Seems To Be A Good FIT

July 13, 2007
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LANSING — The state's new business tax, which is awaiting the governor's signature, will cost the banking industry twice as much next year as the old one will this year. But it appears that Michigan bankers can absorb the increase without raising commercial lending rates.

The Michigan Business Tax (MBT) will replace the Single Business Tax (SBT) on Jan. 1. The Financial Industry Tax (FIT) falls under the MBT but is really a distinct levy, one that is specifically aimed at how bankers define their business.

Michigan Bankers Association Vice President of Communications Gail Madziar said a separate tax had to be created for the industry because a bank's definitions of capital and assets are different from most other businesses. So the Michigan Bankers Association worked with the two state chambers, Gov. Jennifer Granholm and the Michigan Treasury Department to come up with what the industry thinks is a good FIT.

"It's the definition of money, basically. What we wanted to do was carve out something that would be fair and equitable for the banking industry that would benefit the state, but also not put such an undue burden on our industry that banks would suffer adverse effects," said Madziar.

In addition to having a tax that would be equitable to the industry and the state, the banking association also wanted the levy to be fair for banks of all size. It didn't want one class of banks taking on more of the tax burden than another, and Madziar said only the Michigan Bankers Association could determine that aspect of the FIT.

"We need a vibrant economy, and they were willing to step up. No one likes a tax increase, but we knew that there would be one. We just wanted to make sure that it was reasonable, and that banks would be able to handle the increase," she added.

The MBT taxes most businesses on gross receipts and income, while the FIT taxes banks on their combined capital and at a rate of 0.235 percent. But investments that lenders make in their school districts and communities will be exempt from the tax and can be deducted from the combined-capital figure, so as not to discourage those investments.

The Michigan Bankers Association and state Treasury estimated the banking industry will pay from $60 million to $70 million in taxes next year under the FIT. Under the SBT, according to the Treasury, the industry's tax burden fell between $30 million to $35 million. But a few nuances of the new tax still have to be ironed out before it becomes law.

"There will be a few issues addressed in clean-up legislation, and I think we will see a little bit of clean-up legislation this fall. When you're looking at all industries across-the-board and trying to come up with all the details of a tax that will work, that is very, very detail-oriented," she said.

Even with a double-tax tab facing bankers, Madziar didn't think lenders would pass that hike on to commercial borrowers through higher interest rates.

"No, I don't think so. I think the banks will see this as another cost of doing business. The rates have to remain competitive. That was our whole point with making sure that this was an across-the-board increase — so that one type of bank wouldn't get hit harder and then they're at a competitive disadvantage," she said.

"This way all the banks are looking at everything in the same way, and things should remain competitive."

Madziar said the House, Senate and administration were very receptive to the ideas the Michigan Bankers Association offered on the new tax. She also said that state Treasurer Robert Klein knew that banks had to be taxed on a different basis than other industries.

"They understood going in that this was something that had to be addressed in a separate issue. Overall, it has been a very, very intense process," she said.

"We found something that was fair and equitable, and we were at the table a long time. We knew this was coming. We knew that there was going to have to be an increase, and we just wanted to make sure that all things were taken into consideration because, again, the banking industry — the financial industry — is so different than other industries."     

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