Bill Text: MI HB4089 | 2019-2020 | 100th Legislature | Introduced

---

Bill Title: Cities: income tax; taxing income of nonresidents; prohibit. Amends secs. 2a, 3, 3a, 3b & 3c, ch. 1 & secs. 11, 13, 15, 16 & 51, ch. 2 of 1964 PA 284 (MCL 141.502a et seq.).

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2019-01-24 - Bill Electronically Reproduced 01/24/2019 [HB4089 Detail]

Download: Michigan-2019-HB4089-Introduced.html

---

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOUSE BILL No. 4089

 

 

January 24, 2019, Introduced by Rep. Hornberger and referred to the Committee on Tax Policy.

 

     A bill to amend 1964 PA 284, entitled

 

"City income tax act,"

 

by amending sections 2a, 3, 3a, 3b, and 3c of chapter 1 and

 

sections 11, 13, 15, 16, and 51 of chapter 2 (MCL 141.502a,

 

141.503, 141.503a, 141.503b, 141.503c, 141.611, 141.613, 141.615,

 

141.616, and 141.651), section 2a of chapter 1 as added by 1995 PA

 

234, section 3 of chapter 1 as amended by 2012 PA 394, section 3a

 

of chapter 1 as amended and section 3b of chapter 1 as added by

 

1987 PA 223, section 3c of chapter 1 as amended by 2011 PA 56,

 

section 11 of chapter 2 as amended by 1995 PA 233, section 13 of

 

chapter 2 as amended by 1988 PA 216, and section 51 of chapter 2 as

 

amended by 1982 PA 124.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

CHAPTER 1

     Sec. 2a. (1) Beginning January 1, 1995, a city shall not

 

impose an excise tax on income under this act unless at least 1 of

 

the following applies:

 

     (a) The city had in effect on January 1, 1995 an excise tax on

 

income under this act.

 

     (b) The imposition of an excise tax on income under this act

 

is approved by the qualified and registered electors of the city.

 

     (2) Beginning January 1, 2020, a city shall not impose an

 

excise tax on income under this act on nonresident individuals.

 

     Sec. 3. (1) The governing body of a city, by a lawfully

 

adopted ordinance that incorporates by reference the uniform city

 

income tax ordinance set forth in chapter 2, may levy, assess, and

 

collect an excise tax on income as provided in the ordinance. The

 

ordinance shall state the rate of the tax which shall be the rate

 

authorized by 1 of the following:

 

     (a) The uniform city income tax ordinance under section 11 of

 

chapter 2.

 

     (b) Subsection (2).

 

     (c) Section 3a, 3b, or 3c of this chapter.

 

     (2) In a city with a population of more than 600,000, the

 

governing body may levy and collect a tax at a rate to be

 

determined from time to time, that rate to be not more than 2% on

 

corporations and the following maximum tax rates on resident

 

individuals and nonresident individuals for the following years:

 

     (a) Before July 1, 1999, 3.00% on resident individuals and

 

1.50% on nonresident individuals.

 

     (b) Beginning July 1, 1999 and each July 1 after 1999 through

July 1, 2012, except for 2008 and 2009, the maximum tax rate under

 

this subsection on resident individuals shall be reduced by 0.1

 

until the rate on resident individuals is 2.0%. The tax rate

 

imposed on nonresident individuals shall be 50% of the tax rate

 

imposed on resident individuals each year.

 

     (c) Notwithstanding any other provision of this section, for

 

the 2008 and 2009 calendar years, the city shall impose the same

 

tax rate on resident individuals and nonresident individuals as the

 

city had imposed for the 2007 calendar year.

 

     (d) Except as otherwise provided under subdivision (e),

 

beginning January 1, 2013 and each year after 2013, a rate of not

 

more than 2.40% on resident individuals and, through December 31,

 

2019, 1.20% on nonresident individuals.

 

     (e) Beginning January 1 of the year immediately succeeding the

 

year that all bonds, obligations, and other evidence of

 

indebtedness issued by a lighting authority have been fully paid

 

and each year thereafter, a rate of not more than 2.20% on resident

 

individuals and, through December 31, 2019, 1.10% on nonresident

 

individuals.

