LANSING — The Michigan Department of Treasury has drastically reduced its auditing of big out-of-state corporations that do business in Michigan, resulting in reduced revenue and a greater tax burden placed on smaller, Michigan-based companies, the House Oversight Committee was told May 19.
Clay Cornelius, an assistant administrator at Treasury, and Sean Lowery, a former auditor manager who left the department in 2024, after nearly 20 years, to join the IRS, testified that mismanagement has resulted in the number of employees who audit companies based outside of Michigan to plummet from 28 auditors and five team managers in 2019 to eight auditors and one team manager in 2025.
A March 2 letter to the committee from Michigan Treasurer Rachael Eubanks confirmed those numbers and said the number of Treasury employees who audit Michigan-based companies declined only slightly during the same time period, from 129 auditors and 22 team managers in 2019 to 119 auditors and 18 team managers in 2025.
That makes no sense, Cornelius and Lowery told the committee, because Fortune 500 companies and other large companies that do business in states nationwide — which include big box stores, cell phone service providers, and restaurant chains — account for the bulk of corporate income tax and sales and use tax that Michigan collects, they said. The department, they said, has disproportionately shifted the audit burden away from large out-of-state companies onto smaller Michigan-based ones, they said.
“We want it to be fair across the board,” testified Cornelius, a current state employee who stressed he was speaking as a concerned taxpayer and not on behalf of the department.
“We’re not saying, ‘gouge the big guys,'” he said. “We’re saying as the system is set up, it’s very much more likely to gouge the little guys, and that’s inappropriate.”
The shift is also resulting in reduced revenue for the state, since each out-of-state auditor brings in about $2.5 million annually, compared to about $680,000 for each auditor who deals with Michigan-based companies, Cornelius told the committee.
The letter from Eubanks to House Oversight Committee Chair Jay DeBoyer, R-Clay Township, said the number of completed out-of-state audits dropped from 329 in 2019, resulting in about $20 million collected, to 86 audits in 2025, resulting in about $7.6 million collected.
Treasury Department spokespeople did not immediately respond to emailed requests for comment about the May 19 testimony.
Both Cornelius and Lowery said the impact of corporate tax audits is felt far beyond the companies audited. Other out-of-state companies are more likely to voluntarily comply with Michigan tax law if they know there is a risk they will be audited, they said.
In her letter to DeBoyer, Eubanks said a decline in state auditors in 2022 and 2023 was the result of competition with the IRS, which she said had begun paying premiums and bonuses. Treasury responded with a 20% pay bump for auditors, which has helped the number of in-state auditors recover, she said.
“Treasury has made a strategic decision to realize savings by phasing out our out-of-state auditor program and utilize in-state auditors to perform the same work related to out-of-state taxpayers,” Eubanks said in the letter.
Treasury no longer leases office space in other states, where it paid just over $287,000 in rent at five locations in 2017, she said.
Cornelius said having Treasury auditors located in other states can be more cost-efficient in certain ways. But the big issue to him, he said, is whether the out-of-state audits are being conducted, regardless of where the auditors are located, and Treasury’s own numbers show a drastic drop.
Both Cornelius and Lowery said IRS competition was not the reason out-of-state auditors left Treasury in large numbers.
Conditions became intolerable because department leadership set quotas that were not achievable for big-company audits that can take one to two years to complete, they said.
Cornelius said the out-of-state auditors already received a 20% pay premium. He said Treasury in recent years extended that pay bump to all Treasury auditors, which he said was not necessary and did not address the shortage of out-of-state auditors.
DeBoyer said Treasury officials were invited to testify at the May 19 hearing but said they needed more time to prepare.
In a statement released after 7 p.m. on May 19 by Treasury spokeswoman Danelle Gittus, the department said DeBoyer did not inform the agency of the subjects that would be covered at the hearing. A department official will testify at a hearing in June, the statement said.
“Treasury values employee feedback and has taken steps to align audit best practices with the statutory limitations we are required to operate within,” the statement said.
DeBoyer said the testimony from the current and former Treasury employee is highly concerning because of its impact on state revenues and the budget.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com.
This article originally appeared on Detroit Free Press: Michigan loses revenue due to decline in auditors, insiders say
Reporting by Paul Egan, Detroit Free Press / Detroit Free Press
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