Tiger Stadium Tax is Unconstitutional

Michigan's fundamental law is our constitution, which rightly limits the amount of taxes that state and local units of government can impose on the people. Unfortunately, in the desire to spend money on worthy projects, politicians sometimes attempt to bypass it. The "Tiger Stadium Tax" is a classic example.

Facing pressure from Wayne County and Detroit political leaders, the legislature in December passed Public Act 180, which allows certain cities and counties to tax restaurant, hotel, and rental car customers. The revenue would be used to build a new stadium or convention facility, or reconstruct an old one. Although primarily written for Detroit's Tiger Stadium, the law provides for similar taxes in Kent, Washtenaw, Wayne, Muskegon, Ingham, and Oakland Counties, and for such cities within those counties as Grand Rapids, Lansing, Pontiac, and Ann Arbor.

PA 180 allows three separate taxes, but the majority of the revenue would come from a 1% "excise" tax on the "sale of food and beverages, including alcoholic beverages, for immediate consumption." As required by the "Headlee" amendment, the taxes must be approved by the voters, although the law allows a convenient bundling of the three taxes into a single ballot question.

Michigan's constitution, in Article IX, section 8, states:

The Legislature shall not impose a sales tax on retailers of more than 4% of their gross taxable sales of tangible personal property.

Michigan restaurants now charge the full 4% sales tax on every meal and drink consumed on the premises. The Tiger Stadium Tax would make that five percent: four percent sales tax, plus an additional one percent "excise" tax. Now, even in the Michigan legislature, four plus one equals five. A five percent sales tax clearly exceeds the four percent limitation.

Tax proponents defend the law with two main arguments. They first argue that the constitution limits the state to a four percent sales tax, but that this is an excise tax, so it doesn't count.

This is verbal circumlocution. Sales taxes, like use taxes and other government charges levied on the purchase of goods and services, are excise taxes.

In a strikingly similar case, the Michigan Supreme Court ruled a similar tax unconstitutional 33 years ago. In Lockwood v Commissioner of Revenue, the court found that a 1% "use" tax levied on top of the existing 3% sales tax exceeded the constitutional limit on the sales tax rate, which was then 3%. The court concluded:

In short, a levy of 4% is now made on every loaf of bread, every pair of shoes, and every stick of furniture despite the constitutional limitation of 3%.

Substitute the current 4% constitutional limitation and an additional 1% "excise" tax, and the same conclusion is reached about the Tiger Stadium Tax. Simply calling a duck a "dog" won't make it bark.

The tax proponents' second argument is that the constitution limits the state to a four percent sales tax, but that this is a local sales tax. Although Article IX, section 8 does not specifically limit local governments, the following sections allocate sales tax revenue to local units of government on a population basis and to the state school aid fund. Sales tax revenue cannot be retained for a local purpose, but must be allocated across the state. As the Attorney General reasoned in a 1970 opinion:

...the legislature is prohibited by the Michigan Constitution of 1963 from granting local units of government the authority to levy a sales tax.

Thus, the Tiger Stadium Tax hits into a constitutional double play: Michigan municipalities can't levy a sales tax exceeding the 4% limit by calling it an "excise" tax, and even if they could, they would have to send the money elsewhere. Two arguments up, two out.

Michigan's history is full of examples of efforts to bend, bruise, and break constitutional limits on the power to tax. The Tiger Stadium Tax is only one in a long line of attempts to finance worthy causes by unworthy means. Michigan cities and counties should heed the constitution, and reject the legislature's invitation to an unconstitutional tax.