A Taxing Time

May 14, 2007
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GRAND RAPIDS — House Democrats have come up with a replacement for the state Single Business Tax they said will bring in $1.9 billion of revenue, the same amount the outgoing business tax recorded last year.

Senate Republicans have come up with an SBT replacement that will draw slightly more than $1.3 billion in revenue and give state businesses about a $600 million tax break.

But Republican Rep. Fulton Sheen of Plainwell and Kalamazoo businessman Roger Buchholtz have taken the replacement idea a step further. They want to rid the state of the business tax, the personal income tax, and just about every other state tax, and replace all of those with a higher sales tax.

Buchholtz, director of the nonprofit Michigan Fair Tax Association, said raising the 6 percent sales tax by less than three cents on the dollar, while adding services to the tax roll, would raise the $19 billion in revenue the state receives from six taxes. His organization has proposed a sales tax rate of 8.58 percent, and he said action on it needs to be taken quickly.

“To achieve the maximum economic benefit of enacting a Michigan Fair Tax, it is imperative that Michigan be the first state to adopt such a business-friendly tax. Time is of the essence, as some states are already looking at adopting a state Fair Tax,” said Buchholtz, who owns an import-export business.

A higher sales tax, which could go up to 9.5 percent, would also replace the personal property tax that businesses pay on equipment purchases and the state education tax business owners also pay. Just eliminating those two would mean about a $2.4 billion business tax cut. Add in repeals of the business tax and the insurance proceeds tax, and businesses could save over $4 billion a year in annual state taxes.

“In order to compete with Michigan, other states will soon follow our lead. A Michigan Fair Tax will cause us to be the most attractive state in the Union in which to do business,” said Buchholtz.

Sheen said he likes the sales-tax idea because everyone would pay the same taxes, and low-income residents, who normally are hurt the most by a sales tax, would be protected. He said about a dozen Republicans support the concept, but he is going to need many more in his corner to make the change.

Enacting a higher sales tax to replace existing levies means voters have to amend the state Constitution, and there are two ways to get the measure before voters. If both the House and Senate approve the resolution by a two-thirds majority, the proposal gets on the ballot.

“It will go no place in the House and Senate,” said Don Stypula, Grand Valley Metro Council executive director.

Stypula said most lawmakers aren’t going to abandon their respective business taxes that easily. So, he said, backers of the sales tax are going to have to enact their Plan B and gather signatures of registered voters in a statewide petition drive, if they want the proposal on the ballot in 2008. Stypula said a petition drive would cost them from $2 million to $5 million.

Stypula also said House Democrats will reject the business tax from Senate Republicans, who will return the favor, and both versions will go to a conference committee. He expects a new business tax will be voted on within a month.

The public sector favors the House’s offering because it fully replaces the revenue that will be lost when the SBT expires on Dec. 31, and because it contains $700 million worth of tax credits. The Michigan Township Association, the Michigan Municipal League and the Grand Rapids City Commission are behind it.

“For starters, it incorporates tax credits from the old SBT for brownfield projects and historic rehabilitation, which have enabled many communities to attract economic development,” said Andy Schor of the Michigan Municipal League.

“It also provides a credit to businesses against the personal property taxes paid to the local government. Therefore, it provides significant personal property tax relief to businesses without jeopardizing local communities’ funding,” said Summer Minnick, also with the Michigan Municipal League.

The state’s largest business organization, the Michigan Chamber of Commerce, backs the Republican plan. Tricia Kinley, director of tax policy and economic development for the state chamber, said the organization likes it because it’s based on gross receipts and offers a straightforward reduction to the business tax.

“The Michigan Chamber was intrigued by the House bill, but held back its full support,” said Stypula.

The promise of a new business tax this year — and the possibility of a new state tax structure next year — has energized public officials. But none locally are getting overexcited due to the revenue-sharing situation.

Stypula said Republicans cut 10 percent of the statutory revenue sharing to cities and townships for this fiscal year because tax revenue is down by the same percentage, and he doesn’t think the reduction will be rescinded.

“I don’t see the Senate Republicans budging on this, this year,” he said. “There will be cuts for this fiscal year.”


Businesses Get A Big Break

The Michigan Fair Tax Association claims a personal sales tax rate of at least 8.58 percent could replace the $19 billion of revenue the state received in FY06 from six tax sources. If so, then business is a big winner.

Eliminating the Single Business Tax, the Insurance Proceeds Tax, the Personal Property Tax on equipment and machinery, and the 6-mill education tax would save state businesses about $4.5 billion a year.

Here are the taxes and revenues the Michigan Fair Tax proposal would replace with a sales tax.

2005-2006
Amount

Fair Tax
Replacement Rate

Convert state sales
tax to Fair Tax

$8,360,500,000

3.76%

State individual
income taxes

$6,150,400,000

2.77%

Single Business Tax & Insurance Proceeds Tax

$2,115,800,000

0.95%

Personal Property Tax

$1,800,000,000

0.81%

State 6 mill Education
Tax on businesses

$653,000,000

0.29%

Replace all above taxes

$19,079,700,000

8.58%

Source: Michigan Fair Tax Association, August 2005

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