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 All Signs Point to Service Tax Elimination By John D. Lindley, senior director, Government Relations & Regulatory Affairs, MACPA
At press time for Leaders’ Edge, the expanded Michigan Use Tax remains in
place – scheduled to include select services beginning December 1, 2007, as
enacted by Public Act 93 of 2007. Although introduced and acted upon in both
the Michigan House of Representatives and Senate, legislation to eliminate
or delay the new service tax has not been passed nor signed by Governor Granholm. This fact has many businesses across the state devoting
considerable resources and incurring significant costs in preparation to
implement the new tax (to the tune of $14 million a day according to a
macroeconomic study released by the
Detroit Regional Chamber of Commerce) –
all of which may ultimately be unnecessary.
Under pressure from a unified business community and outraged taxpayers, both chambers of the Legislature have made clear their intentions to eliminate the expanded Use Tax before it goes into effect. The Granholm administration has indicated support of these efforts, given a dollar-for-dollar replacement of the revenue that would be raised by the service tax (approximately $713 million in the first full fiscal year 2008). So what’s the delay? While unified in efforts to eliminate the service tax, there is no unity among the business community and other taxpayers to identify the necessary alternative revenue sources. Although continuing to be pushed by many, the Legislature has no political appetite for raising the individual income tax again (the rate was raised from 3.9% to 4.35% as a portion of the budget agreement struck on October 1). Many view an increase in the sales tax rate as the most practical approach. Perhaps as unlikely as the income tax increase, the option of increasing the sales tax rate by either a penny or a half cent would require a super-majority (2/3) vote in both chambers of the Legislature and an approval by voters on the next ballot. Then what’s left? Another solution would replace the revenue associated with the elimination of the service tax within the newly enacted and yet to take effect Michigan Business Tax (MBT). After several weeks of meetings, members of the House along with a legislative workgroup comprised of representatives from multiple sectors of Michigan’s economic marketplace, introduced legislation to eliminate the service tax and replace the revenue with a “surcharge” on MBT liability. House Bill 5408 places a surcharge on the MBT of 32.9% through 2008 and 27.3% thereafter. It also contains a $2 million dollar cap on exposure. As passed by the Michigan House of Representatives on Thursday, November 8, HB 5408 remains the only proposal that would ensure complete elimination of the service tax. So, again, what’s the delay? The Senate Committee on Finance hearing on Thursday, November 15, offered business groups and taxpayers an opportunity to communicate support or opposition to the solution offered by HB 5408. After more than four hours of testimony (some in favor of the proposal, some in favor of the proposal in the event a particular amendment or two is made, and some in outright opposition of the proposal) no amendments were offered, no substitute proposals introduced, and no votes taken. A Senate workgroup similar to the House group that originally developed the proposal encompassed by HB 5408 will meet Tuesday, November 20. This group is expected to either introduce a new alternative altogether or suggest changes to HB 5408 in the hopes of quickly passing a measure to ensure the Governor’s signature and ultimately eliminate the service tax. |
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| PO Box 5068 Troy, MI 48007-5068 Phone: 248.267.3700 Fax: 248.267.3737 E-mail: macpa@michcpa.org | |