 

     (3) Notwithstanding any other provision of law or any

 

ordinance of the city to the contrary, a city that forms a lighting

 

authority shall deposit an amount equal to the sum of the revenue

 

collected from 0.2% of the rate levied on resident individuals

 

pursuant to subsection (2)(d) and 0.1% of the rate levied on

 

nonresident individuals pursuant to subsection (2)(d) directly into

 

the budget of the city's police department and use it exclusively

 

to retain or hire police officers. The transfer and use of the

revenue as provided under this subsection shall continue until all

 

bonds, obligations, or other evidence of indebtedness issued by a

 

lighting authority have been fully paid and revenue is no longer

 

being pledged from taxes levied under the city utility users tax

 

act, 1990 PA 100, MCL 141.1151 to 141.1177, to the lighting

 

authority. As used in this subsection, "lighting authority" means a

 

lighting authority incorporated under the municipal lighting

 

authority act.

 

     (4) The governing body of a city may adopt the uniform city

 

income tax ordinance with the alternative sections as set forth in

 

chapter 3 instead of the similarly numbered sections as set forth

 

in chapter 2. The uniform city income tax ordinance may be lawfully

 

adopted or rescinded by the governing body at any time. The

 

adoption of an ordinance is effective on and after January 1 or

 

July 1 following adoption of the ordinance, as specified in the

 

ordinance, but an ordinance shall not become effective earlier than

 

45 days after adoption or until approved by the electors if a

 

referendum petition is filed as authorized in this act or a

 

referendum is otherwise required. The rescission of an ordinance

 

shall become effective on the following December 31. The ordinance

 

may be rescinded at any time by the governing body in the same

 

manner in which it was adopted and with appropriate enforcement,

 

collection, and refund provisions with respect to liabilities

 

incurred prior to the effective date of the rescission of the

 

ordinance. The ordinance shall not be amended except as provided by

 

the legislature. A city may amend the ordinance to change the tax

 

rate to a rate authorized by this act.

     (5) Petitions for a referendum election on the question of

 

adopting an ordinance adopted by the governing body may be filed

 

with the city clerk not later than the sixth Monday following the

 

adoption of the ordinance. The petitions shall be signed by a

 

number of registered electors of the city equal to at least 10%,

 

but not more than 20%, of the registered electors of the city

 

voting in the last general municipal election prior to the adoption

 

of the ordinance by the governing body. If proper petitions are

 

filed, the question of adopting the ordinance shall be submitted by

 

the governing body to the city electors at the next primary or

 

general election or at a special election called for the purpose,

 

in any case held not less than 45 days nor more than 90 days after

 

the clerk has reported the filing of the referendum petition to the

 

city's governing body. The checking of names on the petitions, the

 

counting, canvassing, and return of the votes on the question, and

 

other procedures for the election shall be as provided by law or

 

charter. Upon a favorable vote of the city electors, the ordinance

 

shall be effective as specified in the ordinance which may be

 

amended by the governing body of the city following the election to

 

specify July 1 or January 1 as the effective date of the ordinance,

 

if the effective date originally specified in the ordinance is

 

considered impractical or inconvenient for any reason. The

 

provisions in this section for a referendum election, and for

 

delaying the effective date of the ordinance if petitions for a

 

referendum are filed, are not applicable to a city that on January

 

1, 1964 had in effect a valid ordinance levying and imposing an

 

excise tax levied on or measured by income. Notwithstanding any

other provision of this act, if an ordinance becomes effective on

 

any date other than January 1, each tax year shall end on December

 

31, and the provisions of the ordinance based on a full tax year

 

are modified accordingly to be applicable to the partial tax year.

 

     Sec. 3a. (1) The specific rates to be levied by a city on

 

corporations, resident individuals, and, through December 31, 2019,

 

nonresident individuals shall be established within the applicable

 

limitations allowed under this section and section 3 of this

 

chapter in the ordinance which otherwise incorporates by reference

 

the uniform city income tax ordinance set forth in chapter 2.

 

     (2) The governing body of a city with a population of less

 

than 1,000,000 persons may levy, assess, and collect an excise tax

 

on income earned and received at a rate of not more than 2% on

 

corporations, not more than 2% on resident individuals, and,

 

through December 31, 2019, not more than 50% of the rate imposed on

 

resident individuals on nonresident individuals if approved by a

 

majority of the qualified electors of the city voting thereon

 

before November 15, 1988, and if all of the following occurred in

 

the calendar year immediately preceding the calendar year in which

 

the increased rates allowed by this subsection initially would

 

apply:

 

     (a) The city levied more than 22 mills for city purposes and

 

for payment of judgments ordered by a court of competent

 

jurisdiction.

