Detroit explores 1% sales tax to raise millions
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A new report commissioned by the Detroit City Council explores the possibility of a new 1% city sales tax.
Why it matters: Establishing a new local sales tax would be a major undertaking that could boost city coffers while raising costs for residents and visitors.
Here's everything you need to know:
What's the current sales tax?
Detroit doesn't have a local sales tax, but Michigan has a 6% statewide sales tax.
- When accounting for state and local sales taxes combined, Michigan's 6% rate ranks 38th in the country.
The big picture: City residents are among the state's highest taxed overall.
- In addition to city, state, county and school taxes, Detroiters face county taxes on lodging and car rentals, plus state excise taxes on liquor, tobacco and cannabis.
How much would a 1% Detroit sales tax raise?
Up to $72 million a year, per the report from the Citizens Research Council of Michigan, which noted its limitations on collecting relevant data. The state's sales tax collections, for example, are not available by geographic location.
Why is this being studied?
Detroit is on the cusp of a new financial reality.
- The city's $826 million infusion from the American Rescue Plan Act is mostly spent down. Any leftover funds at the end of this year must be returned to the federal government.
- Before that, Detroit's historic bankruptcy allowed the city to slash $7 billion in debt in 2014.
- City leaders say they're interested in new revenue streams to meet residents' future needs and to help shift the tax burden away from Detroiters. A new sales tax would help broaden the city's tax base because it would also apply to visitors.
What are the alternatives?
A higher statewide sales tax, a local entertainment tax on tickets to large events, or a broader overhaul of how the state helps fund local governments, which primarily rely on property taxes.
Do other cities have local sales taxes?
Chicago and Milwaukee are among other major cities with a local sales tax.
How would a new sales tax get passed?
Passing a local sales tax in Michigan would require a state Constitutional amendment, new state legislation authorizing the tax, a new Detroit ordinance and voter approval.
The bottom line: City leaders have a road map for a new sales tax should they pursue the option.