Where is Detroit’s sales tax?

August 14, 2013

I have read about 5,000 stories about the collapse of Detroit. I keep searching for some useful or novel idea for fixing the city, and what I haven’t seen is any discussion of raising taxes.

I wrote yesterday about Stockton, California putting a 3/4 cent sales tax increase on the ballot. The city intends to use the new revenue to put more police on the streets. I thought about how little of Detroit’s revenues came from sales tax, and I wondered why a tax couldn’t be implemented to lift the city out of bankruptcy.

According to the Detroit News, Detroit has the highest property tax rate in the country:

Detroit ranked first among the 50 largest U.S. cities in taxes and last among property values in a 2011 study by the Lincoln Institute of Land Policy in Cambridge, Mass. Detroit taxes on a $150,000 house were $4,885, twice the national average of $1,983.

Wayne County, Michigan, which collects these taxes for Detroit, has a terrible collection rate. The Detroit News concluded  that about half of property taxes go uncollected (an estimated $246 million last year). It will not be easy to correct this problem because so many property units are abandoned or foreclosed.

Detroit has no local sales tax, according to the Michigan state website:

City/Local/County Sales Tax – Michigan has no city, local, or county sales tax. The state sales tax rate is 6 percent.

The state collects a sales tax of 6 percent and sends it back to the city. For 2012, the state passed $172 million in sales taxes to Detroit, or 11.4 percent of general and governmental funds of $1.5 billion (page 47). It’s not clear how much of the sales tax revenues that the state is keeping for itself. The federal government appears to have given Detroit more in grants ($253 million) last year than in sales tax revenue.

How does Detroit rank when it comes to the sales tax burden? Actually, Detroit is ranked 92nd nationally for combined state and local sales taxes, according to the Tax Foundation. Detroit also imposes a municipal income tax of 2.4 percent for resident individuals and 1.2 percent for non-resident individuals. This tax collected $233 million in 2012. Detroit is one of 22 Michigan municipalities that collect an income tax. But some portion of Detroit’s economy may be increasingly happening underground. Is the income tax enough even with off-the-books economic activity?

Detroit must raise taxes while it continues to downsize and creates more efficiency in government. The fairest and most broad-based method is for the state legislature to agree to raise the sales tax for Detroit 1 to 2 cents, like Stockton has on the ballot, and to continue to search for new revenue sources everywhere.

One comment

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They can raise the sales tax to whatever they want; just as long as they repeal all other taxes. Otherwise they might as well drop the issue.

Posted by TKList | Report as abusive