 

     (b) More than 65 mills were levied in the city for all

 

purposes.

 

     (c) The city levied a tax pursuant to this act.

     (3) Any increase in the tax rate permitted by this section

 

shall not become effective until the governing body of the city, by

 

resolution, provides for securing the services of a financial

 

management consultant. The financial management consultant shall be

 

selected by the mayor with the approval of the local emergency

 

financial assistance loan board created under Act No. 243 of the

 

Public Acts of 1980, as amended, being sections 141.931 to 141.942

 

of the Michigan Compiled Laws. the emergency municipal loan act,

 

1980 PA 243, MCL 141.931 to 141.942. The resolution shall further

 

provide that the financial management consultant shall be paid from

 

city funds. The duties of the financial management consultant shall

 

be to monitor the fiscal condition of the city, to report the

 

findings of this monitoring to the local governing body, the mayor,

 

and the local emergency financial assistance loan board, and to

 

provide financial management technical assistance to the city. The

 

local emergency financial assistance loan board shall determine the

 

form of monitoring and the frequency of reporting. The financial

 

management consultant shall have full access to all fiscal and

 

other records of the city. The services of a financial management

 

consultant may be terminated subject to the approval of the local

 

emergency financial assistance loan board at such time as

 

improvement in the financial condition of the city warrants this

 

action. The local emergency financial assistance loan board may

 

make recommendations to the legislature that will assist in the

 

attainment of further fiscal improvement for the city.

 

     Sec. 3b. A city that levied the tax authorized by this act

 

before the effective date of this section December 28, 1987 may

amend the ordinance to increase the rate to an annual tax of not

 

more than 1.4% on corporations and resident individuals and,

 

through December 31, 2019, not more than 0.7% on nonresident

 

individuals. The increase in the tax authorized by this section

 

shall be levied for not longer than 13 years as provided in the

 

ballot proposal submitted to the electors. An amendment to the city

 

income tax ordinance under this section is not effective unless the

 

amendment is approved before July 1, 1988 by a majority vote of the

 

registered and qualified electors of that city voting on the

 

proposition. This section applies only to a city that has a

 

population of more than 50,000 and that, within 6 years before the

 

approval of the amendment authorized by this section, annexes to

 

the city an area containing more than 20 square miles.

 

     Sec. 3c. A city that levied the tax authorized by this act

 

before March 30, 1989 may amend the ordinance to increase the rate

 

to an annual tax of not more than 1-1/2% on corporations and

 

resident individuals and, through December 31, 2019, not more than

 

3/4% on nonresident individuals, but not more than 1/2 of the tax

 

rate imposed on resident individuals. An amendment to the city

 

income tax ordinance under this section is not effective unless the

 

amendment is approved by a majority of the qualified electors

 

voting on the question. Before November 10, 1989, an amendment

 

under this section shall not be placed before the voters for

 

approval more than once in any 12-month period. This section

 

applies only to a city with a population of more than 140,000 and

 

less than 600,000 or a city with a population of more than 65,000

 

and less than 100,000 in a county with a population less than

300,000.

 

CHAPTER 2

 

     Sec. 11. Subject to the exclusions, adjustments, exemptions,

 

and deductions herein provided, an annual tax of 1% on corporations

 

and resident individuals and, through December 31, 2019, of 1/2% on

 

nonresident individuals for general revenue purposes and the

 

purposes provided for in sections 11a and 11b is hereby imposed as

 

an excise on income earned and received on and after the effective

 

date of this ordinance. However, if the governing body of the city

 

adopts a resolution to impose the tax at a lower rate, the tax is

 

hereby imposed at that lower rate. If the tax is imposed at a lower

 

rate, the rate on nonresident individuals shall not exceed 1/2 of

 

the rate on corporations and resident individuals.

