MBT Plus Surtax Bites Warehouse Operations

December 10, 2007
| By Pete Daly |
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GRAND RAPIDS — One might say the warehouse industry in Michigan went from the fire back into the frying pan, when the state repealed the controversial service tax on Dec. 1 and substituted a surtax on top of the new Michigan Business Tax.

Better — but it's still uncomfortable being a 3PL in the frying pan.

Third-party logistics, or 3PL, refers to warehousing and trucking companies. Under the new Michigan Business Tax, the companies that don't make out so well are the mid-size companies that don't qualify for the credits allowed under the MBT, according to John Zevalkink, who runs Columbian Logistics Network with his brother, Jim.

"In the logistics business, we don't have much personal property. We don't get many credits for the types of things we do," said Zevalkink.

Columbian Logistics Network, a 100-year-old family-owned business headquartered on Hall Street in Grand Rapids, operates four warehouses in West Michigan and a fleet of 80 tractor-trailers. The company employs about 150 people.

Zevalkink said the company did an informal survey of its acquaintances in the logistics industry and learned that the "impact of this change from the Single Business Tax to the Michigan Business Tax, with a surcharge on it, means my industry will pay somewhere from 25 percent to a 125 percent increase in (state) tax." He added that "most logistics companies will be paying at least 50 percent more."

The service tax would have made the situation even worse. The logistics industry in West Michigan, in particular, faced a loss of business to competitors in Indiana. When it was announced this fall, Zevalkink said, "Within one week I was getting phone calls from commercial real estate companies in Indiana, asking if I was interested in moving some of my warehouse business to Indiana."

Michigan State University did an economic impact study of the service tax for the International Warehouse and Logistics Association and concluded in late November that the 6 percent service tax (also called "use tax") would have driven much warehouse and transportation business out-of-state, resulting in the loss of more than 7,000 jobs and a net annual loss of $55 million in tax revenues for the state and local governments.

Michigan is "still not a state that is … particularly friendly to business," said Zevalkink.

Ironically, 3PL is an industry that is growing in Michigan, despite the overall shrinkage of the manufacturing industries. Nationwide, 3PL growth has been about 15 percent annually over the last several years, said Zevalkink.

"We haven't experienced that much growth in Michigan because of the economy, but it's definitely growing in Michigan. It's not a shrinking industry," he said.

He attributes the growth to many industries deciding that it is more expedient to use a logistics supplier than it is to do it in-house.

"Our industry has become more sophisticated," said Zevalkink. "There is a real concentration on inventory accuracy and just-in-time deliveries to manufacturing plants. The industry has become focused on information and timeliness and the systems required to make all those things happen today.

"No longer can somebody just open a building, put some pallets in it and be in the logistics business. That's not what it's about anymore. It's very sophisticated," he added.

An example of that level of sophistication is Columbian Logistics Network's designation as the general operator of Foreign Trade Zone No. 189, serving Kent, Ottawa and Muskegon Counties. The Foreign Trade Zone is located at two of CLN's facilities: Columbian Distribution Services at 900 Hall St. SW in Grand Rapids, and Columbian Interstate Services at 2900 Dixie St. in Grandville.

Under the law, Foreign Trade Zones are treated as being outside of the United States. Under Foreign Trade Zone procedures, foreign and domestic merchandise may be admitted into the zone without being subject to formal customs entry procedures, the payment of customs duties or the payment of federal taxes.

Within the Foreign Trade Zones, merchandise may be assembled, stored, processed, salvaged, destroyed, relabeled, mixed, repaired, sampled, cleaned and repackaged. The FTZs are a reflection of the global nature of business today.

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