City of Detroit sues Bedrock for info on any tax-evading tenants

John Gallagher | Detroit Free Press

The City of Detroit is taking its campaign against tax evaders another big step forward by reportedly suing businessman Dan Gilbert's Bedrock real estate arm for tenant information.

The city has contended for years that many residents who live in the city evade the city's residential income tax by claiming residence in the suburbs.

The city has now sued Bedrock to get tenant information on several of its properties. The city alleges that Bedrock has withheld the information for the past year despite city requests, Michigan Radio said in the first report of the lawsuit.

Gilbert issued a statement citing issues of privacy of tenants as a reason for not providing the information the city wants.

"The City of Detroit has asked our commercial real estate company, Bedrock, to provide it with the confidential personal information of all of our residential tenants, including their Social Security numbers and employers," he said in the statement.

"We do not believe we have the legal right or contractual permission to release the highly sensitive personal information of all our tenants to any third party, including any governmental entity, without the tenant's consent to do so, or a constitutionally valid final court order. … We value the strong relationship our organization shares with Mayor [Mike] Duggan and our city government partners. We have a dispute over this issue, and in this situation the privacy rights of our tenants must take priority."

The city's efforts come about a year after officials first told the Free Press the city was cracking down on tax evaders living or working at 33 properties in the downtown and Midtown areas including New Cadillac Square Apartments and Broderick Tower, two properties sued last year by the city.

In those earlier lawsuits, the city said it believed "many residents" living in the city were using the suburban address of a relative or friend "for purposes of obtaining lower auto insurance rates and/or the purpose of avoiding city income tax liability," the Free Press reported in April.

Claiming a suburban address can help avoid the city's expensive auto insurance rates. Detroit has some of the highest insurance rates in the country.

Detroit's income tax rate for residents is 2.4%. Nonresidents who work in the city are required to pay a rate of 1.2%. Businesses pay a 2% rate. In total, 23 cities across the state have an income tax.

City Treasurer Christa McLellan recently told the Free Press that the scope of the crackdown on tax evaders, which began in 2015, has since widened to include more than 50 properties across downtown and Midtown.

"The city is pursuing passage of a regulation to require landlords to annually report tenant rolls to the city's tax compliance branch and we continue to review tenant information to identify non-filers in the apartments and lofts in the city," McLellan told the Free Press in April. "In addition, the city continues robust collection activities across all industries in an effort to enhance tax compliance. Legal action is used only when voluntary compliance fails."

Contact John Gallagher: 313-222-5173 or gallagher@freepress.com. Follow him on Twitter @jgallagherfreep.