Michigan could see tax windfall from marijuana, betting and online shopping
It’s the stuff of fantasy: A golden ticket that alleviates money woes. For Michigan lawmakers, that time might be nigh.
The next governor and Legislature are staring at the possibility of three big streams of cash next year: Money from newly legal marijuana sales and sports betting, as well as increased sales tax receipts from online retailing.
Combined, they could add another $100 million to $500 million or more to state coffers.
“It’s new money. And new money makes people smile,” said Richard LeBlanc, Westland city clerk and a former state representative.
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To be sure, the revenues wouldn’t solve all the problems in Michigan, which has a $56.5 billion budget, of which $33 billion comes from state sources like the income and sales tax. But the new money would present a unique opportunity in a state that for years had to debate how to cut budgets rather than increase them.
“They’ll spend every dime,” quipped Mitch Bean, a former fiscal analyst for the House Fiscal Agency.
Michigan has many needs. Commissions appointed by Gov. Rick Snyder to study infrastructure and education estimate the state needs to spend $6 billion a year to catch up. The state’s public pensions are woefully underfunded. And many politicians, including GOP gubernatorial candidates Bill Schuette, Patrick Colbeck and Dr. Jim Hines, want to cut taxes.
“This (new money) would not solve all the world’s problems, but it will alleviate some of the budget problems,” said Jeff Guilfoyle, vice president of Lansing-based consulting firm Public Service Consultants, and a former director in the Michigan Treasury Department.
Favorable rulings, big money
The new revenues would come from three sources:
- A ruling last week from the U.S. Supreme Court that states could require online retailers to collect sales taxes on all purchases, upending three decades of rulings.
- A federal high court decision in May that knocked down a law that allowed only Nevada to have sports betting.
- The likelihood that Michigan residents will vote in November to legalize recreational marijuana. Polls show 60 percent of residents favor the referendum.
Online sales taxes would raise tens of millions of dollars to more than $200 million per year, said Guilfoyle. A federal report estimated $3 billion annually is uncollected, he said, and Michigan’s share could be huge.
Michigan already saw a roughly $60 million annual increase when it adopted a law in 2015 that sought sales tax from online retailers who had a physical presence in Michigan.
But Michigan doesn’t have to do anything to get the tax from all retailers following the Supreme Court ruling (in the past, Michigan residents were supposed to pay the sales tax on Internet purchases when they paid their income taxes; few ever did).
“It’s going to be a big number,” Guilfoyle said.
Marijuana legalization would raise $100 million to $200 million per year based on the proposed 10 percent tax rate.
Unlike possible new revenues, however, lawmakers would have little discretion about how to spend the money. The referendum calls for 35 percent for K-12 education, 35 percent to roads, and 15 percent apiece to communities and counties where marijuana businesses are located.
Even so, the extra money would take pressure off the state’s general fund, which funds schools, roads and local communities.
Michigan’s proposed tax rate is on the low end of states that have legalized the drug: Colorado raised $247 million in taxes last year on a 30-percent tax, while Washington state generated $315 million on a 37 percent tax.
Both states have far fewer residents than Michigan, however, so the state’s coffers would swell exponentially if the Michigan Legislature eventually raised taxes (assuming voters approve the referendum.)
Sports betting is the wild card and is expected to be a far smaller revenue source.
Legislators are already looking at bills to bring it to the state and voters may have to approve any expansion of gambling.
Nevada taxes sports betting at 6.75 percent, and made $17 million in taxes, while New Jersey anticipates $13 million to $34 million off taxes that range from 8 to 15 percent, depending on the location of the sports wager.
Roads or taxes?
More money is a good problem to have, and Bean said legislators likely will to fall into familiar camps.
Some will want to attack chronic problems in Michigan with new spending, while others will want to cut taxes such as the state income taxe that jumped to 4.35 percent from 3.9 percent under former Gov. Jennifer Granholm. The tax was supposed to go back to 3.9 percent but it was made permanent at 4.25 percent in 2011.
LeBlanc, a Democrat, and Bobby Schostak, a Republican political consultant and former chairman of the Michigan Republican Party, agree that almost all lawmakers will focus on fixing the state’s roads and bridges.
“Infrastructure and schools,” Schostak said when asked what lawmakers should do with the new money. “They know they have to put more money into infrastructure.”
LeBlanc said two generations of Michigan residents don’t know what it’s like to drive on good roads. He doubts there’s a single legislator running for office who thinks otherwise.
“Anybody who would not support putting some of this money into roads would be an absolute fool,” LeBlanc said.
The state has committed $300 million this year for road construction, as part of Snyder’s signature 2015 $1.2 billion road package.
“The budget is under tremendous pressure because of transportation dollars that are going to be coming out of the general fund budget,” Guilfoyle said.
“This could seriously help.”
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