Honigman Miller Schwartz & Cohn LLP v. City of Detroit

• Citation: 505 Mich. 284,952 N.W.2d 358
• Decision Date: 18 May 2020
• Docket Number: Calendar No. 2,Docket No. 157522
• Parties: HONIGMAN MILLER SCHWARTZ AND COHN LLP, Petitioner-Appellee, v. CITY OF DETROIT, Respondent-Appellant.
• Court: Michigan Supreme Court

505 Mich. 284

952 N.W.2d 358

HONIGMAN MILLER SCHWARTZ AND COHN LLP, Petitioner-Appellee,

v.CITY OF DETROIT, Respondent-Appellant.

Docket No. 157522

Calendar No. 2

Supreme Court of Michigan.

Argued October 2, 2019

Decided May 18, 2020

Markman, J.

The issue here is whether the phrase "services rendered in the city" in MCL 141.623 of the Uniform City Income Tax Ordinance (UCITO), MCL 141.601 et seq. , encompasses legal services performed within the city--in this case, the city of Detroit--but delivered to clients situated outside the city.¹ The Michigan Tax Tribunal (the Tribunal) concluded that under § 23 of the UCITO, MCL 141.623, "services rendered in the city" encompasses all legal services performed within the city regardless of where those services are delivered. However, the Court of Appeals reversed the Tribunal and concluded that the pertinent consideration under § 23 is where the services are delivered to the client. On application, this Court now resolves this disagreement by identifying what we view as the proper understanding of § 23. Needless to say, nothing herein should be understood as communicating our perspectives concerning the wisdom, the merits, or the prudence of this provision. Because we conclude that § 23 encompasses all legal services performed, i.e., done or carried out within the city without regard to where those services are delivered, we reverse the judgment of the Court of Appeals and remand to the Tribunal for entry of an order granting partial summary disposition in favor of respondent, the city of Detroit.

I. FACTS & HISTORY

Petitioner, Honigman Miller Schwartz and Cohn LLP (Honigman), is a law firm that operates offices within and outside Detroit.² Each year, Honigman, as an unincorporated business whose "entire net profit ... is not derived from business activities exclusively within the city," MCL 141.618, apportions its net profit using a three-factor formula known as the "business allocation percentage method," MCL 141.620. This formula incorporates a "property factor," the numerator of which includes the value of tangible personal and real property "situated within the city," MCL 141.621 ; a "payroll factor," the numerator of which includes total compensation paid to employees for "services performed within the city," MCL 141.622 ; and a "revenue factor," the numerator of which includes revenue derived from "services rendered in the city," MCL 141.623. From 2010 through 2014, Honigman calculated its revenue factor for services rendered in the city as approximately 11% of its gross revenue, excluding from this calculation revenues that resulted from services--e.g., legal research, document creation and preparation, and the arguing of motions--performed within the city but "delivered" to clients outside the city. However, the city determined that the proper amount under the revenue factor should have been calculated at approximately 50% of Honigman's gross revenues, taking more fully into account revenue for services performed within Detroit on behalf of out-of-city clients. The city thus imposed an additional tax assessment of approximately $1.1 million dollars, which became final in 2016.

Honigman subsequently filed a petition in the Tribunal, and both parties sought partial summary disposition under MCR 2.116(C)(10). The Tribunal granted the city's motion and denied Honigman's motion, concluding that § 23 is "ambiguous" and that the better interpretation of "services rendered in the city" requires that the revenue factor be determined using revenues generated where the services are performed and not where they are delivered.³ The Tribunal discussed why the statute would employ the term "performed" under one provision of the UCITO and "rendered" under another, stating:

Reading [the UCITO] in context, the Tribunal finds that the difference reflects nothing more than the syntax of the English language. The term "performed" is used in MCL 141.622 because that section pertains to compensation paid to employees, and services are typically "performed" for an employer, while in terms of generating revenue, they are "rendered" to a client. Further, the definitions and comparisons offered by [Honigman] are not on point. [Honigman] cites definitions provided by Black's Law Dictionary and Merriam-Webster Online Dictionary that imply an act of delivery, e.g., "to transmit or deliver" and "to give." [Honigman] notes that these definitions align with the concept of "goods received," which focuses on where goods are destined. As noted by [the city], however, [Honigman's] legal professionals sell their services--they do not generate "gross revenue" from "sales." And unlike goods, merchandise, and property, services are intangible, and they cannot be "delivered" in the same manner as tangible items. [The city] aptly notes that "A lawyer's time and advice is his stock in trade." It does not logically follow, therefore, that the determination of where services are rendered must also be based on where the recipient of the services is located. In addition to the definition provided by [Honigman], the Merriam-Webster Online Dictionary also defines the term "render" as "to do (a service) for another." In turn, the term "do" is defined as "perform, execute." As such, the Tribunal finds that the term is synonymous with perform.

