English 101: Prepositions Matter When Determining Where Services Are Rendered

The BR State + Local Tax Spotlight

By Nicole L. Johnson

Ascertaining where services are rendered has been a challenge faced by numerous companies operating throughout the United States. For example, for Louisiana corporate franchise tax purposes, revenue from certain services is sourced based on the “location at which the services are rendered.” La. Rev. Stat. Ann. § 47:606(A)(1)(f). The Louisiana Department of Revenue interpreted the location where rendered to be the location “where they are received by the customer.” La. Admin. Code 61:I.306(A)(1)(d)(ii). However, a recent decision conflicts with that interpretation. In Boles v. City of St. Louis, Cause No. 2122-CC00713 (Mo. Cir. Ct. Jan. 19, 2023), taxpayers challenged that “rendered” means where the customer (or employer in this case) is located.

The Facts: Since 1959, the City of St. Louis has imposed an Earnings Tax on nonresidents “for work done or services performed or rendered in the City.” In 2020, the taxpayers worked from home, outside of St. Louis, for the majority of the year. Their employers withheld the Earnings Tax and the taxpayers sought a refund for those days worked outside of St. Louis. Despite issuing refunds on the same basis for 2018 and 2019, the 2020 refund claims were denied.

The taxpayers argued that the phrase “rendered in” in the Earnings Tax statute was limited to when a nonresident was physically present and working in the city. The city argued that “rendered in” meant that the benefit of the services was received in St. Louis.

The Decision: Upon review, the court agreed with the taxpayers. The court held that the preposition “in” commonly refers to a location. Thus, the phrase “rendered in” refers to services that were physically conducted in St. Louis. In part, the court reached its decision because St. Louis provided refunds to the taxpayers in 2018 and 2019 for work performed outside of the city. The city argued that the Earnings Tax always applied to work conducted outside of St. Louis for employers located in the city, but the city never enforced such collection for teleworkers. Perceptively, the court noted that “it strains credibility to think Defendants always believed they were entitled to more tax dollars but just decided for reasons unknown not to attempt to collect them.”

While this case is another in the string of cases related to local taxes on the mobile workforce, its application may not be so limited. When interpreting a taxing statute, it is imperative to focus on the words of that statute—in this case “rendered in”—as opposed to one single word in the statute. English teachers everywhere are rejoicing at the reminder that prepositions matter.

This article is one in a series of articles written for the February 2023 edition of The BR State + Local Tax Spotlight.

© 2023 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.