Guy Gordon (00:01.016)
Hello and welcome to this week’s edition of the facts matter podcast. I’m Guy Gordon bringing your research and analysis from the citizens research council of Michigan objective, unbiased and dedicated to the proposition that facts should drive policy, not politics. Today we’re taking up a really interesting topic and that is an amusement tax. This would be an excise tax that the city of Detroit is considering proposing and before they get any deeper into the process.

They asked the Citizens Research Council of Michigan to do some research and analysis on what other cities and states have done, what the possible pitfalls and benefits might be, and who better to tackle all of it than the president of the Citizens Research Council of Michigan, Eric Lufer. Good day, Eric.

Hello.

So really Detroit has been kicking this around for a couple of years. We’ve heard things about it. We’re kind of an outlier in the Motor City in that we don’t have one.

Yeah, I was talking to my wife about this the other day. She asked what we were up to and I told her we were about to publish this paper. And her reaction was, well, people will just go to another place to, you know, to see their favorite concert or stage play. And I told her, good luck because every major city around us loveys this kind of tax already. And you’ll have to go pretty far to find us another city that doesn’t have.

Eric Lupher (01:29.496)
whether we call it an entertainment tax, an amusement tax, an admissions tax, the big cities are doing it and Detroit’s really the outlier.

Well, and it’s not like your favorite band is going to book a date at LCA and then book a companion date at Pine Knob, right? You’d have to chase them perhaps to the other side of the state or to a different state entirely. The question though is what will promoters do when they’re shopping a venue? Will they say, well, we’d rather do a summer date in Pine Knob than maybe a winter-ish date at LCA because we would have to pay the

the amusement tax, whatever it may be, or our patrons would have to pay.

Yeah. mean, so Detroit asked for this. And when we did the study, we looked at the other big cities in Michigan, Grand Rapids and Lansing and others that could pensionally use this. You could imagine Clarkston up and you know, where Pine Knob is saying, look at all the traffic disruption and everything that goes along with Pine Knob. Why couldn’t they have a minor tax attached to it? So the focus in the report is Detroit, but we think if a law is written to allow

the tax to be levied in Michigan, it would be very broad allowing maybe any city to do it if they so choose.

Guy Gordon (02:47.736)
So depending on, I mean, you looked at several scenarios here, a 3 % excise tax on the ticket sale, 5 % and 10%. What are the revenue projections? What’s the potential benefit here if Detroit were to get legislative approval and then get voter approval?

Yeah. So we looked at what our, again, we, every city around us is doing this with different States authorize it. And we just didn’t pick numbers out of the sky. That three, five, seven, 10 % is based on what other States are doing. And we tried to model it looking at attendance at lions, pistons, red wings.

Tiger games, some of the minor sporting events that happen. They also use Ford field and LCA occasionally, Comerica park for concerts and things like that. You know, tractor poles and motocross and things like that.

Because who doesn’t love a good tractor pull? I mean, there’s a lot of potential there.

Alright.

Eric Lupher (03:55.0)
They’re pretty well attempted, think. love them. So based on attendance at those, based on ticket prices to gate, we think that for Detroit, we’re looking at anywhere between.

Eric Lupher (04:13.4)
finding it.

Well, I’ve got it. We can find it. And anybody who wants to follow along and read the text version of this, you can find it at crcmish.org. But on page 29, you’ve got a breakdown that shows, I mean, for instance, the Lions had $33 million in gate receipts last year. A 3 % tax would get you a little bit shy of a million bucks. A 5 % tax would be 1.65. A 10 % tax would get close to three and a third million.

Yeah. And when you put all those things together, that 3 % tax, probably around $15 million into the city coffers, the 10 % tax, maybe as much as $50 million. So relative to the city’s overall budget, it’s not going to displace any tax. It’s not going to allow them to double their budget.

The city levies a utility users excise tax that brings in about $50 million. So high on the high end, this is about equal to that very minor tax could be important for improving city services could be important for providing some level of property tax relief, but it’s pretty minor in the big picture of the city’s budget.

So it could be helpful in defraying some of the costs of securing these big events, the cleanup after the big events, also the infrastructure burden that’s carried by hosting these big events. The hosting costs could be defrayed to some degree.

Eric Lupher (05:47.746)
Yeah, the cost of policing around the events and things like that, as the city reports, is greater than this, you know, what we think the revenue is, but it would certainly help to defray some of that cost.

Really? The benefits? mean, even if you would look at some of the intangible benefits to surrounding businesses and things like that, the costs of hosting the event still outweigh the economic ripple effect and benefits.

