BY CAITLIN DeLUCA
Capital News Service
LANSING — Employers across the state would start withholding city income taxes from employees who live in cities that have income taxes even if the business isn’t in the city, according to bills proposed in the Legislature.
The bills, sponsored by Sen. Goeff Hansen, R-Hart, and Rep. Al Pscholka R-Stevensville, would mandate that suburban employers collect the local income tax of employees who live in the 22 cities across the state that impose the tax.
The Senate version has cleared the Senate Committee on Government Operations and the House version is still in the House Committee on Tax Policy.
Employers in cities with income tax now have to withhold and remit the tax on behalf of their employees.
With the proposed change, employers who are not located in the city and don’t receive services from them would collect the tax from employees living in income taxing cities, said Tricia Kinley, senior director of tax and regulatory reform for the Michigan Chamber of Commerce. The Chamber opposes the bills.
According to the Senate bill analysis, “Employers could be forced to undergo audits and, if they made a mistake, could be liable for penalties. Some cities evidently have a history of hiring third parties to perform audits, and the bill would give city treasury departments an incentive to go on ‘fishing expeditions.’”
The bills exempt small businesses with ten employees or less.
“It is unfair and unwarranted for municipalities to shift their tax responsibilities to employers who have nothing to do with the city,” Kinley said.
“The number one effect is that it increases the cost of doing business. When you add these significant administrative burdens and regulations onto a business of any size, it increases that cost which means it’s less money into capital investments or employee wages,” Kinley said.
Also opposed to the bill is the Grand Rapids Chamber of Commerce, said Allie Bush, the chamber’s public policy coordinator.
“We’re concerned about the effect this would have on small and large businesses alike,” Bush said.
“Some concerns are whether or not this could lead to a deterrence for employers to hire people from these cities because that could then all of a sudden add more burdens onto them should it pass,” Bush said.
“We’re also concerned that it deters small businesses from growing because now all of a sudden you have this added liability, you could be subject to audits.”
The Michigan Municipal League supports the bills, said Chris Hackbarth, director of state affairs.
He said it will help small businesses.
“This bill protects small businesses who might not have a sophisticated payroll system from having to keep track of all that.”
Hackbarth said this is not a new concept.
“Other companies that operate in other states do this, so this isn’t out of the blue,” Hackbarth said.
“The tax is already due, regardless of who’s withholding, every company is already doing withholding for the state and for the federal government,” Hackbarth said.
BY CAITLIN DeLUCA