Detroit City Income Tax Alert: Detroit Aggressively Pursues Third Party Information
The City of Detroit has filed a lawsuit against Bedrock, a commercial real estate company owned by Dan Gilbert. The city has been seeking tenant information from Bedrock to determine whether the tenants have evaded Detroit City Income Tax by improperly claiming nonresident status, and the lawsuit resulted because Bedrock has not complied. The city has asserted that many residents of Bedrock's Detroit properties use addresses of friends or relatives outside of the city to falsely claim nonresident status. This is important to Detroit because a resident of the city pays 2.4 percent city income tax, while a non-resident is liable for city income tax at a rate of 1.2 percent. While a 1.2 percent difference in tax rate may not appear to be dramatic, the underlying privacy issues and potential for fraud or evasion charges could be very significant.
The lawsuit creates a tension between the city's efforts to enforce its tax and the privacy rights of third party tenants of Bedrock properties. Gilbert released a statement indicating that, while he intends to continue to be as cooperative as possible with the city, his company cannot not release confidential tenant information without a valid and final court order. In addition to the lawsuit, Detroit has reportedly been working on a regulation that would require city landlords to report tenant information directly to the city's tax compliance division.
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