Lansing — Business groups are hoping to defeat legislation before year’s end that would require suburban employers to collect Detroit income taxes from city residents who work for them.
Lawmakers returning Tuesday to the capital for their three-week lame-duck session could consider legislation long sought by Detroit officials to help the city collect income taxes owed by Detroiters working in the suburbs.
There are two bills awaiting action in the Legislature — one that would apply only to Detroit and another that would apply to all 22 cities that have a local income tax.
But the Michigan Chamber of Commerce and organizations representing retailers, restaurants, grocery stores, construction companies, convenience stores, manufacturers and other small businesses have come out swinging against the legislation.
“We’re strongly opposed to these bills. They’re unfair, unwarranted,” said Tricia Kinley, senior director of tax and regulatory reform at the Michigan Chamber of Commerce. “If these cities cannot collect their own taxes on their own residents, then they should consider repealing those taxes.”
Neither of the bills have passed either chamber, which lowers their chances of landing on Gov. Rick Snyder’s desk by year’s end.
“There’s discussion on that,” Snyder said at a Monday event in Detroit with Mayor Mike Duggan. “That’s something we’re watching, but I would say it has to get farther in the legislative process at this point.”
As part of Detroit’s bankruptcy agreement, the state began this year collecting income taxes for the city. In a financial consent agreement in April 2012, Snyder’s administration promised to seek a new law to require suburban employers to collect and remit the city’s income tax.
A House bill sponsored by Republican Rep. Al Pscholka of Stevensville would only apply to Detroit.
State Sen. Goeff Hansen, R-Hart, has sponsored a Senate bill that would require employers anywhere in the state to withhold and remit income taxes for any employee who lived in one of the 22 Michigan cities that have an income tax.
In Hansen’s west Michigan district, Muskegon and Muskegon Heights levy a local income tax. “Cities are just trying to fulfill their basic services,” he said. “We’re trying to figure out a way that’s not a burden (on businesses), but can work.”
Pscholka could not be reached Monday for comment.
Amy Drumm, vice president of government relations at the Michigan Retailers Association, said Hansen’s legislation could expose large retailers near public universities to handle city income taxes for student workers from multiple cities. “It’s just a huge administrative burden where the employer has no physical presence, receives no services, really has no reason to be on the hook or responsible for these taxes,” she said. “It’s not nearly as simple as the cities would have you believe for employers to start doing this.”
There are three cities outside Detroit that have a city income tax — Hamtramck, Highland Park and Pontiac. In the out-state area, city income taxes vary from large cities like Grand Rapids and Lansing to smaller towns such as Hudson and Portland.
Detroit’s income tax rate is 2.4 percent and 1.2 percent for non-residents who work in the city.
It’s unclear how much additional tax revenue Detroit would collect from suburban employers withholding the taxes from their employees’ paychecks, according to the nonpartisan House Fiscal Agency.
But Detroit officials have estimated for years that several millions of dollars go uncollected annually because Detroiters often don’t file city income tax returns for earnings from suburban employers.
Staff Writer Christine Ferretti contributed.