East Lansing Income Tax Revenue Getting Squashed by MSU’s Campus Closure

The coronavirus pandemic has upended American working life, shifting many people’s work to home and leaving streets looking emptier, including those headed into East Lansing.

While many nonresidents are no longer coming into East Lansing for work – including to MSU’s campus – will East Lansing be able to collect income tax on their earnings? The answer, according to the Michigan Department of Treasury, is “no.”

That will come as a bit of welcome news to some non-residents struggling through this pandemic, but it’s bad news for East Lansing’s coffers.

East Lansing’s relative new city income tax was designed to disproportionately tax commuters, including the thousands who work at MSU’s East Lansing campus but don’t live in East Lansing. Under the income tax plan that passed, residents pay a 1.0 percent tax on their income, while non-residents who work here pay 0.5 percent.

East Lansing voters made the decision to enact a property tax reduction while the income tax is in effect, effectively dampening down the total tax liability on homeowners in East Lansing while enacting a new tax liability on nonresidents who work here. The idea was to shift some of the cost of the City of East Lansing supporting MSU to MSU-employed nonresidents.

But that plan has been temporarily disrupted by the decision to close MSU’s campus for most business.

“Treasury’s guidance clearly states that non-residents who earn income while telecommuting [from outside of the city] should not be taxed on that income,” Mayor Ruth Beier told ELi last last week.

In an example the Michigan Department of Treasury gives, a man has an office in Lansing but lives in Grand Ledge and does occasional work from home. Says Michigan Treasury, the City of Lansing can’t collect taxes on the income he receives for working from home. 

That means East Lansing won’t be able to collect on the income earned by MSU faculty and other staff while they are working from outside of East Lansing.

Conversely, if an East Lansing resident had commuted into Lansing and split her or his income tax between the two jurisdictions but is now working from home, the City of East Lansing will be able to collect a full one percent on that income.

But it’s likely East Lansing’s income tax revenue will suffer substantially overall from the current situation, as East Lansing’s revenue will also be taking a hit from “non-essential” businesses that are now closed.

DaMar Boyd, East Lansing’s Income Tax Administrator, said the City is still working to figure out how income tax flow is going to affect city finances.

“The Governor’s stay-at-home order is something unprecedented and our ordinance does not speak on the current situation we are facing here in Michigan,” Boyd said. “We are working and communicating with other localities in the State to help determine some of the short- and long-term impacts of the order on our income tax revenue.”

Before the pandemic threw a wrench in the system, the new income tax had been projected to provide a steady annual net gain in revenue for the City of East Lansing, allowing it to hire back police and firefighters and put more money into city infrastructure.

Because the first set of returns are not yet in, Boyd didn’t have any firm data to share yet about total revenue from the first year of the income tax. The City of East Lansing has extended the deadline for filing 2019 returns to July 31, as ELi previously reported.

See ELi’s full reporting on the effects of COVID-19 on East Lansing.