Let local governments charge sales tax, lawmaker says

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Capital News Service
LANSING – Amid a political environment hostile to new taxes, a proposed constitutional amendment would give local governments the ability to charge their own sales tax on top the state’s 6 percent.
If the Legislature passes the proposal, it would go to voters statewide for approval or rejection.
The idea has sparked sharp criticism from the Michigan Retailers Association but garnered support from a group representing cities and villages.
The sponsor of the resolution, Sen. Bert Johnson, D-Detroit, said a local sales tax could help fund a regional mass transit system for Metro Detroit and increase the chance of federal loans for future mass transit projects.
“To get these funds, the local government needs to show it can match the amount of money coming from the federal government. This would be a useful tool for raising that money,” Johnson said.
That money would come through a 1998 federal law requiring a “dedicated revenue source to pledge as repayment on the loan” for transportation projects costing at least $50 million.
The constitutional amendment would give the option to cities, villages, counties and regional authorities and would cap any local tax at 4 percent. Local voters would need to approve the new tax.
Although the proposal would not limit the sales tax to transit projects, the local ballot question would need to specify how the money would be used.
According to Johnson, cities like Denver and New York have received federal aid for mass transit by instituting a local sales tax.
The general sales tax in Denver is 3.6 percent while the state sales tax in Colorado is 2.9 percent.
Johnson said he isn’t worried about possible negative effects on businesses that may come from a higher sales tax.
“I think small businesses understand the importance of having a mass transit system. If more people are able to get to the cities, more money will be spent at local businesses,” Johnson said.
He also said he is confident that a slightly higher sales tax wouldn’t dissuade people from visiting or shopping in cities like Detroit and that investing the extra revenue in mass transit would make it less expensive to travel to downtowns.
“Places like the Fox Theatre or Joe Louis Arena would still be attractive places to go, even if it costs a little more. If we can show that it would be a few more pennies spent in exchange for leaving the car at home, people would see it as a positive,” Johnson said, adding that people would save money on driving expenses like gas and parking.
But Jim Hallan, president of the Michigan Retailers Association, said he’s firmly against higher sales taxes.
“I am absolutely opposed to this. It makes no sense and I don’t see the rationale for increasing the sales tax,” Hallan said.
He said retailers would suffer from having to collect a higher sales tax and it could mean shoppers would take their money elsewhere.
“Not only would it be hard for store operators to manage, but consumers would just go to places with a lower sales tax,” Hallan said.
He said there are other ways for cities to increase revenue and that the sales tax should be left to the state government.
“Putting a sales tax on Internet-based companies is one idea. A statewide sales tax is already in place and that’s high enough,” Hallan said.
Summer Minnick, director of state affairs at the Michigan Municipal League, an advocacy group for local governments based in Ann Arbor, said she favors a local sales tax as an option.
“We support this idea as a way to give local governments a chance to generate revenue. There is a lot less money coming in now than there used to be,” Minnick said.
According to Minnick, declining property tax revenue and revenue sharing from the state have put municipalities in a precarious position.
“A local sales tax would help. It’s not the only answer but it’s definitely part of the solution,” Minnick said.
Minnick also said a local sales tax has worked for many cities around the country and hasn’t discouraged consumers.
“Places like Chicago have this and plenty of people still go there. People don’t shy away from places just because they have higher sales tax,” Minnick said.
Thirty-three states allow cities to charge a local sales tax, including Illinois and Ohio.
However, Minnick acknowledged that the tax wouldn’t work for every community and could lead to inequality among cities.
“It depends on what kinds of industry a community depends on. It may not work in industrial cities that don’t depend as much on commercial enterprises, which could lead to some disparities,” Minnick said.
Johnson’s resolution is pending in the Senate Finance Committee.

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