Tax Day in Detroit - The Stick is Mightier than the Carrot

[Lowell]

Among its many challenges as the City of Detroit continues to dig its way out of ifs difficulties has been its inability to enforce tax collection. For instance:

"About 6 percent of U.S. taxpayers break the law by not filing with the Internal Revenue Service each year, according to research by economic consultant Brian Erard. In Detroit, [it is] estimated, 46 percent of taxpayers hadn’t submitted their 2014 returns by the due date in the following year."

This led to an interesting experiment to see what works best to improve this.

The city decided to send out more than 7,000 mailings to deadbeat tax filers, people whose 2014 tax returns were already a year late. The city suspected each delinquent owed at least $350. Taxpayers were randomly selected to receive one of six different letters, each with a different message in a black box on the mailing.

One message appealed to residents’ civic pride, as the city tried to bounce back from its bankruptcy: “Detroit’s rising is at hand. The collection of taxes is essential to our success.”

Another simply made clear that the city’s tax collectors had detailed information on the deadbeats: “Our records indicate you had a federal income of $X for tax year 2014.” Detroit residents owe 2.4 percent of their incomes to the city, after a $600 exemption. Nonresidents who work in Detroit pay a rate of 1.2 percent.

And one message made a bold declaration: “Failure to file a tax return is a misdemeanor punishable by a fine of $500 and 90 days in jail.”

It turned out that the threat worked best. More than 10 percent of taxpayers responded to the letter mentioning a fine and jail time, more than three times the response rate of a basic control letter.

And for those who may be "bunking" in Detroit [living in Detroit but claiming residency outside], watch out.

Officials noticed that only one in five residents in several high-end apartments buildings had filed income taxes. The city persuaded a judge to issue an order requiring landlords to turn over tenant information.

http://www.crainsdetroit.com/article...s-that-threats

[Scottathew]

Fascinating information. I love that they tried different letters and kept track which ones worked the best.

[Honky Tonk]

Among its many challenges as the City of Detroit continues to dig its way out of ifs difficulties has been its inability to enforce tax collection. For instance:

"About 6 percent of U.S. taxpayers break the law by not filing with the Internal Revenue Service each year, according to research by economic consultant Brian Erard. In Detroit, [it is] estimated, 46 percent of taxpayers hadn’t submitted their 2014 returns by the due date in the following year."

This led to an interesting experiment to see what works best to improve this.


And for those who may be "bunking" in Detroit [living in Detroit but claiming residency outside], watch out.



http://www.crainsdetroit.com/article...s-that-threats

One thing missing from the article is that the State now processes forms and collects taxes for the COD. They're the ones behind the changes.

[MSUguy]

No it's mentioned "The department recently reorganized—last year the state of Michigan took over collecting and processing Detroit’s current-year returns—to free up city employees to collect unpaid taxes".

[313WX]

And for those who may be "bunking" in Detroit [living in Detroit but claiming residency outside], watch out.



http://www.crainsdetroit.com/article...s-that-threats

It certainly doesn't help the city in its come back when you have so many so-called "yuppies" cheating the system.

[SyGolden48236]

The city income tax is one of the factors that caused me to relocate my firm out of the city in 2001. Another was that many of our long-term clients were very reluctant to come downtown to meet with us.

It was also becoming difficult to attract the most talented new employees because they could work outside of the city and not have to deal with the city tax, the safety risk and other issues. Also, no longer having to pay city utility taxes helps increase the bottom line.

Business increased dramatically when we left the city and we have not looked back since.

[Honky Tonk]

No it's mentioned "The department recently reorganized—last year the state of Michigan took over collecting and processing Detroit’s current-year returns—to free up city employees to collect unpaid taxes".

You send your forms, and either apply for a refund, or send your payment, to the MI Department of Treasury, Lansing. But you know that, you've done your City taxes this year. 😊

[Bigdd]

The city income tax is highly illegal.

ALL taxes must be approved by the voters.

They did approve it many decades ago,. but the 2.4% rate was only good so long as Detroit had a population of a million or more.

Finally it was admitted it was under that in 2000,.. and the State granted some sort of change to allow them to collect so long as the pop was over 800k [[which they have no authority to do). Then it was adjusted again illegally after the last census, when the pop was just over 700k.

They may have to illegally adjust it again when the 2020 census comes out.

[Ray1936]

All of which confirms my wise move to Las Vegas upon retirement. No state income tax; no city income tax. How I used to dread tax day with three separate forms to fill out. Sales tax is a tad higher, but you really don't notice it.

[313WX]

They will have to illegally adjust it again when the 2020 census comes out.

fyp.

Otherwise, the city will end up right back in bankruptcy court again [[overnight).