STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5718

June 10, 1980

CONSTITUTIONAL LAW:

Const 1963, art 7, Sec. 21

INCOME TAX--MUNICIPAL:

Increases in rates of city income tax

The governing body of a city of less than 1,000,000 population may not increase its city income tax rate for corporations and resident individuals from 1 percent to 1.5 percent.

The governing body of a city of less than 1,000,000 population may not increase the city income tax rate on corporations and resident individuals by enacting an amendment to the city income tax ordinance and subjecting it to a favorable referendum by the electors of the city.

Honorable Mark Clodfelter

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion on the following questions:

Consideration of the question of the authority of a city or its electors, by popular vote, to increase income tax rates levied upon corporations and resident individuals must begin with the decision in Dooley v City of Detroit, 370 Mich 194; 121 NW2d 724 (1963), where the Court upheld a city income tax levied on residents and nonresidents under the power to lay and collect excise taxes vested in a home rule city by the Legislature in 1909 PA 279, Sec. 4-i(1); MCLA 117.4I; MSA 5.2082. In its decision, the Court expressly noted that this authority to levy city income taxes was subject always to the Legislature's constitutional duty 'to limit their rate of taxation for municipal purposes.' Const 1908, art 8, Sec. 20.

Const 1963, art 7, Sec. 21 revised Const 1908, art 8, Sec. 20 'to spell out clearly that cities and villages may levy both general property taxes and other taxes, subject to the limitations and prohibitions of this constitution.' Address to the People, 2 Official Record, Constitutional Convention 1961, p 3392. In pertinent part, Const 1963, art 7, Sec. 21 provides:

The Legislature responded to the decision in Dooley v City of Detroit, supra, by enacting the City Income Tax Act, 1964 PA 284; MCLA 141.501 et seq; MSA 5.31 et seq, effective June 12, 1964.

The City Income Tax Act, 1964 PA 284, supra, ch. 1, Sec. 3, as amended, empowers the governing body of a city of less than one million to adopt an ordinance incorporating by reference the Uniform City Income Tax Ordinance set forth in 1964 PA 284, supra, ch 2. As provided in 1964 PA 284, ch 2, supra, Sec. 11, the Uniform City Income Tax Ordinance, Sec. 11, imposes an annual income tax rate of 1 percent on corporations and resident individuals and imposes an annual income tax rate of 1/2 percent on nonresident individuals.

Once the Uniform City Income Tax Ordinance is adopted by a city, the Legislature, has proscribed any action by the city to amend its terms. This prohibition is contained in 1964 PA 284, ch 1, Sec. 3, supra, which, in pertinent part, states:

It should be noted that 1964 PA 284, ch 1, Sec. 3, supra, authorizes the governing body of a city of more than one million population to levy and collect an income tax of not more than 2 percent on corporations and resident individuals and an income tax of not more than 1/2 of 1 percent on nonresident individuals. Your questions do not relate to such a city.

It is, therefore, my opinion that a governing body of a city of less than 1,000,000 population is without authority to increase its city income tax rate for corporations and resident individuals from 1 percent to 1.5 percent.

Turning to your second question, the City Income Tax Act, 1964 PA 284, supra, makes no provision for an increase in the city income tax rates in a city of less than 1,000,000 population by empowering the electors of a city to vote the increase or approve such an increase authorized by the governing body of the city subject to favorable referendum of the electors.

While the City Income Tax Act, 1964 PA 284, ch 1, Sec. 3, supra, provides that the Uniform City Income Tax Ordinance may not become effective in the city unless approved by the electors if timely referendum petitions are filed, it does not contain any provisions authorizing such a referendum to increase city income tax rates. Since such referendum is not authorized by law, the vote upon the referendum would have no force and effect. Moreover, 1964 PA 284, ch 1, Sec. 3, supra, bars any amendments to the City Income Tax Ordinance unless enacted by the Legislature.

It must be concluded that in the absence of a statutory change by the Legislature in 1964 PA 284, ch 2, Sec. 11, supra, the electors of a city may not, by referendum, approve an increase in the city income tax rate beyond the rate of 1 percent on corporations and resident individuals and 1/2 percent on nonresident individuals.

Therefore, it is my opinion that neither a governing body of a city of less than 1,000,000 population nor its electors, by approving an amendment to the City Income Tax Ordinance, may increase the city income tax rate to more than 1 percent upon corporations and resident individuals.

Frank J. Kelley