Legislature Faces Taxing Choices

December 1, 2006
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LANSING — Manufacturers would pay less, while insurance companies and real estate firms would pay more. At least that’s the early return on the Michigan Business Tax, the Single Business Tax replacement that Gov. Jennifer Granholm proposed last week.

The governor said the MBT was a good business tax and a great tax for Michigan, as 77 percent of the state’s businesses would get a tax break while the rest would pay more under her proposal.

Senate Majority Leader Ken Sikkema, R-Wyoming, called the MBT a “credible plan” and said the Senate would seriously review it.

But State Rep. Fulton Sheen, a Republican from Plainwell who chairs the House Tax Policy Committee, said the two chambers likely don’t have enough time left in the current lame duck session to clear such a complex tax bill.

Granholm said the MBT would raise $2.5 billion in 2008, a figure that exceeds the $1.9 billion in revenue the SBT generated and covers a tax cut of $600 million to the personal property tax.

The MBT includes a 1.875 percent tax on profits; a 0.125 percent tax on assets and gross receipts; and a 1.25 percent tax on insurance premiums, up from 1 percent. Employee wages and benefits wouldn’t be taxed, while equipment and machinery purchases (personal property) would be exempt from state school property taxes under the plan.

Small businesses that have annual gross revenues of less than $350,000 would not be taxed, while those with gross revenue between $350,000 and $700,000 would pay a small graduated tax. The MBT would also establish a credit for research and development firms.

“It’s a competitive pro-growth tax that will benefit more than three-fourths of businesses while protecting funding for critical programs like health care, public education and public safety, and providing a tax cut for Michigan businesses,” said Granholm.

But the governor’s proposal isn’t the only business tax plan in front of state lawmakers. According to the Grand Valley Metro Council, at least five others are competing for the Legislature’s attention. Here are highlights from those proposals.

  • The Detroit Chamber of Commerce has submitted a gross receipts levy that would tax all businesses with revenue of over $350,000 a year at various levels. The plan also includes an annual business license fee that would be based on revenue generated through in-state sales.

  • The Michigan Chamber of Commerce plan would utilize a tax on business income or profits with a gross receipts factor that would start at $350,000. Businesses with less than $350,000 in gross receipts and that have employees would pay an annual fee of $150. Small firms under that gross receipts figure, with no employees, wouldn’t pay the fee.

  • The plan from the Grand Rapids Area Chamber of Commerce uses a value-added gross receipts tax with a modified profits tax. The gross receipts factor would be 0.75 percent or less. The proposal eliminates the SBT and personal property tax and maintains the $350,000 threshold for gross receipts. Businesses under the threshold with employees would pay an annual fee of $150.

  • The Michigan Fair Tax Group plan replaces the SBT, the personal property tax and the state income tax with a higher sales tax rate of 8.5 percent.

  • Gary Wolfram, an adjunct scholar at the Mackinac Center for Public Policy and former Washington chief of staff for U.S. Rep. Nick Smith, would let businesses choose to be taxed on profits or gross receipts. That plan would also allow for reductions on the cost of manufacturing or delivering a service.

“It is very similar to the tax structure that was in place from 1953 to 1967,” said Don Stypula, GVMC executive director, of the Wolfram proposal.

The SBT expires at the end of 2007. The current state legislative session is expected to end on Dec. 15.    

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