The city keeps track, the city of Detroit keeps track of the cost for all of these types of events. And most of their cost is in public safety, having police out on the streets for traffic control and the safety of the people walking to and from the events. And it gets to a fair amount of money. This wouldn’t defray the whole thing. As you suggest, there’s some extra benefits, right? The restaurants around Comerica park and Ford field.

get pretty busy on game day. And so you’re employing waitstaff and cooks and things like that. And they’re paying income tax and everything. We didn’t get into all of that tax benefit. were just focused on this one taxes part of it. The overall point is that the city currently absorbs that cost, right? The people paying property taxes, the income taxes that they pay, all of that’s being deferred in

me as a suburbanite coming into the city, benefiting from those services. I don’t contribute anything to that. We don’t pay sales tax on that. don’t pay anything else as part of that. So it works in reverse, right? Anytime somebody from Detroit is coming out to Livonia to shop at a store that they can’t find in the city, they’re benefiting from Livonia taxes that I pay. But in this case, because Detroit is a hub for these entertainment events, it is welcoming

Eric Lupher (07:43.158)
hundreds of thousands of guests every year. And there’s some costs associated with that.

Yeah, it’s interesting. I’ve kind of floated the idea by some friends. We can talk about that a little bit later on, but I also want to get to some of the nuts and bolts. You looked at other cities that have done this, Atlanta, Chicago, Cincinnati, Cleveland, Columbus, Denver, Indianapolis, Pittsburgh, and Philly. What did we learn from that analysis? How broadly do they apply that amusement tax? Is it all concerts? Is it all sporting events? Or do they nick some museums and things like that that may hold big events?

Yeah, for the most part, it is very similar to what we’ve modeled for Detroit, that they’re getting the big events, every sporting event. And that’s why we looked at these major cities with multiple professional teams. They’re getting the concerts and stage plays and things like that. There are some of the cities though, that have gone very far that if you have video arcades or things like that, they’re picking them up. They call that an amusement tax. They’re getting just.

about any sort of amusement that is you pay money as far to be part of that. Chicago goes very far in doing it. So they’re trying to pick up, put a tax on the Netflix or Hulu or things like that, that you’re paying online as part of the amusement that you’re getting is. including. They are, yes. And they’ve gotten away with it for the most part.

Wow

Eric Lupher (09:16.686)
You know, there’s been some legal challenges and they were able to establish the nexus of being in the city and being part of that. We don’t think that would be beneficial for Detroit.

don’t recall them helping me clean up after I watched Only Murders of the Building on Hulu. I don’t recall them in Chicago, you know, helping with clean up or securing my home.

Yeah, they’ve used some broader justification of why they needed that money over there. For Detroit, it’s pretty specific and we can craft a tax to reflect their needs.

Where do they set the threshold for an audience? Over a thousand people, over 500?

Yeah, it varies again by city. As we were thinking about this, right? You want it big enough to matter. So you shouldn’t, we don’t think, I mean, some might disagree with this, but we don’t think that the cover charge you pay to get into the bar to watch your favorite band, you know, have a few drinks at night. We don’t think that would qualify. So you’re really talking about bigger venues. Other cities are setting it like four or 500 people or so.

Eric Lupher (10:23.854)
as a minimum, anything below that is too small to matter. Something like Redford theater up in the Redford probably is on about that threshold when you have a full house getting up there. And it would be up to the legislature to decide how to, where to set that threshold.

And in most cases, they have these other cities earmark what that revenue is going to be used for, or is it just general fund and they say it’s to defray the associated costs.

Yeah. I mean, so this gets into the sort of niceties of tax law. When the city first approached us about doing this, they kept using the term a sales tax, a sales tax on these types of events. Well, the lawyers would kind of cringe at that because anytime you have a sales tax, that money is just going into the general fund that can be used for any purpose. An excise tax, what we have tried to describe to the city and to anybody implementing this.

is a tax that goes for a specific purpose. So most of the cities, they’re dedicating it to public safety. They’re dedicating it to sporting events in the city, know, sort of the recreation center, things like that. So you’re money from professional sports, levying a tax on that, using it to help your young kids in the city.

more sporting events, that type of thing. But the big picture is money is fungible, right? If the city was already paying for that recreation center and now they have money flowing to that, that perhaps frees up general fund dollars to go for something else.

Guy Gordon (11:56.204)
So.

Guy Gordon (12:07.79)
And the only axiom is whatever you tax, you get less of it. So in these cities that did mount these amusement taxes, to your wife’s point, was there a fall off in attendance? Did they find greater difficulty maybe booking some of the really huge, costly productions that might be coming into those venues?

