Snyder wants to put $183M online sales tax surge into roads

Jonathan Oosting
The Detroit News
Michigan Governor Rick Snyder gives a speech during the official opening of Flex-N-Gate Detroit at the I-94 Industrial Park, October 8, 2018.

Lansing — Michigan Gov. Rick Snyder is asking lawmakers to boost road repair funding by $183 million this year as the result of a U.S. Supreme Court decision projected to generate more sales tax collections from online and mail-order retailers.

The term-limited Republican included the proposed road funding in a supplemental spending request sent to legislative leaders last week, but it would also require approval of separate enacting legislation. Lawmakers are expected to debate the issue in coming weeks during the so-called lame duck session.

Citing the Supreme Court’s South Dakota v. Wayfair decision, the Michigan Treasury Department in October began requiring all online and mail-order retailers to pay the state’s 6 percent sales tax on all transactions and taxable sales. Previously, Michigan had only been able to require collection by sellers with a physical presence here.  

The state estimates the change will generate $203 million in new revenue this fiscal year.

While the Michigan Constitution dictates how sales tax revenue is distributed and requires a majority go toward the School Aid Fund, Snyder wants lawmakers to divert an equivalent amount of income tax revenue to fund road repairs, minus $20 million in revenue sharing payments for local governments.

The $183 million would be divided between state and local road agencies, with $40 million in additional money for cities and villages, $71.5 million for county road commissions and $71.5 million for state trunkline road and bridge construction.

Enacting legislation has not yet been introduced, “but we’ve had productive conversations with the Legislature to date,” Snyder spokesman Ari Adler said.

“Money going to roads is the governor’s initial idea, but it’s a collaborative effort with our legislative partners, so nothing is set in stone," he added.

The funding would build on the $1.2 billion road funding law Snyder signed in 2015 that is projected to slow continued road quality deterioration but not fully reverse it. Democratic Gov.-elect Gretchen Whitmer, who is set to take office in January, wants to boost road funding by an additional $2 billion a year through user taxes or bonding.

Michigan lawmakers could have their own ideas for the new online sales tax revenue.

Senate Majority Leader Arlan Meekhof ,R-West Olive, "will continue to discuss options for where to spend" the money with Snyder and House Speaker Tom Leonard, said spokeswoman Amber McCann. "He has not set his sights on a particular area."

Michigan has required retailers or e-commerce companies with brick-and-mortar stores or other types of physical presence in the state — including Amazon — to pay the 6 percent sales tax since October 2015.

It was up to consumers to voluntarily report untaxed purchases on their income-tax returns and pay an equivalent 6-percent "use tax." Those purchases included such goods as those purchased online or by mail-order from out of state from eBay, Etsy, Overstock, Wayfair and third-party sellers that use Amazon's platform.

"There was very little (reported) in dollar terms," Treasurer Nick Khouri in August when the state announced its new policy. "It was essentially unenforceable."

Now, online out-of-state retailers that exceed $100,000 in sales or 200 or more transactions in Michigan within the previous calendar year will have to report and pay sales tax to the state. Buyers will no longer have to report use taxes on purchases from those companies, but the requirement still exists for purchases from businesses that do not meet the threshold.

Approximately 10 percent of Michigan sales tax collections are constitutionally required to be distributed to local governments through revenue sharing.The state anticipates the new online sales tax law will generate this year an additional $20 million for cities, villages and townships.

The Michigan Municipal League is among groups that praised the U.S. Supreme Court decision on sales tax collections, saying it levels the playing field for local businesses by eliminating an unfair advantage for online sellers. But the group had argued that the new money should go to cities that have suffered from years of disinvestment.

"At least with (Snyder's) proposal, they're not harming" local revenue sharing by diverting the new revenue, said Chris Hackbarth, director of state and federal affairs for the Michigan Municipal League. 

"Eventually, with the next administration and Legislature, we're going to have to have a conversation about how we prioritize local governments and services that go out every day for residents."

Staff reporter Breana Noble contributed.

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