Notice Regarding Amendment of the City Income Tax Act

The City Income Tax Act, MCL 141.601 et seq., was recently amended by Public Act 195 of 2023 (PA 195).  The amendments are effective February 13, 2024. 

The City Income Tax Act (CITA) allows Michigan cities to adopt a unform income tax ordinance to be administered by the local unit that adopted it.  To maintain uniformity in the application of the tax, the CITA, as originally enacted, also provided for appeals to the Michigan Department of Treasury (Department).  The Act also allows cities to enter into agreements with the Department to administer a city’s income tax.  The intertwining of dual provisions for cities that either have or do not have agreements with the Department to administer their income tax has presented obstacles to streamlined administration.  PA 195 amends the Act to create a more streamlined approach to administration of city income taxes.  Currently, only the city of Detroit has an agreement to administer its income tax. 

PA 195 impacts 4 key areas of city income tax administration, one which affects only cities that have not entered into agreements with the Department to administer their tax, and the rest affect those cities that have entered into agreements with the Department to administer their tax. 

1. For cities that have not engaged the Department to administer their tax, PA 195 grants those cities the authority to impose penalties of $25 or 25% of the amount of tax under protest, whichever is greater, for the frivolous protest of a proposed assessment. Previously, only the Department had the authority to impose penalties for the frivolous protest of a notice of intent to assess issued to a taxpayer of a city for which the Department administered its tax.
2. For cities that have engaged the Department to administer their tax, PA 195 authorizes employers to voluntarily register to withhold on the compensation of their employees who reside in that city. Previously, the CITA limited voluntary registration for withholding to employers with employees who were residents of a city that exceeded a certain population threshold, namely Detroit.
3. For cities that have engaged the Department to administer their income tax, lien and levy authority prior to PA 195 could only be exercised on taxpayers working or living in cities that exceeded a certain population threshold.PA 195 expanded a city’s lien and levy authority to taxpayers working or living in any city that engages the Department to administer its tax. The legislation also permits a city to exercise this authority not only against natural persons (individuals), but also against business entity taxpayers. Previously, a city’s lien and levy authority for city income taxes was limited to individuals.
4. Lastly, PA 195 modifies the procedures for appealing a notice of intent to assess, a refund denial, or a credit audit in cities that have engaged the Department to administer their tax by eliminating an appeal to the city’s income tax board of review and requiring the taxpayer to instead appeal by requesting an informal conference with the Department under section 21 of the Revenue Act. This requirement increases the protest period for a notice of intent to assess under the CITA from 30 to 60 days, requires payment of the uncontested portion of any liability, and allows a taxpayer or employer the option to propose a settlement related to the issues being appealed through the Alternative Dispute Resolution program. See Treasury’s Notice to Taxpayers Regarding Alternative Dispute Resolution published December 27, 2017, for more information.

A taxpayer or employer that does not timely appeal a notice of intent to assess, refund denial, or credit audit by requesting an informal conference with the Department forfeits the right to further appeal that assessment, refund denial, or credit audit.  Additionally, the new legislation deems a taxpayer or employer to have received a final assessment 60 days after receipt of the notice of intent to assess where no protest has been filed.

For those cities without an agreement with the Department to administer its income tax, appeal procedures, including appeals to a Board of Review, have not changed.