The Michigan Business Tax with its 22% surcharge has been a real job-killer. The attached letter from a constituent is a typical example of how the MBT has stifled job creation and investment.
What are the Core Principles?
A Letter From Clare Rothi
Premium Finance Corporation is a small business located in Kalamazoo. We have grown from one employee in 1989 to six today. We have about 350 customers.
Small businesses are the major job providers in most economies. They raise capital from their own savings, loans by friends or the bank, by issuing stock or from personal guarantees by the owners.
Under the new MBT our tax liability went up nearly six-fold, from just under $10,000 to nearly $55,000 Why? Because of the "family attribution rule." When the MBT was implemented consideration was given to small business by the creation of the Alternative Profits Tax. The three criteria are:
- Less than $20 million in Gross Receipts
- Less than $1.3 million in Adjusted Business Income
- Less than $180 thousand in Attributable Personal Income
Although my personal income is less than $180,000, my business still exceeds the $180,000 threshold because members of my family have invested in our company and under the attribution rule, their income is combined with mine. As a result, we exceed the $180,000 threshold of Attributable Income and thus are penalized by almost $45,000-a 450% increase over last year.
This new tax has created problems for more companies than just ours. A recent Michigan State Chamber survey revealed that 80% of businesses found the MBT to be a bigger burden than the SBT. When they were asked how they'd deal with the tax hike:
- 31 percent said they would delay or cancel salary increases
- 21 percent said they would delay or cancel capital investment
- 15 percent said they would move or cancel location/expansion plans
- 14 percent said they would lay off employees
Our business has an exit strategy for its investors. To get our ownership low enough to fall below the $180,000 threshold of attributable income, we could borrow those dollars and pay interest. This would increase our expense, reduce our profits and of reduce taxable income, thus depriving the State of much needed taxes. At a time when the State is trying to encourage investment and foster a positive image the new tax is being counter productive.
What is the Solution?
The Michigan Business Tax should be repealed immediately. But at a bare minimum, the ill-conceived 22% surcharge, which was created as a last minute replacement for the service tax, must be repealed.