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Introduction

This outline is designed to be a ready reference to the taxes levied by state and local government in Michigan. It contains information on each of the 47 state and local taxes as of December 31, 2005, including:

• a description of each of the 47 state and local taxes and historical collections from major taxes.
• a summary of major tax law enacted by the state Legislature between January 1, 1998 and August, 2005.
• a table of tax collections for years 1998-2004.

Taxes Defined

A "tax" is an enforced proportionate burden, charge, or contribution exacted by the state or its municipal subdivisions for the support of government in the discharge of its various functions. State and local governments in Michigan levy several types of taxes.

• Income taxes are levied based on income earnings. The state income tax and local income taxes are based on federal adjusted gross income. Local nonresident income taxes are based on earnings from within the taxing cities. In general, only the state government and cities are authorized to levy income taxes in Michigan.
• Business privilege taxes are levied on firms that do business in Michigan or, in some cases, offer a specific line of business. The major business privilege tax is a value-added tax (the Single Business Tax) which is often categorized as an income tax, enacted to replace eight state and local taxes that formerly were levied on property and income. The state government is authorized to levy eight types of business privilege taxes in Michigan, and local government is authorized to levy one type of business privilege tax.
• Sales-related taxes are levied in several forms in Michigan. The Sales and Use taxes are levied on the retail sale or use of tangible personal property. Only the state government is authorized to levy sales and use taxes in Michigan. Excise taxes are levied, like sales and use taxes, on the purchase of individual products and services. In addition to the excise taxes included under the sales-related taxes, motor fuel taxes are listed separately under transportation taxes because of the dedicated nature of the disposition of their revenues.
• Property taxes are levied based on the value of property. In addition to the taxation of real and personal property that typically falls under the local general property tax, local governments are authorized to levy three other ad valorem taxes and the state government is authorized to levy three other ad valorem taxes. Although registration taxes are not typically associated with property taxes, because Michigan taxes personal passenger vehicles based on their value, this part of the Motor Vehicle Registration Tax qualifies as a property tax. Michigan local governments are authorized to levy eight different types of specific taxes in lieu of ad valorem property taxes, several of which were created as economic development tools to reduce the tax burden on individual taxpayers.
• Transportation taxes are sales-related and property taxes levied on items used for transportation purposes. Each of these taxes is earmarked specifically to transportation infrastructure. For ease of use, they are grouped as transportation taxes in this outline.

When is a charge considered a tax?

This question is significant in Michigan with the limitations placed on taxation in the State Constitution. Specifically, amendments to the State Constitution adopted in 1978 (commonly referred to as the "Headlee Amendment") directly affect the level of state taxes and means of collecting local taxes. As part of a national taxpayer revolt, the Headlee Amendment was adopted by the voters of Michigan to limit legislative expansion of requirements placed on local government, to control increases in government spending, and to limit taxes both at the local and state level.

State v. Local Taxes. One ramification of the Headlee Amendment is the differentiation of state and local taxes. Section 26, of Article IX, of the 1963 Constitution placed a limit on the growth of total state revenues.

There is hereby established a limit on the total amount of taxes which may be imposed by the legislature in any fiscal year on the taxpayers of this state. . . . The legislature shall not impose taxes of any kind which, together with all other revenues of the state, federal aid excluded, exceed the revenue limit established in this section. . .

Some taxes are very clearly state taxes. These taxes are levied on a statewide basis, uniform across all taxpayers, and the revenues from these taxes are deposited into state funds to finance state government activities. For other taxes the distinction is not so clear. Some taxes are state taxes levied for local purposes. The Airport Parking Excise Tax for instance, is levied only on the parking facilities in and around the Detroit Metropolitan Wayne County Airport and the revenues may be used only for support of that airport. Even though the revenues are used for seemingly local purposes, this tax is considered a state tax.

Other taxes are state taxes collected by local government. Cities and townships are responsible for collecting property taxes for all units that geographically overlap their boundaries, including: counties, local school districts, intermediate school districts, and special authorities. With enactment of the State Education Tax as part of Proposal A of 1994, cities and townships became responsible for collection of that tax as well. Although taxpayers pay this tax to local units of government, it is levied uniformly across the state, revenues are transferred to a state account, and it is dedicated to the state School Aid Fund, making it a state tax. [State taxes are designated with black headers in the tax descriptions; local taxes are designated with blue headers.]

Taxes v. Fees. Because of the number of local units of government, it is not practical to place an overall limit on the total revenue of local government in a state. Instead, the Headlee Amendment attempted to limit local tax revenues in two different ways. First, it attempted to control the property tax burden, the primary means of funding local government in Michigan, by limiting net growth in the tax yield on a unitwide basis. Second, and more significant, it required voter approval for the levy of new local taxes or increasing the rate of existing local taxes. Section 31 of Article IX provides

Units of Local Government are hereby prohibited from levying any tax not authorized by law or charter when this section is ratified or from increasing the rate of an existing tax above that rate authorized by law or charter when this section is ratified, without the approval of a majority of the qualified electors of that unit of Local Government voting thereon. . .