Do you know someone that lives in Detroit but uses a permanent address outside the city? Maybe someone you know has a business in Detroit but uses a non-Detroit mailing address. Or perhaps you know someone who owns rental property in Midtown or downtown Detroit.
The city of Detroit has 11 auditors and three attorneys searching for Detroit residents and businesses that are not paying Detroit taxes and is targeting the now popular Midtown and downtown areas. These areas are especially popular with millennials as they discover "the new Detroit".
Residents may live in Detroit but use another address as their permanent address in many instances driven by finances. By using a non-Detroit address, individuals avoid or pay a lower Detroit city income tax. A non-resident working in Detroit pays Detroit income tax at 1.2 percent only on the income earned in Detroit while a resident pays Detroit income tax at 2.4 percent on all income regardless of where they work. Combine this difference in taxes with the savings on auto insurance and it can be quite the incentive. Businesses operating in the city have a 2 percent tax on their proportional share of Detroit income.
The city determined percentages of taxpayers paying Detroit resident tax for certain areas by matching up the addresses of tax filers with the number of addresses in a building or area. For some properties, the residency rate determined in this manner was as low as 15 percent.
In an effort to gain information to pursue non-complying residents and businesses, Detroit has eight lawsuits pending against property owners and management companies owning property in Midtown or downtown. The city seeks to gain access to the names, social security numbers and businesses leasing property in the targeted areas. They are even looking at owners that lease monthly parking as another avenue of obtaining information.
If you have any questions or concerns, contact your local UHY LLP professional.