Bill Text: MI HB4862 | 2023-2024 | 102nd 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 15-0)
Status: (Introduced) 2023-07-18 - Bill Electronically Reproduced 06/28/2023 [HB4862 Detail]
Download: Michigan-2023-HB4862-Introduced.html
HOUSE BILL NO. 4862
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 2018 PA 456.
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, 2024, 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 must state the rate of the tax which shall be and the rate must be 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 must not be more than 2% on corporations and the following maximum tax rates on resident individuals and, through December 31, 2023, on 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 must 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 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 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, 2012 PA 392, MCL 123.1261 to 123.1295.
(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 must 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 is 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 must 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 must 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 must be as provided by law or charter. Upon a favorable vote of the city electors, the ordinance shall be is 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, 2023, 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, 2023, 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 is not 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, shall select the financial management consultant. The resolution shall further provide that the financial management consultant shall must 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, 2023, not more than 0.7% on nonresident individuals. The increase in the tax authorized by this section shall not be levied for not longer more 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, 2023, 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 must 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 in this chapter, an annual tax of 1% on corporations and resident individuals and, through December 31, 2023, 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 through December 31, 2023 shall not exceed 1/2 of the rate on corporations and resident individuals.
Sec. 13. The Through December 31, 2023, 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 that individual's entire distributive share of the net profits of the activity regardless of where the activity is conducted.
(b) A Through December 31, 2023, a nonresident proprietor or partner is taxable only upon his that individual's 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 that 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 an individual who is required to file a return shall include therein his that individual's taxable distributive share of the net profits for any partnership year ending within or with his the individual's taxable year in the return.
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, 2023, 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 must 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 is required if the estimated percentage of work is less than 25%.
(2) An employer withholding the tax is deemed to hold holds 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 is 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.
(4) An employer that voluntarily registers to withhold taxes in accordance with section 6 of chapter 1 shall withhold from all employees who are residents of that city based on the form required to be filed by each employee under section 54 on their compensation subject to tax, after giving effect to exemptions as provided under subsection (1)(a). If an employer no longer wishes to voluntarily withhold taxes under section 6 of chapter 1, the employer shall file a written notice with the city, and with the administrator if the administrator is not the city, indicating that the employer will no longer voluntarily withhold taxes from employees who are residents of that city.
