Senate OKs early phase-out of MBT surcharge

October 10, 2008
| By Pete Daly |
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An early phase-out of the 22 percent surcharge on top of the Michigan Business Tax has passed the Michigan Senate and now goes to the House. Elimination of the surcharge revenue would require state government spending cuts, with a key Senate leader stating that a possible solution could be a cap on the "wide open" film industry refundable credit.

Sen. Mark Jansen, R-Gaines Township, sponsored Senate Bill 1242 to speed up the phase-out of the surcharge over the next three years. The surcharge, which was tacked on to the MBT to help the state government avoid a budget crisis, is scheduled for a 10-year phase-out. If the Senate bill passes the House, the surcharge revenue would drop from the estimated $724 million expected this year to $482 million in 2009, and then to $241 million in 2010, and to zero after that, according to an announcement from the Michigan Manufacturers Association. The MMA has testified in favor of the bill before the Senate Finance Committee.

Mike Johnston, MMA vice president of government affairs, said when the surcharge was enacted, the state's business community "stepped up to solve an emerging problem" with the $700 million it generated, above and beyond the business community's tax obligations under the MBT.

“We appreciate the Legislature keeping faith with the understanding that this was a temporary fix,” said Johnston.

Jansen said an early phase-out of the surcharge would send a needed message to Michigan business.

"They're asking me ‘Why should I stay here (in Michigan)' or 'Why should I even stay in business?' I don't think people realize we're at a tipping point here in Michigan," Jansen said, referring to the economic problems facing the country and the state.

"Many of them (Michigan businesses) are hanging on by a thread," said Jansen.

"One of the reasons I did a three-year phase-out was I knew I had to work with the governor and the House," said Jansen. "I wanted to be reasonable."

Everybody has ideas of where to find the dollars to cut from the state budget, Jansen said.

When asked about his ideas, Jansen mentioned the movie industry credits and the state corrections system, where "an awful lot of money" is spent.

Jansen said the movie industry credits are wide open. “Quite a few of us believe if we rein that back in, we can find savings there."

He said the Senate finance committee has agreed to propose a cap on the film industry incentive credit of $50 million a year in total payments made to movie producers.

The film industry incentives involve a refundable tax credit that in effect subsidizes movies filmed in Michigan. An amount equal to 40 to 42 percent of a movie's cost spent in Michigan is applied to that movie company's Michigan Business Tax, and the remaining balance after the tax is paid will be paid in cash to the company. Because the impact of the complicated Michigan Business Tax is difficult to predict, the Business Journal has been unable to locate any tax expert or state tax official who can predict precisely how large the cash subsidy for any given movie production might be.

Various state officials have reported that Michigan will apparently owe movie producers more than $100 million for movie productions filmed here in 2008, if all that have signed up for the credit follow through on their plans.

Jansen said when the film incentives were debated in the Legislature last winter, "They had estimated it was going to be 40, maybe 50 million dollars. We're already up to a hundred … into a 150 million (dollars), and there's no restraints on this. This thing could literally go up to a half-billion. And the taxes coming in (as a result of movie industry spending in Michigan) no way pay for the credit itself."

"I think we're now finding we can't afford to do what we have on the table right now," he added.

Jansen said he does believe an incentive for movie productions in Michigan is "a good investment for Michigan — within reason. And the uncapped version (of the movie incentive law now) is not within reason."

The Legislature is also taking aim at sections of the MBT that have added significantly to the tax on commercial real estate transactions. Those four bills were co-sponsored by Michael Sak, D-Grand Rapids. One would provide a 10-year carry-forward of negative gross receipts; another would provide a 10-year carry-forward of investment tax credits. A third bill would allow a subtraction from the gross receipt tax base, and the fourth would exclude common area maintenance fees from gross receipts.

According to Curtis Ruppal, a partner in Plante & Moran's state and local tax division, the amendments will help ease the MBT's additional burden placed on real estate developers.

Another bill passed by the Senate in early October would make "a series of technical corrections" to the MBT, according to the Commercial Board of Realtors-Michigan. It would prohibit the Department of Treasury from imposing the MBT on sales taxes collected by Michigan retailers.

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