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Deal on tax to boost state Businesses to pay less; jobs possible June 28, 2007 By CHRIS CHRISTOFF and DAWSON BELL FREE PRESS STAFF WRITERS (Editor's note: This story was updated at 8:55 P.M.) LANSING -- Michigan businesses finally got a new tax Thursday, more complex than many wanted but one that lawmakers said will encourage new jobs and cut taxes for about 70% of businesses that now pay a tax. Final passage came after a deal reached June 13 was tweaked to resolve concerns from contractors and some smaller companies that their tax bills would mushroom under the plan. But a late bid from the insurance industry failed to convince legislators to make changes to reduce its tax load. Legislators slightly raised the tax on gross receipts for all covered businesses to pay for the changes.
The final bill also carved out special tax credits for Michigan International Speedway, the Palace of Auburn Hills, very large Michigan-based retailers such as Meijer and new car dealers.
The tax plan will replace the 29-year-old Single Business Tax (SBT), which expires Dec. 31. In the state Senate, the vote was 32-3. The vote in the House was 75-34.
The measure was sent to Gov. Jennifer Granholm, who said she is eager to sign the bill.
"This is a big step for us," Granholm said early Thursday evening from the Senate floor, personally congratulating senators for their votes. "There's a lot of incentives for people to come here and hire people."
The Michigan Business Tax is expected to produce the same revenue as the SBT -- about $1.9 billion a year -- and give bigger tax breaks to businesses that invest in Michigan facilities and hire Michigan workers, its drafters said.
It also is to reduce personal property taxes by up to 65% for manufacturers and by 23% for commercial businesses.
Manufacturers, particularly Detroit automakers, pushed hard for reducing the personal property tax, which they considered more onerous than the SBT. The state will reimburse cities and townships that lose revenue because of the personal property tax change.
A Senate Fiscal Agency analysis of the new tax released late Thursday forecast $380 million a year in savings for manufacturers.
"This goes a long way to help the industry," said Charles Hadden, vice president of the Michigan Manufacturers Association, which lobbied hard for the changes. "It sends a message that we really want you to invest here."
Republican and Democratic negotiators hailed the tax as a hard-fought compromise to improve the state's business climate.
"It's not a panacea, but it's a step in the right direction," said Senate Majority Leader Mike Bishop, R-Rochester, adding that the tax may yet be tweaked if lawmakers determine it is unfair to some sectors.
Rep. Steve Bieda, D-Warren, praised the plan and said it could set the stage for an agreement on a tax increase to balance next year's budget.
Those negotiations were strained this week as Granholm chided lawmakers over their plan to take a two-week recess beginning next week.
"This helps break a logjam. There's some momentum now," Bieda said.
Insurance companies lobbied late, but unsuccessfully, for a bigger break under the new tax, which will tax them slightly more than the current system. They will pay a 1.25% tax on premiums they collect, instead of 1% tax, although they will retain tax credits they now receive.
The new pan will impose a 4.95% tax on business profits, plus a 0.8% tax on gross receipts minus deductions for purchases of goods and materials.
Some smaller companies can choose instead to pay a 1.8% tax on profits.
Companies could cut their tax as much as 65% with credits for employee compensation, new facilities and research and development projects in Michigan.
In general, the tax aims to ease the burden on firms that make things and employ people in Michigan, while transferring more of the load to out-of-state firms that sell products and services here.
But not all Michigan-based businesses will benefit. John Llewellyn, vice president of the Michigan Bankers Association, said virtually all banks doing business in Michigan will pay higher taxes. But the association reluctantly supported the change, he said, because "banks are pragmatic."
Change in Michigan's business taxation was needed and inevitable, he said. And in the end, banks "need an economy that works" to prosper, Llewellyn said.
The state's most influential business lobby, the Michigan Chamber of Commerce, opposed the new tax, saying it left too many questions unanswered.
Tricia Kinley, director of tax policy for the chamber, said the MBT may be a slight improvement over what it will replace. But it almost certainly contains hidden tax increases that will punish unsuspecting business owners, she said. Many businesses likely to be affected haven't analyzed the changes, she said.
Contact CHRIS CHRISTOFF at 517-372-8660 or christoff@freepress.com.
Posted: 06/29/2007 at 10:13 AM
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