Why Detroit Can Expect More Tax Revenue Next Year

by | September 16, 2015

By Matt Helms

Detroiters and people who work in the city will be able to pay their individual city income taxes electronically starting with the next tax season after the state Treasury Department begins processing the city's income tax collections in January, officials said today.

The state is taking over Detroit income tax collection as part of the city's post-bankruptcy efforts to improve its bottom line, and the Treasury Department will begin processing the taxes in January. The move will make it easier to file taxes while also boosting compliance, likely resulting in increased revenue for the city, the officials said.

"Taxpayers deserve an easy and convenient filing process and the ability to e-file directly with the state will do just that," Detroit Chief Financial Officer John Hill said in a news release. "More efficient tax collection also means the city will have more resources to provide vital services to our citizens."

Income tax -- 2.4% for residents and 1.2% for nonresidents who work in Detroit -- is the city's largest revenue source, estimated to raise more than $250 million a year. Mayor Mike Duggan's administration expects additional tax revenue, but how much isn't known.

The move also is expected to make it harder for city residents who work in the suburbs to avoid paying the city income tax. The partnership between the city and the state came out of negotiations in 2012 as both sides were in negotiations to avoid state appointment of an emergency manager.

The Treasury Department said city taxpayers will be able to e-file their Detroit tax returns alongside their state taxes, improving the accuracy of the returns and providing faster refunds -- a welcome development in a city where refunds can take months or years to get.

New tax forms, instructions and other information will be posted online at the city and Treasury Department websites once they're finalized.

"Treasury will administer the city's income tax with the same competence, diligence, and professionalism that we demonstrate each year in processing five million Michigan income tax returns," state Treasurer Nick Khouri said. "We are looking forward to our continued work with Detroit and supporting the city staff through this transition."

Detroit is one of 22 cities statewide with a city income tax; others include Pontiac, Highland Park, Lansing and Grand Rapids. For now, Detroit is the only city for which the state will collect local income taxes, but others may join at some point, treasury officials have said.

(c)2015 the Detroit Free Press