This article has been saved to your Favorites!

Mich. House Bill Seeks To Ban Cities From Taxing Nonresidents

By Abraham Gross · Mar 18, 2021, 2:56 PM EDT

Michigan cities would be banned from imposing an excise tax on the income of nonresidents beginning in 2022 under a bill introduced in the state House of Representatives.

H.B. 4513, introduced Tuesday by House Speaker Pro Tempore Pamela Hornberger, R-Chesterfield Township, would deny cities' ability to impose such tax on nonresident individuals and would sunset on Dec. 31 current provisions that provide this power. The bill has been referred to the state Committee on Tax Policy for review.

The bill is nearly identical to a measure Hornberger introduced in 2019, which failed to make it out of the committee.

Michigan cities have been seeking to expand their taxing powers. In November, the Michigan Municipal League and its member localities asked the Legislature to provide localities relief from the effects of the coronavirus pandemic by allowing them to offset decreased tax revenue with withholdings from telecommuting workers. Twenty-four Michigan cities levy income taxes, according to the league.

"A nonresident of a city has no representation in the tax policies of that city, and therefore is legally obligated to surrender money to that government without any say in how such a tax is levied," Tim Cook, a legislative aide to Hornberger, said in an email to Law360 on Thursday.

Cook said the bill is meant to address this ethical issue, adding that "the COVID-19 pandemic was not and is not a factor in the drafting and introduction of this bill, in either substance or in timing." Cook referred to the respiratory disease caused by the coronavirus.

Chris Hackbarth, the league's director of state and federal affairs, said the organization opposed Hornberger's bills because income tax on nonresidents constituted the majority of some city's total income tax revenue and that revenue helped balance the other taxes imposed on residents for city services.

"It's also directly related to the fairness for the residents of that community," he said. "They're utilizing all the city's services, but they're paying nothing in tax for those city services."

The state and local aid delivered by the American Rescue Plan  Act is a "game changer," Hackbarth said, but he added that structural municipal funding issues — including the delayed effects of fluctuating property valuations on property tax collections — remained unresolved.

"Remember, too, these are one-time dollars," he said. "Those are still there, and when the federal money is gone, we're still going to be stuck with that."

Democratic and Republican leaders of the committee did not immediately respond to requests for comment.

--Additional reporting by Elise Hansen. Editing by Neil Cohen.

For a reprint of this article, please contact reprints@law360.com.