We weren’t able to say what didn’t happen. We don’t know if Les Miserables picked a different cities and then going into these events. We were able to look at attendance at the events and, you know, sort of, people stop going to an Atlanta Falcons game because of the tax or because the Atlanta Falcons were not very good for a little while. But for the most part, there’s no sign that people chose not to attend these events because of the tax. Attendance was pretty steady before and after.

So we know when you point out in your analysis, and again, we invite people to go to CRCmich.org and to check out this very comprehensive analysis. If you want a full read on it, do a deep dive. But one of the things that they’re talking about is providing the very beleaguered property owner in Detroit some badly needed tax relief. And I say that knowing that the 19 mills that you pay on a property in Detroit is pretty much one of the highest in the nation.

We know that their property tax values and their base is quite meager growing, thank goodness, for the first time in a long time, but still pretty small. So what kind of tax relief could be granted to those homeowners and those property owners with this, say we did get 50 million in revenue?

Right. So again, it would depend on what tax was levied and the base it was approached to, how much money that would bring in. Under our scenario where we looked at if the tax were in place for the last couple of years and levied at that 10 % rate for the city of Detroit, you’re talking about five and a half mils or so of tax reduction, which is about a quarter of the

Guy Gordon (14:08.066)
That’s not

general operating tax, the city level levies, it still would be a high property tax city. don’t want to cast any illusion like we can do this and the city would go from high tax to average. It would still be a high tax property tax city, but it would be very helpful. Right now the property tax is a disincentive to be in the city. This would make it much less so.

So when would this be levied at the point of initial sale and what would happen if I get some Lions tickets, I sell them on StubHub, would they be then taxed there as well? How would you handle the resale or would it only be taxed on the initial sale?

Yeah, I mean, it’s hard to, I mean, now we have these online stub hub and things like that. The idea for the initial tax is that you’re getting it at the point of consumption, right? The point that you purchase the ticket, whether that’s through Ticketmaster or mlb.com or whatever from the, there is a chance if the law is written in a particular way to

get those resales. know, in one case, if you’re doing it online, it could be taxable. But if you turn to your neighbor and say, Hey, I can’t make it to the game this weekend. You buy my ticket. The city’s not going to know about that and not going to able to tax it. So there’s some gray area there on how they do it. And the law writers will be have to be very careful how they write.

Guy Gordon (15:46.606)
So there are some potential legal pitfalls here. This has to be crafted quite carefully, doesn’t it? And this gets a little bit into the weeds, but it’s still important to point out because you can’t, as you said, cross over into the sales tax territory because that will trigger some things. what does this have to be to qualify as an excise tax?

Yeah, so narrowly defining what is taxable, right? So you’re not taxing all entertainment. You’re defining the types of venues that will be taxed and the types of events that will be subject to tax. Defining what happens to the revenue after it is generated. So it’s not just going into the city’s general fund, but it’s going to a specific purpose, whether that’s public safety or anything else.

And then you start limiting and falling within the definition of an excise tax and heading off any future challenges that others might have based on that.

Did you look at who will pay this tax? know one of the attractions to this from the city council standpoint is that it wouldn’t fall as heavily on city of Detroit residents as it would to visitors to the city that are coming in for a lot of these major events. Can we do a breakdown based on who will be paying this? That’s one of the attractions here is that you’re kind of exporting to your tax burden, aren’t you?

You are kind of exporting it and you know, the current economics of the city. Not a lot of people can probably afford to go to a lion’s game. I’m doing all right in life. I can’t afford to go to a lion’s game, everything going on. Right. So there is a regressive nature to this tax, but it’s more about the types of events that are being taxed than necessarily the, the way the tax is structured. So Detroit being a.

Eric Lupher (17:43.736)
tax with higher levels of poverty, low levels of per capita personal income, there’s going to be fewer people from the city in its current economic condition, buying the tickets and paying this tax. Now, best of all worlds, the city continues on its current recovery path and maybe 10 years from now, we’re telling a different story and that tax is spread a little more evenly. But I think right now,

the type of events, the cost of attending those events. It’s a lot of wealthier suburbanites and people from other places coming into the city.

But if you look at the Lions fans, in so many instances, they really are working class families. And the bulk of their entertainment dollar is going to this one passion, the Detroit Lions, who just raised their ticket prices 30%. So it’s hard to believe that the timing, at least for those fans, could be any worse than it is, this talk of levying something even 3 to 10 % on top of that.

