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Frederic L. WYCKOFF, Petitioner-Appellee, v. CITY OF DETROIT, Respondent-Appellant.
Petitioner, an attorney, was employed with Michigan Bell until 1989, when, in exchange for a lump-sum payment under Michigan Bell's “Incentive Resignation Retirement Plan” (IRRP), he voluntarily resigned from his position. This lump-sum payment was in addition to petitioner's normal salary that year. On July 18, 1991, respondent found that the lump-sum payment was taxable income and accordingly assessed city taxes on the payment. Petitioner protested the assessment to respondent's finance department, the Income Tax Board of Review, and the Bureau of Revenue. Ultimately, the Bureau of Revenue ruled that the payment was taxable income because it was made in exchange for petitioner's voluntary resignation and thus constituted compensation for services rendered. The circuit court, however, disagreed and reversed the decision of the Bureau of Revenue. This Court granted respondent's delayed application for leave to appeal, and we now affirm.
We review decisions of administrative agencies in the same limited manner as the circuit court. Barker os. Const. v. Bureau of Safety & Regulation, 212 Mich.App. 132, 141, 536 N.W.2d 845 (1995). Legal rulings of administrative agencies are set aside only if they are found to be in violation of the constitution or statute, or are affected by substantial and material errors of law. MCL 24.306(1)(a) and (f); MSA 3.560(206)(1)(a) and (f); Barker Bros, supra at 136, 536 N.W.2d 845. Where the agency has a longstanding interpretation of a statute over which it is empowered to administer, the courts will give great deference to such an interpretation, unless it is contrary to a logical reading of the statute. Barker Bros, supra at 136, 536 N.W.2d 845. Statutory interpretation is a question of law that we review de novo on appeal. Oakland Co. Bd. of Co. Rd. Comm'rs v. Michigan Property & Casualty Guaranty Ass'n, 456 Mich. 590, 610, 575 N.W.2d 751 (1998).
In this case, respondent claims to have the authority to levy a tax on petitioner's early-retirement payment pursuant to the Uniform City Income Tax Ordinance (UCITO), M.C.L. § 141.601 et seq.; MSA 5.3194(11). et seq. Specifically, respondent relies on UCITO § 13(a), which respondent has adopted and codified at Detroit Ordinances, § 18-10-5(b)(1). Because respondent has adopted the UCITO without material alteration, see M.C.L. § 141.502; MSA 5.3194(2), we shall refer only to the provisions of the UCITO in this opinion. Section 13(a) of the UCITO provides, in relevant part, as follows:
The tax shall apply on the following types of income of a nonresident individual to the same extent and on the same basis that the income is subject to taxation under the federal internal revenue code:
(a) On a salary, bonus, wage, commission, and other compensation for services rendered as an employee for work done or services performed in the city. Income that the nonresident taxpayer receives as the result of disability and after exhausting all vacation pay, holiday pay, and sick pay is not compensation for services rendered as an employee for work done or services performed in the city. Vacation pay, holiday pay, sick pay and a bonus paid by the employer are considered to have the same tax situs as the work assignment or work location and are taxable on the same ratio as the normal earnings of the employee for work actually done or services actually performed. [MCL 141.613(a); MSA 5.3194(23)(a).]
Section 4 of the UCITO defines “compensation” as follows:
(2) “Compensation” means salary, pay or emolument given as compensation or wages for work done or services rendered, in cash or in kind, and includes but is not limited to the following: salaries, wages, bonuses, commissions, fees, tips, incentive payments, vacation pay and sick pay. [MCL 141.604(2); MSA 5.3194(14)(2).]
From a reading of these UCITO provisions, we conclude that a city is empowered to levy a tax on the compensation of a nonresident of that city only for work done or services rendered within the city. Therefore, we must decide whether the lump-sum payment made to petitioner by Michigan Bell under the IRRP qualifies as compensation for work done or services rendered in Detroit.
Petitioner claims that the early-retirement payment does not constitute compensation, as that term is defined and used in UCITO §§ 4 and 13(a), and thus is not taxable under the statute. Petitioner argues that he did not receive the subject payment “for work done or services rendered” within the city, but, instead, for refraining from performing work and service for Michigan Bell, and therefore, respondent is not privileged to levy a tax on the payment. Thus, petitioner interprets the UCITO as not authorizing respondent to levy a tax on the payment. In contrast, respondent contends that petitioner did, in fact, perform a service for Michigan Bell when he accepted the option to retire early in exchange for a cash payment. Apparently, respondent argues that Michigan Bell received an economic benefit in consideration for petitioner's agreement to voluntarily resign his position, for which Michigan Bell compensated him with the IRRP payment. Thus, respondent interprets the UCITO as authorizing it to levy a tax on the payment. We conclude that both parties' interpretations are logically derived from UCITO §§ 4 and 13(a), and thus, these provisions are ambiguous with respect to whether respondent may levy a tax on petitioner's early-retirement payment. Where a statute is ambiguous or susceptible to two or more constructions, judicial interpretation of the statute is warranted. Shelby Charter Twp. v. State Boundary Comm., 425 Mich. 50, 72, 387 N.W.2d 792 (1986).
