Proposed elimination of business tax stirs debate
Published 12:25 am Wednesday, February 23, 2011
With his proposed budget plan for the state last week, Gov. Rick Snyder hopes to declare Michigan “open for business.”
In an outline of the executive budget, Snyder’s fiscal right-hand, CPA and State Budget Director John Nixon, said the governor plans to “create a more competitive business climate by eliminating the onerous and complex Michigan Business Tax, replacing it with a new tax structure that is simple, fair and efficient for all taxpayers.”
But even opponents of the Michigan Business Tax (MBT), which replaced the Single Business Tax (SBT) in 2008, are looking at the governor’s plans with a cautious eye.
“You have to remember, we removed the Single Business Tax and got the Michigan Business Tax and I believe the Michigan Business Tax was worse than the Single Business Tax,” State Rep. Sharon Tyler said Monday.
As described by the Michigan Economic Development Corporation, the Michigan Business Tax includes incentives and tax credits and is based on business income and gross receipts and a surcharge.
The plan involves removing the MBT completely and replacing it with a Corporate Income Tax of 6 percent.
Tyler, R-Niles, said she believes the Michigan Business Tax needs to be either amended or completely removed but stressed the importance of understanding just what its replacement would entail.
An excerpt from Snyder’s proposal reads as follows:
“Under the governor’s proposal, generally only those business entities that issue public or private stock, known as ‘C’ corporations for federal tax purposes, would be subject to the proposed 6 percent tax. Other businesses, such as partnerships, sole-proprietorships, limited liability companies and ‘S’ corporations that are not classified as ‘C’ corporations for federal tax purposes would be exempt, resulting in a significant tax relief for these companies enabling them to invest and expand. It is estimated over 95,000 companies will no longer have to file a state business tax return, ending a practice of double-taxation for those companies that already pay tax on business profits under the individual income tax.”
Announced last week, this week officials question whether or not the move will actually help the business community and local economy. Tyler calls this the “listening stage,” during which conversations with business owners and constituents are more important than ever to understand how these changes could affect them.
“Since the majority of our businesses — manufacturing and other — in southwest Michigan have less than 250 employees, we are glad to see that Gov. Snyder has targeted the small- and medium-sized businesses to receive the greatest benefit from the new tax structure,” said Shelley Klug, executive director of the Southwestern Michigan Economic Growth Alliance. “We hope the changes will enable these companies to invest, grow, and create more jobs. We also hope that as the State of Michigan stabilizes, companies in other states will recognize the increasingly business-friendly climate along with the existing transportation network and central location and consider moving here and bringing more jobs to the area. The proximity to supply chains for manufacturers of all types is exceptional and with this reduced tax burden, it just makes sense to locate near the heart of manufacturing innovation.”
Exiting Niles City Administrator Terry Eull might hope that’s enough to draw businesses in, as he believes the move to throw out the tax could be the wrong one.
The tax itself does not directly affect local government, Eull said, but would reduce the amount of revenue flowing into the state and subsequently into municipalities for the purpose of providing essential services.
“Therefore, by reducing the revenue to the state, they reduce revenue to everything that’s in the budget,” Eull said. “You understand trying to get business into your state, but why are they not reforming unemployment and worker’s compensation and some of the really costly things to businesses?
“When you’re in a hole with a $1.8 million hole and then you cut business tax that costs you another $1.5 million, that’s ludicrous,” Eull said. “You’re already in a hole and now you dig the hole deeper.”
According to the governor’s plan, additional changes in an effort to streamline the tax code would make the Corporate Income Tax “revenue neutral” starting in 2013.
There have been grumblings amongst business owners and various officials that Michigan is not business-friendly, and that is critical to luring in investors, families and businesses to live and work here, further contributing to the state’s economy.
Though Snyder’s proposal still has to go through the House and Senate, it seems some officials just want to be sure the move will be a beneficial one.
“My concern with the governor’s approach,” Eull said, “is you’re going to give business everything and everybody else has to take a hit… The bottom line is they’re reducing revenue coming into the state at one of the most critical times in the last 50 years, which is not a wise thing to do.”
Klug said she believes making business and the proposed changes work in Michigan will take more than just modifications to the budget — it’s going to take an attitude adjustment.
“From an economic development perspective, it will take an attitude adjustment to promote the overall lower tax burden rather than the promoting the offsets we have become accustomed to,” she said. “The psychological advantage of extending incentives to attract and retain companies is one that we will have to learn to compensate for if the tax credits are eliminated. The personal property tax on machinery and equipment is another issue that remains unresolved.
“While it is a burden on companies that are trying to invest and expand, the local municipalities have been historically cooperative in reducing this burden for a set period of time to encourage job growth in our region,” Klug added. “This government-business cooperation has given us an economic development advantage without reducing local tax base. As we consider the short and long-term ramifications of the governor’s plan, we hope the overall effect will be stronger companies, stronger local communities, and a stronger Michigan.”
Tyler suggests citizens and business owners reach out to the representatives in their district and voice their opinion on Snyder’s budget so legislators are aware of how the proposed plan concerns them.
“I recommend they take a look at the budget itself and give their input to me about these issues,” Tyler said. “…but we have to realize we don’t have the money that we used to have. We can’t bandage any more.
“There are going to be hardships, but the question is, does one person get them all or is it balanced?” she added. “To move forward there are going to have to be sacrifices and there are going to be some major hardships. And we’re going to have to look out for each other.”