 

     Sec. 13. The Through December 31, 2019, the tax shall apply on

 

the following types of income of a nonresident individual to the

 

same extent and on the same basis that the income is subject to

 

taxation under the federal internal revenue code:

 

     (a) On a salary, bonus, wage, commission, and other

 

compensation for services rendered as an employee for work done or

 

services performed in the city. Income that the nonresident

 

taxpayer receives as the result of disability and after exhausting

 

all vacation pay, holiday pay, and sick pay is not compensation for

 

services rendered as an employee for work done or services

 

performed in the city. Vacation pay, holiday pay, sick pay and a

 

bonus paid by the employer are considered to have the same tax

 

situs as the work assignment or work location and are taxable on

 

the same ratio as the normal earnings of the employee for work

actually done or services actually performed.

 

     (b) On a distributive share of the net profits of a

 

nonresident owner of an unincorporated business, profession,

 

enterprise, undertaking, or other activity, as a result of work

 

done, services rendered, and other business activities conducted in

 

the city.

 

     (c) On capital gains less capital losses from sales of, and on

 

the net profits from rentals of, real and tangible personal

 

property, if the capital gains arise from property located in the

 

city.

 

     Sec. 15. An unincorporated business, profession or other

 

activity conducted by 1 or more persons subject to the tax as

 

either a sole proprietorship or partnership shall not be taxable as

 

such. The persons carrying on the unincorporated business,

 

profession or other activity are liable for income tax only in

 

their separate and individual capacities and on the following

 

bases:

 

     (a) A resident proprietor or partner is taxable upon his

 

entire distributive share of the net profits of the activity

 

regardless of where the activity is conducted.

 

     (b) A Through December 31, 2019, a nonresident proprietor or

 

partner is taxable only upon his distributive share of the portion

 

of the net profits of the activity which is attributable to the

 

city under the allocation methods provided in this ordinance.

 

     (c) In the hands of a proprietor or partner of an

 

unincorporated activity, the character of any item of income

 

taxable under this ordinance is determined as if such item were

realized by the individual proprietor or partner directly from the

 

source from which it is realized by the unincorporated activity. In

 

computing his taxable income for a taxable year, a person who is

 

required to file a return shall include therein his taxable

 

distributive share of the net profits for any partnership year

 

ending within or with his taxable year.

 

     Sec. 16. An unincorporated business, profession or other

 

activity owned by 2 or more persons shall file an annual

 

information return setting forth:

 

     (a) The entire net profit for the period covered by the return

 

and the taxable portion of the net profit attributable to the city.

 

     (b) The names and addresses of the owners of the

 

unincorporated activity and each owner's taxable distributive share

 

of the total net profit and each nonresident owner's share of the

 

taxable net profit attributable to the city.

 

     Sec. 51. (1) An employer doing business or maintaining an

 

establishment within the city shall withhold from each payment to

 

the employer's employees on and after the effective date of this

 

ordinance the tax on their compensation subject to the tax, after

 

giving effect to exemptions, as follows:

 

     (a) Residents.

 

     (i) At a rate equal to the rate set by ordinance to be levied

 

against resident individuals under this ordinance, but not to

 

exceed 3%, of all compensation paid to the employee who is a

 

resident of the city, if the employee is not subject to withholding

 

in any other city levying the tax.

 

     (ii) At a rate equal to the difference in the percentage rate

of tax on resident individuals as set by ordinance to be levied

 

under this ordinance less the percentage rate of tax levied by any

 

other city in which the employee works, on all compensation earned

 

by the resident in another city.

 

     (b) Nonresidents. Through December 31, 2019, nonresidents. At

 

a rate equal to the rate set by ordinance to be levied under this

 

ordinance on nonresidents but not to exceed 50% of the percentage

 

rate imposed on resident individuals of the compensation paid to

 

the employee for work done or services performed in the city

 

designated by the employee as the employee's predominant place of

 

employment. The withholding rate shall be applied to the percentage

 

of the employee's total compensation equal to the employee's

 

estimated percentage of work to be done or services to be performed

 

in the city for that employer, but no withholding shall be required

 

if the estimated percentage of work is less than 25%.

 

     (2) An employer withholding the tax is deemed to hold the tax

 

as a trustee for the city.

 

     (3) An employer who is required to withhold and who fails or

 

refuses to deduct and withhold is liable for the payment of the

 

amount required to be withheld. The liability shall be discharged

 

upon payment of the tax by the employee but the employer is not

 

relieved of penalties and interest provided in this ordinance for

 

this failure or refusal.