Michigan Cities Want To Collect Income Tax From Nonresidents Working At Home

Some local governments in Michigan could see a decline in their income tax collections as thousands of employees who normally work within their jurisdictions instead work from homes, located elsewhere, during the coronavirus pandemic. Under current law, those individuals’ income is not subject to a local income tax.

The Michigan Municipal League wants a temporary change to that law, given estimates that the 24 municipalities with local income taxes will collect up to $160 million less in the current fiscal year due to the surge in remote work.

The league wants legislators to amend the local income tax law to let cities collect from nonresidents who ordinarily work within their boundaries but now work from homes outside the city.

The proposal is part of a package of several tax measures announced by the local government lobbying group at a news conference. The league has called for the lame-duck Legislature to enact the changes before Dec. 31.

Leon Drolet, a former state lawmaker, newly elected treasurer of Macomb Township and head of the Michigan Taxpayers Alliance, said the proposal has it backward.

“I think if anyone needs to be made whole (from COVID-related financial setbacks) it’s the citizens not the cities,” Drolet said. “They’re the ones who are being forced to pay taxes for services — like closed parks and community centers - that aren’t being delivered.”

Twenty-four cities in Michigan impose income taxes on residents, as well as nonresidents who are employed within their boundaries. The rates range from 0.5% (the most common rate for nonresidents ) to 2.4% (for residents of Detroit). Nonresidents generally pay tax only on income earned when they are physically present in the taxing jurisdiction.

COVID abatement efforts, some enforced by government edict, have dramatically increased the amount of work being done from home.

Chris Hackbarth, director of state and federal affairs at the municipal league, said the group’s proposal to change the income tax law would be temporary and apply only to those whose remote work is a direct result of COVID.

“It all happened so abruptly ... and has lasted so long ... that communities didn’t have time to adjust,” Hackbarth said.

Although some congressional COVID bailout plans have promised aid to local governments, there is no guarantee that federal dollars will be forthcoming, he said.

“The buildings (where nonresident taxpayers worked) are still there. The infrastructure is still there,” he said. “They’re all just waiting for the people to come back.”

The group is also seeking changes in law to allow cities to increase property tax levies.

Prospects for a state legislative solution in the near term are not robust, however.

Sen. Jim Runestad, R-White Lake, is chairman of the Senate Finance Committee. A spokesman for the senator said the lame-duck agenda includes a multitude of urgent concerns.

“I’m not sure it is something that will be immediately acted upon ... or a policy we will give more examination after the first of the year,” he said.

Drolet said that’s a good idea.

“I can’t believe the audacity it takes to believe the cities should be made whole at the expense of citizens who have endured all kinds of suffering,” Drolet said.