City of East Lansing: Pay Up (Please)

Some East Lansing residents have been surprised at their mailboxes, receiving letters from the city suggesting they might be delinquent in payments of the city income tax.

Previously, East Lansing voters approved a tax – 1% for residents and 0.5% for non-residents who work in the city – in 2018 by a wide margin, with 58% of the electorate approving. 

ELi became aware of an effort by the city to collect revenue from previous tax years at a special City Council meeting in January. East Lansing Finance Director Penny Wright outlined the work the city was doing with third-party administrator, Innovative Software Services of Eaton Rapids. Since then, ELi has also spoken with several city residents who were shocked to receive tax collection letters.

Joshua Davis is a new resident of the Bailey neighborhood who received a letter telling him he might owe the city income tax from 2021, requesting he prove he lived outside the city that year. 

“I don’t understand why the City of East Lansing is asking residents to prove they didn’t live here,” Davis said. “Their methodology is flawed. Just because I filed a tax return in East Lansing in 2022 doesn’t mean I lived here. I ignored the first letter and can’t even find it. But then I received an assessment on Dec. 11 with [a] tax [bill] due.”

Davis lived in an apartment in Lansing from 2019 until he and his partner closed on their home in East Lansing in March 2022. He had to find a lease for his old apartment to prove to the city he didn’t reside in East Lansing in 2021.

His partner has since received his own letter, inquiring about his 2021 residence.

“It just doesn’t make any sense that the onus is on the residents to prove their residency,” Davis said.

ELi spoke with Wright earlier this month to learn about the city’s work to reach non-filing residents. Wright has been in her position since May 2023.

The city purchases records from the State of Michigan showing East Lansing residents who paid state income tax. Wright couldn’t tell ELi how much the city paid for those records. The state data is then checked against past years of city income tax payers to determine who hasn’t paid.

“We don’t know if somebody is a resident or not so we really have to ask for their help,” she said, “but the important thing here is that the goal is to work with them truly through this process, not to make it an awful thing or a scary thing.”

Wright said the city has finished reviewing the 2020 and 2021 returns and were almost done with 2022.

Britt Bruens and Jason Steinman have called East Lansing home for 11 and 15 years, respectively. Today, they live in the South Marble neighborhood and also received a tax letter from the city.

“I can’t recall for sure,” Steinman said. “I’m pretty sure I voted for the tax. I generally just vote ‘yes’ on things like that because they improve the community.”

“We do all of our taxes through H&R Block,” Steinman continued.

“And have for 15 years,” Bruens added.

“But they made a mistake for 2020 and 2021 that ended up costing us,” Steinman said. “We thought they had taken the city taxes into account but they didn’t. We ended up getting a bill for the taxes along with penalties and interest.”

“I went to H&R Block and I took the letter with the penalties and interests,” Bruens said. “They had just done my new taxes two weeks ago and they deducted the amount we owed the city from what we owed them for doing our taxes.”

“What really sucked,” Steinman said, “we just did a big basement renovation and dumped a lot of money into our home and it really sucked that the tax bill showed up after that.”

The couple said they worked with Katrina Tomlinson, the city’s income tax administrator, to rectify the situation. She was able to waive the penalties but not the interest, because it is a state mandate.

“When an individual goes to H&R Block or uses TurboTax, it’s really [about] finding out what their capabilities are,” Wright said. “For H&R Block, what can they do? For TurboTax, I know they do Federal and State e-filing. I know a couple of individuals got the message that pops up [saying] you have to print it off and mail it in. I think it’s hard sometimes. I would say always check. For professional tax preparers, there are several that use tax software that will upload. When individuals file their taxes, they can put their routing numbers for electronic refunds or making payments.”

Lydia Tang of the Bailey neighborhood was also surprised to find that she and her husband had erred in the payment of their city income tax.

“They contacted me and my husband about missing taxes,” she said. “It was so upsetting because I thought we had done everything right according to our e-filing software and were completely taken aback by its totally separate, unconnected and unadvertised additional process. It was very poorly communicated and the infrastructure for collecting it seems to be punitive and archaic. We owed three years of taxes plus late fees.”

Tang, who said she utilized a CashApp program to pay their taxes, said part of the confusion was knowing that city income tax was being withdrawn from her paycheck.

“It was a shock thinking we had been getting the money withdrawn from our paychecks,” she said. “We got taxed and didn’t know there was a whole [additional] step.”

Tang may have been unaware that those who live and work in the city of East Lansing are taxed both at work and on their yearly income taxes. Wright said the city has relied on cooperation from East Lansing employers in the tax process.

“Companies,” she said, “I think are super to work with and really do a good job. They have to do the withholding for anyone who works in the city, non-residents, and then they also have to file a return.”

Wright understands not everyone is happy to receive a letter about unpaid taxes, but she is grateful for the congeniality shown by most.

“I want to thank them for being so good when they call in,” she said. “Truly, they are pretty kind and have been easy on Katrina and the processing center. Even when there has been some frustration, they’re just very nice. I’m pretty positive now [with] where we’re at.”