 the shipment.26 But the Legislature did not define “services rendered in the city” in a similar fashion or otherwise provide a market-based sourcing standard for the sales of services as it did later when it adopted the MBTA in 2007 or restored the state corporate income tax in 2011.27 Had the Legislature intended to ground the calculation of “services rendered in the city” upon where the service was delivered, it could have expressed this intention in plain terms, or even in similar terms to those it used with regard to the sale of goods and then provided similar examples that would “serve as a guide for determining services rendered in the city,” MCL 141.623(1). Yet the Legislature did none of this. And contrary to Honigman’s premise, there is simply no textual evidence or other reason to believe that the Legislature intended “sales made in the city,” and the additional guidance afforded to “sales made,” to be understood indistinguishably with the sale of services.28 26 This has always been the dominant approach for sales of tangible personal property, see Construing the Uniform Division of Income for Tax Purposes Act, 45 U Chi L Rev at 774, n 38 (noting that by 1978, “[t]he destination test of attribution of receipts from sales of tangible personal property [was] used in whole or in part in 42 of the 45 jurisdictions (44 states and the District of Columbia) that employ a sales or receipts factor in their apportionment formulas”). 27 See MCL 208.1305(2)(a); MCL 206.665(2)(a). 28 Indeed, the Legislature understood well how to afford guidance concerning the calculation of the three factors under the business allocation percentage method. Under the payroll factor, the Legislature supplies “examples” that “serve as a guide for determining the amount to be treated as compensation for services performed within the city[.]” MCL 141.622. Specifically, these examples address how to calculate the payroll factor based upon specific forms of compensation for the performance of services, i.e., compensation for the amount of time worked, the volume of business secured, or “other results achieved.” Thus, the Legislature knew precisely how to supply guidance where necessary, as it had done under the payroll factor. If the Legislature intended to equate the sale of services with the delivery of that service, it could have made this clear and afforded the guidance necessary to calculate revenue based upon the delivery of services. 22 “Services rendered in the city,” in our judgment, most naturally communicates the venue at which services have been done or carried out, not the venue at which services are delivered, and we are not persuaded, absent further guidance from the Legislature, that the treatment of the delivery of goods under the revenue factor communicates that “services rendered” is the equivalent of “services delivered.” Where “rendered” means simply “to do (a service) for another,” Merriam-Webster’s Collegiate Dictionary (11th ed), the calculation of revenue from services rendered in the city is straightforward; the law inquires where those services were done and not where they were delivered.29 Accordingly, we agree with the Tribunal that under § 23, “rendered” means “to do (a service) for another,” 29 Honigman never adequately explains, in our judgment, why, even if this Court agreed that the Legislature adopted a market-based sourcing rule for the sale of services, we should hold that it selected the billing location of the customer, i.e., the option employed in practice by Honigman, as opposed to the location at which the services are delivered, i.e., the rule adopted by the Court of Appeals, or the location at which the benefit of the services is received, i.e., the rule adopted by the Legislature in the MBTA and in our restored corporate income tax. As Professor Pomp explained in his report to the Multistate Tax Commission, if a taxing jurisdiction adopts a delivery rule for the sale of services, much still depends upon the precise definition of “delivery” that is selected. See supra note 19. Therefore, even assuming that the Legislature adopted a delivery rule, the statute contains no textual clues that would assist us in determining which specific market-based sourcing rule it selected. Furthermore, even assuming that the additional guidance supplied in the statute for the sale of tangible personal property was intended also to serve as guidance, no textual clues in that subsection have been identified that would lead to the conclusion that the Legislature intended to adopt a market-based sourcing rule based upon the customer’s billing address as opposed either to a rule based upon the location at which the services are delivered or the location at which the benefit of the services is received (options that appear more reflective of the rule adopted by the Legislature for the sale of tangible personal property). Finally, it is worth noting that the particular market-based sourcing rule apparently advocated by Honigman-- one in which sales of services are sourced based upon the customer’s billing address-- has never, to the best of our knowledge, been expressly adopted in any Michigan taxing statute. 23 id., and the calculation of the revenue factor is based upon where the service has been performed, i.e., done or carried out, not where the service was ultimately delivered.
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