We have been waiting for some time for a new business tax plan. I continue to believe that what Michigan needs is NO new business tax plan. The Single Business Tax (SBT) expires at the end of this year. We should not replace it with ANYTHING. And, yes, there are plenty of easy (although painful) cuts that could reduce spending to match revenues. I have included a listing of the bullet points on the new business tax that has apparently been agreed to by the Senate, House and the governor. I have also included an edited version of an essay by my good colleague Fulton Sheen, former tax policy chair. I hope you find it helpful. If you have any comments, feel free to contact me at email@example.com.
Here are some of the "highlights" of the new, improved, simplified Michigan Business Tax Plan:
- 2/3 margin tax consisting of sales minus purchases of tangible property; rate under .08%
- 1/3 business tax income; rate under 5%
- Capital stock tax for banks
- Increase insurance premiums tax to 1.24% plus credits
- 12 mil personal property tax for commercial personal property
- 24 mil personal property tax for industrial personal property
- 35% refundable credit on remaining industrial personal property
- Telephone credit corresponding to commercial personal property
- Investment and compensation credits capped at 65% of liability
- R&D credit capped at 75% of liability
- ME-2 Entrepreneurial credit
- Allow qualifying firms to pay a 1.8% tax on adjusted business income
- Increase officer compensation disqualifiers to $160,000 to $180,000
- Increase aggregate business income disqualifier to $1.3 million
- Allow flow-through entities to access the compensation credit
New Tax Restructuring Could Make Things Worse
by Fulton Sheen, edited by Jack Hoogendyk
The new business tax being proposed to replace the SBT runs roughshod over the goals of simplification and equity in taxation for all businesses in Michigan. The state treasurer would likely not favor separate tax systems for different businesses nor has he been enthused with the original house tax proposal. Establishing a base gross receipts tax rate and giving credits to in-state, but not out state businesses, so as to export a greater tax liability to out-state business is a great idea, but it will be challenged as an abridgement of the Commerce Clause, because we are taxing out-state differently than in-state business. Ohio tried something similar and has been challenged in court; they may have to redo their plan. Trying to cobble together two competing plans which are comprised of four different taxes, with only one overlapping business income tax, is not good tax policy; it is politics at its worst.
No matter how they duct tape the House and Senate plans together or how many additional carve outs and exceptions they create to make it work and to cut a deal, Michigan's Business Tax Structure will be a mess and even more complicated than it was before. We will still have a Gross Receipts Tax of .75% (which the people rejected when they over-rode the Governor's veto of the SBT), a Personal Property Tax (which every state around us has gotten rid of), with "potential" credits for some businesses that range between 24% - 46%, if you can qualify; and we will now add a third tax, a Business Income Tax, which ranges from 1.85% for companies with receipts under $20 million and 5% for those above $20 million.
Goals were set three years ago were to create a simple, equitable, broad tax base which is easy to comply with and inviting to new investment. This new tax scheme will do none of these things and likely make our business environment worse not better. So what have we really accomplished? With regard to our ailing tax policy and economic condition, we have put a fresh coat of paint on the house, but the foundation is collapsing.
A much better option, which should be considered, is the Michigan Fair Tax Proposal (HJR L). This proposal, introduced and championed by Representative Fulton J. Sheen, is transparent, easy to understand and easy to comply with. It would tax in-state employers and out-state employers the same, regardless where they are headquartered. It is competitive and would attract new business. It would also guarantee revenue sharing for townships, cities, and counties by making all revenue sharing constitutional. To learn more about the Fair Tax Plan, go to www.FultonSheen.us or www.MIFairTax.org.