Detroit income tax deduction bill may fuel road funding deal
Lansing — A two-bill package requiring most suburban employers to help Detroit collect city taxes owed by their employees was approved by the House Tax Policy Committee Wednesday after Mayor Mike Duggan testified in support of the bills.
And the mayor implied the legislation could help pave the way for votes to approve a state road funding deal that would generate an extra $1.2 billion a year.
“The roads need to get fixed and we need to get to a bill that everybody can support,” Duggan said. “This is one small piece of a broader conversation.”
The legislation would require Metro Detroit businesses with more than 10 employees and $500,000 in payroll to withhold the 2.4 percent income tax from the paychecks of employees who live in Detroit.
Following a hearing on the bills, Duggan said the legislation could help the city collect as much as $10 million in taxes that could be used to fix the city’s streets and roads. Duggan noted the city promised to step up tax collection efforts as part of the restructuring plan to pull Detroit out of bankruptcy.
“The roads need to get fixed, (and) this is something that was always part of the plan of adjustment,” Duggan said.
A spokesman for House Speaker Kevin Cotter would not say Wednesday why the Detroit income tax collection bills have become linked with a long-sought deal on road funding.
“It’s something that’s important to the city of Detroit, so we’re looking at it,” Cotter spokesman Gideon D’Assandro said.
City officials have complained for years that residents working in the suburbs are not paying millions of dollars in city income taxes.
“This is something the city of Detroit has been asking us for, for a while,” said state Rep. Jeff Farrington, a Utica Republican and chairman of the committee.
Rep. Wendell Byrd, D-Detroit, sponsored the legislation requiring collection of the city income taxes among businesses that meet the criteria. A second bill sponsored by Rep. Al Pscholka, R-Stevensville, would authorize the Michigan Treasury Department to collect Detroit’s city income taxes.
“Hypothetically, if I worked and lived in Grand Rapids and I had a delinquency on state and city taxes, Detroit doesn’t have the ability to go to Grand Rapids,” Byrd said following the hearing. “They already have agents up there, revenue officers.
“(The Treasury Department) is already collecting (several) taxes up there anyway. (State agents) would be collecting one more tax, plus it’s putting additional funding into the state Treasury.
“For us to expand (tax collections) in Detroit — hire the people, train them, get the infrastructure —we’d be two or three years out. And we’re obligated to collect this by the agreement we made when we came out of bankruptcy.”
Duggan said he’s been talking with both Republican and Democratic legislators in support of the legislation. He said there is significant bipartisan support for the bills.
Gov. Rick Snyder’s administration promised in the April 2012 financial consent agreement with Detroit’s elected leaders to seek a new law to require suburban employers to collect and remit the city’s income tax. The legislation got shelved during Detroit’s bankruptcy reorganization from July 2013 to December of last year.
A study conducted for former Mayor Dave Bing’s administration estimated that 54 percent of employed Detroiters in 2009 were so-called “reverse commuters” who work in the suburbs. If employers do not automatically withhold taxes from their paychecks, those Detroiters are supposed to estimate and remit the taxes each year on their own.
Detroit is one of 22 cities that imposes a municipal income tax on earnings. Detroit’s 2.4 percent tax rate for residents and 1.2 percent tax on the earnings of non-residents is the highest in the state.