The parties reached agreement regarding the remaining issues, and a final appealable order was entered.

Honigman subsequently argued in the Court of Appeals that the two terms bear distinctive meanings--that § 23 is not "ambiguous" because it focuses on the delivery of services and that, even if it was ambiguous, it should be construed in Honigman's favor as the taxpayer. The Court began its analysis by addressing the statute's use of the terms "performed" and "rendered":

We begin by observing that the Legislature used two different terms in drafting the payroll factor under § 22 and the sales factor under § 23. The payroll factor refers to "services performed," and § 23 refers to "services rendered." We agree with [Honigman] that these phrases must be given two different meanings because when

the Legislature uses different words, the words are generally intended to connote different meanings. Simply put, "the use of different terms within similar statutes generally implies that different meanings were intended." If the Legislature had intended the same meaning in both statutory provisions, it would have used the same word." Therefore, because § 22 refers to where the work is done or performed, the Legislature likely intended that the § 23 phrase "services rendered" have a different meaning.

[ Honigman Miller Schwartz and Cohn LLP v. Detroit , 322 Mich. App. 667, 671-672, 915 N.W.2d 383 (2018) (citation omitted).]

The Court also adopted Honigman's proposed definition of "render":

[T]he relevant definition of "render" is "to transmit to another: DELIVER." This is in contrast to the Tribunal's opinion, which looked to an online definition of "render": " ‘to do (a service) for another.’ "^{[4 ]} The [Tribunal's] opinion then equated "do" with "perform" to reach the conclusion that "render" is "synonymous with perform." We find this conclusion to be dubious and unnecessarily convoluted. Why would the Legislature use the word "render" to mean "perform" by way of the verb "to do," when it would have been much simpler and clearer to simply reuse the § 22 word "perform"? This neatly illustrates the principle that the Legislature employs different words when it intends different meanings. [ Id. at 674, 915 N.W.2d 383.]

Concluding that "the relevant consideration in § 23 is where the service is delivered to the client, not where the attorney performs the service," the Court of Appeals reversed the Tribunal and remanded for further proceedings. Id. This Court then ordered and heard oral argument concerning whether the Court of Appeals erred in its interpretation of the phrase "services rendered in the city." Honigman Miller Schwartz and Cohn LLP v. Detroit , 503 Mich. 909, 919 N.W.2d 404 (2018).

II. STANDARD OF REVIEW

"If the facts are not disputed and fraud is not alleged, our review is limited to whether the Tax Tribunal made an error of law or adopted a wrong principle." Mich. Props., LLC v. Meridian Twp. , 491 Mich. 518, 527-528, 817 N.W.2d 548 (2012). We review de novo a decision on a motion for summary disposition under MCR 2.116(C)(10). El-Khalil v. Oakwood Healthcare, Inc. , 504 Mich. 152, 159, 934 N.W.2d 665 (2019). Moreover, this case presents a significant question of statutory interpretation, which is also reviewed de novo. Mich. Props., LLC , 491 Mich. at 528, 817 N.W.2d 548. Accordingly, we are required to examine the provisions of the UCITO. See Danse Corp. v. Madison Hts. , 466 Mich. 175, 181-182, 644 N.W.2d 721 (2002). "Where the statutory language is unambiguous, the plain meaning reflects the Legislature's intent and the statute must be applied as written."

Id. at 182, 644 N.W.2d 721, citing Tryc v. Mich. Veterans’ Facility , 451 Mich. 129, 135, 545 N.W.2d 642 (1996). Each word and phrase in a statute "must be assigned such meanings as are in harmony with the whole of the statute, construed in light of history and common sense." Sweatt v. Dep't of Corrections , 468 Mich. 172, 179, 661 N.W.2d 201 (2003) (opinion by MARKMAN , J.) (quotation marks and citation omitted). "An administrative agency's interpretation of a statute that it is obligated to execute is entitled to ‘respectful consideration,’ but it cannot ‘conflict with the plain meaning of the statute.’ " Hegadorn v. Dep't of Human Servs. Dir. , 503 Mich. 231, 244, 931 N.W.2d 571 (2019), quoting In re Rovas Complaint Against SBC Mich. , 482 Mich. 90, 108, 754 N.W.2d 259 (2008).

III. ANALYSIS

A. UNIFORM CITY INCOME TAX ORDINANCE

This dispute involves the proper interpretation of the UCITO, which has been adopted by Detroit under Detroit Ordinances, § 18-10-1 et seq.⁵ The provisions of the UCITO, including MCL 141.618,...