The primary goal of judicial construction of statutes is to ascertain and give effect to the intent of the Legislature. Int'l Business Machines v. Dep't of Treasury, 220 Mich.App. 83, 86, 558 N.W.2d 456 (1996). Importantly, however, there are special rules with respect to the interpretation of statutes that levy taxes. Auto-Owners Ins. Co. v. Dep't of Treasury, 226 Mich.App. 618, 621, 575 N.W.2d 770 (1997). Generally, where a statute that levies a tax is ambiguous, we construe that statute against the taxing unit. Id. In other words, we will not extend the scope of tax laws by implication or forced construction. Hart v. State, 333 Mich. 248, 251, 52 N.W.2d 685 (1952). As our Supreme Court explained,
In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen. [Id. at 252, 52 N.W.2d 685, quoting Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53, 62 L.Ed. 211 (1917).]
With these principles in mind, we will address whether the UCITO empowers respondent to levy a tax on the early-retirement payment made to petitioner by his former employer Michigan Bell.
This is a case of first impression for this state; however, both the Supreme Courts of Kentucky and Delaware have had the opportunity to analyze similar taxing statutes. In Comm'rs of the Sinking Fund of Louisville v. South Central Bell Telephone Co., 809 S.W.2d 380 (Ky., 1991), the Supreme Court of Kentucky addressed whether early-retirement payments made to certain qualifying employees by their employers were subject to Louisville's occupational tax. The statute under which Louisville attempted to levy the tax, KRS 91.200(1), provided that a city may levy an occupational tax on “salaries, wages, commissions and other compensations earned by every person within the city for work done and services performed or rendered in the city ” (emphasis added). Id. at 381. Adopting the opinion of the lower court, the Supreme Court of Kentucky concluded as follows:
At the expense of being “ludicrous” and “overly simplistic” we view this cause as turning upon the enabling statute and its permission to tax compensations earned by work done or services performed. Our reasoning, simplistic or not, tells us that appellant's plan provides for the payment of money for quitting work at South Central Bell. It is only upon termination of services rendered that the employee gets the cash. It is “ ludicrous” to argue that it represents payment for past services for those efforts have already been compensated. It cannot be for future work because the recipient must not continue to labor․ Having concluded the benefits are not earned the appellee is prohibited from imposing the tax. [Id. at 382.]
In Gow v. Director of Revenue, 556 A.2d 190 (Del., 1989), the Delaware Supreme Court reached a similar result. In Gow, E.I. duPont de Nemours & Company (DuPont) gave its employees the option of retiring early and commencing the receipt of retirement benefits, which included a “Voluntary Termination Incentive” (VTI) in the form of a lump-sum payment equivalent to the amount of one week's salary, multiplied by the total number of years the recipient was employed by the company. Id. at 191. The appellant accepted the offer and received his payment; however, he did not include the payment as taxable income on his Delaware tax return. Id. The Director of Revenue for Delaware issued a Notice of Assessment and Gow appealed. Id. at 191-192. The applicable Delaware taxing statute, 30 Del C 1122(b)(1), now codified at 30 Del C 1224(b)(1), provided that the state may levy a tax on “[c]ompensation, other than pensions, as to an employee in the conduct of the business of an employer, for personal services (i) rendered in this State, or (ii) attributable to employment in this State and not required to be performed elsewhere” (emphasis added). Id. at 192. The Supreme Court of Delaware first determined that the payment was not a pension as that term is generally understood. Id. at 193-194. The court then concluded as follows:
In this case, no personal services were actually rendered by Gow for which the VTI payment was compensation. The VTI payment was not paid as compensation for prior personal services rendered. The VTI payment was not attributable to the physical or mental act of making the decision to “opt” into the VTI program. Nor was it attributable to the services rendered by Gow during the short period after he made the VTI election.
Once he made the VTI election, Gow did not have to work or perform any services for DuPont in order to receive the VTI payment. The VTI payment was not in consideration for rendering personal services, but was in consideration for refraining from rendering personal services. We hold that the VTI payments are not includible in a nonresident's income which is taxable by Delaware as compensation for personal services under 30 Del.C. § 1122(b)(1). [Id. at 196.]
We are persuaded by the decisions of the Supreme Courts of Kentucky and Delaware that the early-retirement payment made to petitioner under Michigan Bell's IRRP is not taxable by respondent under UCITO § 13(a), which is materially similar to the statutes relied on by those courts. Petitioner did not have to perform any work or services for Michigan Bell in order to receive the payment. On the contrary, Michigan Bell made the payment to petitioner in consideration for petitioner's agreement to refrain from performing work and services for Michigan Bell. Although Michigan Bell undoubtedly received an economic benefit from petitioner's decision to accept the payment and retire, we conclude that petitioner's acceptance of the payment, and the resulting economic benefit to Michigan Bell, do not combine to constitute “services performed in the city,” as UCITO § 13(a) demands before respondent can levy a tax on the payment. Our decision is buttressed, we believe, by the rules of statutory construction applicable to taxing statutes. In particular, because UCITO § 13(a) does not clearly permit respondent to levy a tax on the payment made to petitioner under Michigan Bell's IRRP, we decline to expand the scope of the statute by implication or forced construction, and we construe the statute against respondent and in favor of petitioner. Hart, supra at 251-252, 52 N.W.2d 685.
Accordingly, we agree with the circuit court that UCITO § 13(a) does not permit respondent to levy a tax on the early-retirement payment made to petitioner by his former employer Michigan Bell.
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Docket No: Docket No. 196621.
Decided: December 29, 1998
Court: Court of Appeals of Michigan.
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