Why Doesn't Detroit Levy a Local Sales Tax?

[RO_Resident]

The short answer--legislature has been reluctant to take up local options for taxes.

[professorscott]

The short answer--legislature has been reluctant to take up local options for taxes.

I've had to look into this in detail for some particular research I've been doing. It's probably even worse than you all seem to think. There is a great body of legal opinion out there that the Michigan Constitution does not allow for local sales taxes. It's not precisely set forth, and you could argue that it isn't so; but with quite a lot of legal eagles believing that it is so, any attempt to provide a local sales tax, short of amending the Constitution, would run into legal battles.

So to get this done would require a constitutional amendment. That's not impossible, but it will be quite time consuming. And if it only applies to Detroit, it will further chase away business.

[313WX]

And if it only applies to Detroit, it will further chase away business.

I'm not exactly sure how it would further chase business away directly.

A Sales Tax is typically included [[hidden) in the total cost of goods. And it's the customer who typically pays the Sales Tax, not the business owner. At worst, it may lead to some additional paperwork for business owners [[which I don't see why that would be a big deal if most places have automated their accounting processes these days).

And I see no reason why it can't be something other cities across the state can levy as well.

[professorscott]

I'm not exactly sure how it would further chase business away directly.

A Sales Tax is typically included [[hidden) in the total cost of goods. And it's the customer who typically pays the Sales Tax, not the business owner. At worst, it may lead to some additional paperwork for business owners [[which I don't see why that would be a big deal if most places have automated their accounting processes these days).

And I see no reason why it can't be something other cities across the state can levy as well.

It is not hidden; it's right there on the receipt for customers to see. It is well known in other parts of the country and the world where one municipality has a higher sales tax than the next, retail businesses tend to concentrate on the lower taxed place over the higher. It's not as prevalent for low-ticket merchandise; if I buy a greeting card for $5.00, I don't much care whether I pay $0.20 tax or $0.35 cents. But if I'm buying furniture, expensive clothing or automobiles, it might make a big difference.

It is the consumer preference to get a bargain that forces businesses to locate in lower-sales-tax areas when they are available very nearby.

If a sales tax were levied regionally, that changes things. I might well drive from Detroit to Ferndale or Allen Park to save seven dollars tax on an item; I'm less likely to drive to Flint or Monroe.

[corktownyuppie]

It is not hidden; it's right there on the receipt for customers to see. It is well known in other parts of the country and the world where one municipality has a higher sales tax than the next, retail businesses tend to concentrate on the lower taxed place over the higher. It's not as prevalent for low-ticket merchandise; if I buy a greeting card for $5.00, I don't much care whether I pay $0.20 tax or $0.35 cents. But if I'm buying furniture, expensive clothing or automobiles, it might make a big difference.

It is the consumer preference to get a bargain that forces businesses to locate in lower-sales-tax areas when they are available very nearby.

If a sales tax were levied regionally, that changes things. I might well drive from Detroit to Ferndale or Allen Park to save seven dollars tax on an item; I'm less likely to drive to Flint or Monroe.

While a sales tax might be seen as reliable way to generate revenue from tourism, there are several problems.

- A sales tax is regressive and disproportionately affects our poor. Why? A local sales tax might pinch the pocketbooks of those people who spend their extra income on a ballgame coming in from the suburbs, but it will effect me, my neighbors, and every Detroiter on every purchase from groceries to gasoline.

- Detroit retailers already have a difficult time with city residents fleeing to the suburbs for better goods and services. The sales tax would only make a severely bad problem only worse.

But the idea of having surrounding areas pick up their fair share of social services, the homeless, the mentally ill is find by me and I'm in support of finding ways to do it. I don't think a sales tax would be effective in that.

What would, IMHO, be effective would be to regionalize services so that we would have a greater pool of resources working toward the problem. But, of course, there are two hurdles: [[1) selling the region on picking up some of the tab, [[2) selling Detroit politicians on giving up majority control over the contracts.

We are making progress on both fronts, but far and away it's the Detroit politicians who are harder to get buy-in from.

[aj3647]

You might not notice an extra 2-3% on a small purchase, but what about something big? What about a car? On a $20,000 vehicle, that could mean an extra $600. Why buy at a dealership in Detroit when you can drive 10 miles to the burbs and save HUNDREDS? And that applies to any big ticket item that costs hundreds or thousands of dollars.

And as already mentioned, sales taxes are inherently regressive. They disproportionately impact the poor.

[jaytheory]

While a sales tax might be seen as reliable way to generate revenue from tourism, there are several problems.

- A sales tax is regressive and disproportionately affects our poor. Why? A local sales tax might pinch the pocketbooks of those people who spend their extra income on a ballgame coming in from the suburbs, but it will effect me, my neighbors, and every Detroiter on every purchase from groceries to gasoline.

- Detroit retailers already have a difficult time with city residents fleeing to the suburbs for better goods and services. The sales tax would only make a severely bad problem only worse.

But the idea of having surrounding areas pick up their fair share of social services, the homeless, the mentally ill is find by me and I'm in support of finding ways to do it. I don't think a sales tax would be effective in that.

What would, IMHO, be effective would be to regionalize services so that we would have a greater pool of resources working toward the problem. But, of course, there are two hurdles: [[1) selling the region on picking up some of the tab, [[2) selling Detroit politicians on giving up majority control over the contracts.

We are making progress on both fronts, but far and away it's the Detroit politicians who are harder to get buy-in from.

lets make a restaurant/bar tax then. other cities have those. or only implement in the CBD/greater Downtown

[Scottathew]

I'm not exactly sure how it would further chase business away directly.

It would chase customers away directly. That has a huge impact on business.

[DetroitPlanner]

The short answer--legislature has been reluctant to take up local options for taxes.

Exactly. Michigan legislature has forbid local sales taxes in lieu of revenue sharing. Bottom line is that you will need to get the State to permit this. With the number of Tea Partiers in both the house and senate, this is very unlikely.