As Tax Day 2019 arrives, the Citizens Research Council releases its annual update of all the ways Michigan collects the revenue that keeps government running.
FOR IMMEDIATE RELEASE
What we found:
- After a number of slower years, 2018 saw quite a few relatively large changes to its tax code. Many of those changes came about in response to external events; federal tax reform, a key U.S. Supreme Court ruling, and a citizen-initiated ballot measure each brought on significant changes
- The federal Tax Cuts and Jobs Act passed in the last days of 2017 was a major driver of these changes. Notably, the TCJA zeroed out the federal personal exemption, effectively eliminating Michigan’s exemption at the same time. Governor Snyder and the Legislature came to an agreement to restore the state exemption, and eventually increase it.
- Other changes this year: How the state generates Medicaid matching funds, new rules regulating the sales tax on internet purchases, and the taxation of non-medical marijuana.
LIVONIA, April 15 – As last-minute filers hit Send on their 2018 tax returns, the Citizens Research Council of Michigan has released our annual Outline of the Michigan Tax System, a valuable reference for policymakers, journalists and others seeking a deeper, even encyclopedic, understanding of which taxes the state authorizes, on what, and how much revenue each generates.
The Tax Outline is consistently the Research Council’s most downloaded report of the year. As taxation in Michigan is always changing, a handy guide to what, exactly, we are being asked to pay in any given year makes it a popular choice.
“Cynics might hear that major tax changes are reflected in this year’s Tax Outline and wonder what Lansing is up to now,” said Eric Lupher, president of the Research Council, “but in fact, the major tax changes were prompted by policy changes caused by external forces.”
In 2017, Congress passed the Tax Cuts and Jobs Act, which made big changes to the federal corporate and individual income taxes. One of these had an immediate impact on the state’s revenue collection – the elimination of the personal exemption for federal income tax purposes. As the state based its own personal exemption on the federal model, that potentially left the state without one. Governor Rick Snyder urged the Legislature to take action, and they did, restoring Michigan’s personal exemption and increasing it over time.
The state also changed how it generates funds to meet federal Medicaid matching requirements It had been relying on the Heath Insurance Claims Assessment, which taxed insurance providers on paid claims. But that law is due to expire in 2020, so the Legislature passed the Insurance Providers Assessment Tax, one of this year’s two new taxes. Instead of focusing on paid claims paid the new tax places a nominal rate on the number of member-months, or the total number of subscribers to each health insurance provider each month.
In June, the Supreme Court overturned previous precedent in South Dakota vs. Wayfair, upholding a South Dakota law which requires Internet sellers with in-state sales exceeding $100,000 or 200 total transactions pay the state’s sales tax. That freed other states to do the same, and Michigan was quick to follow. Treasury issued a ruling requiring out-of-state retailers with an “economic presence” in Michigan to pay taxes on sales to Michigan residents starting October 1, 2018.
The citizen-initiated ballot measure legalizing adult-use recreational marijuana ushers in a new era of taxation on that substance, as well. The 3 percent tax on medical marijuana sales ended in early March, while a 10 percent excise tax on recreational marijuana will take its place when the regulatory structure is set up.
And now the state has a new chief executive, who has her own plans for changing taxation in the state. Governor Whitmer’s proposed budget includes some major modifications. She has suggested a major increase in fuel taxation to address crumbling roads, an increase of the Earned Income Tax Credit, a repeal of the so-called “pension tax,” and changes in business taxes. If approved in their current form, these policy priorities will remake the taxation landscape again.
“The Citizens Research Council has been maintaining the Tax Outline for more than 50 years,” said Lupher. “Finding and sharing this information helps to promote accountability of our elected leaders. We, the people, need to know what taxes are authorized and how revenues yielded from those taxes are used to fund government services.”
The full report may be downloaded at https://crcmich.org/tax-outline/.