The results of the November 7th election will play heavily on the ultimate look of Michigan’s business tax structure following the expiration of the Single Business Tax this December.

Governor Jennifer Granholm’s re-election confirmed it would not be smooth sailing for Republican-backed proposals. Now, add the Democratic control of the State House of Representatives and the smaller majority for Republicans in the State Senate, and the chances for any proposal to be quickly passed are slim-to-none. How Democrats will react to their newly-found power, how Gov. Granholm will react to having the House share her philosophies, and how cooperative Republicans will be are all questions that will need to be answered before determining if the new structure will be, for example, revenue neutral or contain tax relief.

Below are the current proposals circulating among policymakers and pundits. In addition to the proposals outlined, the Michigan Department of Treasury is exploring options. Concerned with the possible increase in tax liability many of the proposals may cause to some sectors, the Treasurer and other department officials are attempting to develop structures that may mitigate these effects.

Detroit Regional Chamber of Commerce
One of the first organizations to develop and publicly release a plan to replace the Single Business Tax, the Detroit Chamber’s proposal was greeted quickly with approval, even garnering the endorsement of current House Majority Floor Leader Chris Ward (R-Brighton). The Detroit Chamber is calling its proposed structure an “Annual Business License Fee” based on a company’s gross receipts. The fee ranges from $1,000 to $1,000,000 on a graduated scale, maintaining the SBT’s current $350,000 threshold (this time for sales, instead of activity) for applicability and caps the tax at a maximum of $1,000,000. Effectively, the rate will vary from approximately .2 to .5 percent.

Michigan Chamber of Commerce
The state Chamber, arguably one of the most politically influential organizations in Michigan, released a proposal which includes personal property tax relief of 50 percent for all industries. The Michigan Chamber’s plan combines a 3.05 percent business income tax with a license fee paid on gross receipts, similar to the Detroit Chamber’s. This “license fee,” however, is not based on a scale, rather a defined rate of .48 percent generally, with .24 percent on retail and wholesale operations. The proposal also calls for continuation of the $350,000 threshold (again, on gross receipts); however, it includes a $150 minimum tax and a $2,000,000 cap.

Grand Rapids Area Chamber of Commerce
The Grand Rapids Chamber’s proposal also combines a business tax with the personal property tax; however, in this case the property tax element is completely eliminated. Titled “Michigan Business Activity Tax” or MBAT, this plan recommends a flat fee of $150 for businesses with under $350,000 in gross receipts and a single, low, flat rate not to exceed .75 percent on business activity. The Grand Rapids Chamber defines business activity as Michigan sales/service revenue, minus the cost of tangible personal property for the purposes of resale, manufacturing, leasing or the costs of funds for financial institutions.

Fair Tax
Championed by State Representative Fulton Sheen (R-Plainwell), this proposal calls for the elimination of Michigan’s individual income tax, personal property tax as well as the SBT, and increases the current 6 percent sales tax to 8.58 percent. Additionally, the sales tax base would be expanded to include all services, exempting medical services, education and business-to-business services.

Michigan Jobs & Investment Act (Governor Jennifer Granholm’s Proposal)
First introduced in January of 2005, the Governor’s proposal does not eliminate the SBT (which causes some confusion as to how it would be passed legislatively and implemented given the SBT’s December 31, 2007 demise). Rather, her plan drastically restructures major portions of the current tax. The only plan viewed as being overall revenue neutral, this plan lowers the SBT rate to 1.2 percent, provides for a 35 percent tax credit for manufacturing personal property and research and development, changes to 100 percent sales factor, increases profit weighting, and raises the insurance tax to 2 percent of premiums.

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