Hey Lansing, how about getting this tax fix done?
Can we please just get this done?
Six years ago would have been great. But now is fine.
That’s at least how long the City of Detroit has been asking the state Legislature to require suburban employers to withhold city income tax from the paychecks of employees who are Detroit residents, and at least how long the Legislature has been saying no.
This legislative truculence is one of those things that defies common sense.
Detroit Mayor Mike Duggan said in an interview late last month that he believes a compromise bill could pass this fall, in part because the city has reached a compromise with the Michigan Chamber of Commerce, a big-spending, pro-business group that proudly proclaims its effectiveness as a lobbying organization, blocked the measure in past legislative sessions.
Detroit residents, whether employed in the city or the suburbs, pay a 2.4% income tax. Non-residents who work in the city are also obligated to pay, at a lower rate of 1.2%.
Because Detroit employers are required to withhold income tax from employees’ pay, the city gets almost all of the money it’s owed.
Not so in the suburbs, where city tax withholding is left entirely to the employer’s — and the employee’s — discretion. Some employers opt to withhold city tax, but not all. With tax withholding required, the city could expect to collect between $10 million and $20 million a year.
The city and the chamber are still working on the details, but the compromise would allow suburban employers to withhold on a voluntary basis, but require their Detroit-resident workers to submit to tax withholding, said Richard Studley, president and CEO of the Michigan Chamber.
Employers, as a matter of course, withhold payroll taxes from workers’ checks — federal and state tax, Social Security tax — along with other payments, like insurance premiums or union dues or parking fees or retirement account contributions. Requiring suburban employers to withhold city tax only requires those businesses to what they’re doing already, for a host of other causes.
It’s not just a few more Detroiters who work outside the city, it’s a lot — 113,449 Detroiters, nearly two-thirds of working city dwellers, work in the suburbs, according to U.S. Census data, compared to 58,738 employed inside the city.
Because their employers aren’t required to withhold city income tax from their paychecks, the burden of estimating, filing (until recently, e-filing wasn’t an option) and paying city taxes is placed on individuals.
When Detroiters “who and work are employed in the suburbs, and they have zero withholding, you send them a bill in April and then they’ve got to write an $800 check …” Duggan said. “For a lot of our residents, writing an $800 check is not realistic.”
Duggan said he thinks the compromise would significantly improve the city’s income tax collection.
Really, any little bit helps.
Requiring universal tax withholding, however, is still off the table, Studley said.
Requiring mandatory tax withholding “would impose a substantial administrative burden on businesses who receive no services from the city,” Studley said, as well as subject those employers to the possibility that Detroit might audit them to ensure they’re doing what they ought.
Business Leaders for Michigan, another prominent business group, hasn’t taken a position on the proposed legislation, a spokeswoman said. The Detroit Regional Chamber would support universal withholding, said President and CEO Sandy Baruah, noting that the city is “rightly owed” those taxes, provided any proposed legislation would create an exception for small employers.
Because the compromise the chamber and the city are still negotiating is voluntary, but offers suburban employers who choose to participate the authority to require Detroiters they employ to have city tax withheld, it’s acceptable, Studley said.
Requiring employers to withhold, Studley said, “probably could and would have had the unintended consequence of stopping some suburban employers from hiring Detroit residents, and obviously we didn’t want to see that.”
Another key provision of the compromise, said Dan Papineau, the state chamber’s director of tax policy, would allow the city to seize state tax refunds to satisfy unpaid city income tax.
For a broke city, this is what we call “low-hanging fruit,” the kind of thing that should have been done at the instant the problem was identified.
The city and the chamber hope a final draft of the compromise can be reached in time for the Legislature to consider this fall.
Hopefully, it won’t take another six years.
— Detroit Free Press