Opinion ID: 4535167
Heading Depth: 4
Heading Rank: 1

Heading: revenue factor

Text: 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.