And the team has done this for a few years, right? This 30 % is not a, I mean, the amount of percent of increase was an outlier, but the idea that they’ve increased prices is not unusual, but there’s got to be give and take, right? If we can all agree this is good for the city of Detroit, help to defray the cost that we as outsiders benefit from a service when we come in, maybe we should contribute to that.

then the teams maybe need to look at their pricing and see if it should be scaled back in some way. I would also go ask those, I do know people with that 30 % increase have chosen not to renew tickets and some have had to make hard choices, but you know, for a tiger game, for a red wing game, is a 10 % increase going to change purchasing? time Taylor Swift comes around, is anybody gonna decide not to go because there’s a 10 % tax on that ticket?

Guy Gordon (19:44.256)
And that’s looking at it objectively. But as we know, so much of this is subjective. people have been asking me, what are you doing on the podcast this week? And I threw out this idea of an amusement tax. And I’ve been doing this with friends for about the last week. all of them are, universal reaction is kind of, well, Jiminy Kripke, you just got me to come back down to Detroit for the first time in 25 years, and now you’re going to ding me for coming back down to Detroit? So it was.

It was very interesting. And then when I posed the idea that this could help some beleaguered property owners, some tax relief, they warmed up to the idea. But they said, you know what? It had all gone better be means tested. I don’t want to give the deep pockets loft dwellers a big property tax break. I would want it to go to those small homeowners that have tried to rehab their homes and have been, you know, stakeholders for a long time.

Well, this is gets to again, progressive regressive nature of it. It’s the, it’s that homeowner who’s survived through the bankruptcy 15 years ago and then exactly worse times that are still there that are paying more taxes as a percent of their income. And so providing their relief is going to be more meaningful than somebody in Palmer park or.

New Edison, Boston Edison is what I was looking for, with some of the bigger houses and the more affordability of paying that tax.

So the process on this is you’re, you’re delivering your analysis to the Detroit city council. The Detroit city council then I would assume is going to start lobbying their friends in Lansing to try to drum up legislative support, but because before any of this can happen, you do need legislative authorization.

Eric Lupher (21:40.268)
Yeah, that’s something that people didn’t quite grasp when we started talking about this. Michigan is a home rule state, but cities, counties, townships, school districts don’t have the authority to levy a tax unless the state gives them that authority. So step one is going to the legislature, trying to make the case that this is a tax that would be a broad benefit, certainly to Detroit. As Detroit goes, so goes the rest of the state.

Yeah. If they can get that authority, then the city council has to act on it. And then ultimately the people of Detroit would have to vote.

already there’s been reaction from the Republican side of the aisle. My rep, Donnie Steele came out and said, see, there they go again. They’re trying to tax fund, which it’s, it’s a little more nuanced than that. Certainly as we have pointed out, but it does kind of underscore the fact that it’s going to be a tough sell in Lansing as is everything. Right.

right now yeah they can’t agree on what’s what color table to sit at

Yeah.

Guy Gordon (22:45.144)
So the key takeaway from your analysis,

Key takeaway, this could be a source of revenue that would help the city defer some of its cost. It would be a way to provide property tax relief if that’s what they choose. We did talk a little bit in the paper about the idea of creating a fund to attract major events and this could seed that.

Something that would fund the Detroit Sports Commission, which is going out and seeking the NCAA Final Four, the NBA All-Star Game, some of the big events that have eluded us in the past.

What we’re finding is you’ve got to pay a little to get a little and this would could seed that sort of a fund to be able to do that. It’s not a game changer. It’s not going to fix the city’s budget or anything like that, but it could be significant in and most other cities in the US are doing this already.

Whether it comes to something like defraying the costs of big events or roads, we know that the idea of having to get legislative authorization, not having true home rule, really puts handcuffs on municipalities. And we’re going to be talking about that in depth on an In the Weeds podcast. That will be our next entry coming up in a few days. We hope you’ll join us for that. In the meantime, Eric, thanks for being with us.

Eric Lupher (24:04.256)
Thank you for doing this.

All right, the Facts Matter podcast brought to you by the Citizens Research Council of Michigan. As we said, we do not accept any money from government. We do not lobby. This is totally donor funded. And if you appreciate the kind of research and analysis and information of an unbiased nature, we invite you to go to crcmish.org and considering donating. And you can also tell your friends about us and subscribe to the podcast, hashtag facts matter.

at the platforms where you find your audio content, be it Spotify, YouTube, or Apple podcasts. Until next time, I’m Guy Gordon. Thanks for being with us.

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