Bad Idea of the Day: Senator Proposes Legislation to Shift Burden to City Income Tax Withholding to Employers

October 23, 2016

Despite the fact that we are nearing the end of a legislative session, members need to be aware that bad legislation can continue to be introduced and acted on upon until the very end of the year!

In this case, Senator Geoff Hansen (R-Hart) has proposed Senate Bill 1127 which would mandate employers to become the tax collectors for cities even if they have no operations there. Many Michigan cities levy an income tax; however, several cities complain that they are losing revenue because they are ineffective at collections or due to taxpayer fraud. Not surprisingly, the solution of government is to further burden job providers by shifting governmental responsibilities to business even though businesses may not be connected in any fashion to the city at issue. The Michigan Chamber is adamantly opposed to SB 1127 because this legislation would add significant costs and administrative burdens to employers and potentially expose employers to unknown liabilities, harsh penalties and never-ending audits. 

In the Michigan House, HB 4829 has also been introduced by Representative Al Pscholka (R-Stevensville) which is a slightly modified version to mandate this withholding but applies only to Metro Detroit employers. The Michigan Chamber is strongly opposed to both versions as they would be equally damaging to employers who have no connection to the cities at issue. We encourage members to review this background piece because, while you may think “I already withhold taxes…what’s the big deal?,” we encourage you to consider that city income taxes are a whole different animal; city rates vary across the state, your employees may split their time between different cities, the penalties for errors are significant, and you’d open yourself up to city tax audits even though you otherwise have nothing to do with that city.

For more information on this or other tax-related issues, please contact Tricia Kinley at (517) 371-7669 or tkinley@michamber.com.