A New Business Tax

The SBT goes away December 2007.  It’s time to decide what kind of business tax we want to have in Michigan.  Several ideas are on the table:

·        Michigan Business Tax:  Last week Governor Granholm proposed a new business tax and she is trying to move it before the end of the year.  It has three components in the base:  gross receipts, assets which will be taxed at .125 percent and business income which will be taxed at 1.875 percent.  Based on an initial review, businesses with less than $350,000 in gross receipts would still be exempt from filing and the tax would ramp up slowly instead of punishing businesses that are not far above the $350,000 threshold.  The tax could still be complicated depending on how businesses are able to calculate income and assets for the tax.

·        Annual business license fee:  Businesses would pay an annual fee based on sales in Michigan.  A company would figure their Michigan sales and use a fee schedule to determine what they owe.

·        Fair Tax:  Eliminate the single business tax, the personal property tax, the state income tax and the sales tax on business-to business transactions and raise the sales tax from 6% to 8.5% or higher.   The tax would only be applied once at the point of final consumption, and money would be given back to lower income residents to overcome the regressive nature of the tax.

·        Business activities tax:  A business activities tax based on Michigan sales which would start at $350,000.  Businesses with at least 1 employee that have sales of less than $350,000 would pay a flat fee of $150.  The tax would be set up so both the SBT and the personal property tax would go away.

·        Income tax/license fee combination:  Bring back a corporate income tax, but keep the rate low and also have a business license fee.  Use this combo in place of the SBT and possibly a portion of the personal property tax.

The SBT currently contributes close to 2 billion a year to the state budget.  Republicans have talked about replacing 1.5 billion with a new business tax, while the Democrats have called for a revenue neutral replacement’ tax that will bring in 2 billion.  Given the election results, you can expect to see a deal that is closer to 2 billion.

The Governor has called on the current Legislature to adopt a plan before they adjourn for the holidays.  Either an agreement will get hammered out in the next few weeks or there will be a long debate in 2007.  Personally, I’d like to see a deal this year.  The current Legislature has been working on this issue for two years.  They are in a better position to make the decision than the new legislators that will replace many of them in January due to term limits.  Some argue that lame duck is too short of a period of time to get a complicated issue worked out.  But the Governor has been upfront that she wants to see it move.  A few weeks is enough time to run models and figure out what kind of an impact it would have on different business segments, and there will always be a risk of a detail getting buried in a bill that has unintended consequences later.  Laws are subject to change.  Getting a deal done in 2006 would be a nice way to end a debate that has taken too long.