Detroit wins court dispute with law firm over taxing revenue

Ed White
Associated Press

Detroit – The Michigan Supreme Court ruled in favor of Detroit on Monday in a dispute with a major law firm over taxes on services performed for clients outside the city.

The case was closely watched by other Michigan cities that levy local income taxes on businesses.

The Supreme Court agreed with Detroit, which argued that the Honigman firm should have included revenue for all services performed within the city, even if a client was in another community.

“The Legislature adopted an ‘origin test,’ rather than a destination or market-based test, for the calculation of revenue from ‘services’ under the revenue factor,” Justice Stephen Markman said.

The court’s other six members agreed with the result, although three justices disagreed with some of the legal analysis.

The Supreme Court reversed a decision by the state appeals court and sent the case back to the Michigan Tax Tribunal for the next steps.

Honigman, which specializes in representing businesses, is based in Detroit but has offices in Ann Arbor, Lansing, Grand Rapids, Kalamazoo, Bloomfield Hills and Chicago.

Grand Rapids filed a legal brief in support of Detroit. The western Michigan city, which also has an income tax, had warned that the appeals court decision would create a nightmare.

“Must a city income tax department seeking to verify the information in a tax return be required to track down all a firm’s clients and interview them about their location on the days the taxpayer claims to have rendered services to them?” attorney Elliot Gruszka wrote.