State and local tax burden approaching nation’s ten worst
A new state law could further enhance Michigan’s status as having one of the nation’s highest state and local tax burdens. House Bill 4261, now Public Act 25 of 2007, allows convention and tourism bureaus in Kent County and Lansing to levy a 2 percent hotel and motel rooms tax to support marketing and promotion programs. This would be on top of existing marketing levies. A referendum of lodging providers would be required if requested by least 40 percent of the owners of "transient facilities" subject to the tax.
The bill was first approved by the state House of Representatives on May 8, 2007. One month earlier, the Tax Foundation of Washington, D.C., released its annual ranking of state and local tax burdens. (Note: On Aug. 7, 2008, the Washington, D.C.-based Tax Foundation released its newest State-Local Tax Burden Ranking of the 50 states. This report included a change in the methodology used to compute and rank tax burdens which led to a significant drop in the position Michigan held in Tax Foundation rankings — from 14th to 27th among the 50 states.) Though this was many months before the $1.4 billion income and business tax hikes that would be required to balance the fiscal 2008 budget, Michigan’s tax burden ranking for 2007 had already climbed to 14th highest in the nation — sharply up from 30th highest in 2001. Neighbors Illinois and Indiana are just two of the 16 states that Michigan’s tax burden has eclipsed during its rapid six-year ascent up this dismal ladder.
In a competitive race for the nation’s most punishing tax policy, Michigan has been keeping up with the worst of them. The Tax Foundation asserts that state and local taxes for 2007 were consuming an average of more than 11 percent of personal income — a level not seen in more than 25 years. Michigan tax consumption was 11 percent of personal income in the 2006 ranking and climbed to 11.2 percent for 2007.
During the committee testimony on House Bill 4261, the mayor of Grand Rapids asserted that the room tax was needed because the area had already approved tourism taxes up to the limit of their authority under existing state law. Additionally, he argued that a higher marketing tax is essential for attracting more convention and tourism business to the region. But with the backdrop of Michigan’s overall tax burden relative to other states, it is a debatable point that more local taxes and spending — even for tourism promotion — is wise policy.
According to a Michigan House Fiscal Agency analysis, the lodging facilities within the tourism promotion district will receive one vote per room if a tax election is called. If a majority of the rooms within the assessment district are voted in favor of the tax, then the tax will be implemented, with the proceeds becoming the "property of the private, non-profit corporation promoting convention and tourism business." Hotels and motels voting in opposition will be forced to fork over as much as 2 percent of the proceeds from each guest filling one of their rooms to a private entity that implements a marketing program that they do not want.
An advisory committee of five to nine members will be elected to draft a marketing plan that is submitted to the "voters" along with the tax proposal. This committee would need to have only one representative from a smaller hotel or motel — defined as a facility with fewer than 120 guest rooms. With voting rights proportional to number of rooms, owners of small facilities will have a small voice regarding whether these taxes are assessed on them and also little say in whether the funds taken from them are used for their benefit. The law allows dissidents to seek repeal of the tax only once every two years, and again subject to the "one room, one vote" rule.
Aside from the injustice of forcing business owners to pay for advertising that they may not want or need, there is also an economic concern over whether higher hotel taxes will lead to fewer hotel guests. The HFA analysis of the bill speculates that the proposal could actually depress consumer spending, leading to other consequences: "It is unknown what the effect of increasing hotel and motel costs by 2 percent would have on visitors’ stays and other hotel/motel-related revenue. To the extent the additional costs were accommodated by shorter stays, shifts to less expensive lodging, reductions in food or other visitor-related purchases, the bill could affect a wide variety of other State and local revenue."
On May 8, 2007, the state House of Representatives voted 64-43 in favor of approving the local tourism tax authority, with 17 Republicans joining 47 Democrats voting for the bill. On June 20, 2007, the state Senate concurred on a vote of 35-3, with 18 Republicans joining 17 Democrats voting "yes." Gov. Granholm signed House Bill 4261 into law on June 28, 2007. The Michiganvotes.org tally for the bill is displayed below.
For Further Reading: For additional information about this bill and the rankings of state tax burdens, please visit www.mackinac.org/9312.
TOURISM TAXES APPROVED:
Lawmakers voting TO ALLOW A KENT COUNTY HOTEL TAX
Lawmakers voting AGAINST THE HOTEL TAX
Lawmakers who DID NOT VOTE
|Rep. Casperson (R)||Rep. Dillon (D)||Rep. Law, Kathleen (D)|