Michigan Single Business Tax Repeal (2006)

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The Michigan Single Business Tax Repeal (SBT) was an indirect initiated state statute that repealed the Single Business Tax by Dec. 31st, 2007. The measure was certified for the ballot after sufficient signatures were submitted, and then approved by the Michigan Legislature. It therefore did not appear on the November 2006 ballot in Michigan.

Overview

The Single Business Tax was adopted in 1975 to replace 8 other taxes imposed on Michigan businesses, and enacted as 1975 PA 228. It was a value-added tax imposed on business income plus compensation paid, interest paid, and depreciation, with major deductions for new capital investments and the amount of labor employed.

The SBT was not only effective on Michigan based businesses, but also on any business that conducted business within the state. Much disliked within the business community in the state, who sometimes reviled it as the "small business tax," it attracted repeated, though never effective, legislative efforts to eliminate it.

The annual net revenue from the tax at the time of the repeal was estimated to be $1.9 billion annually by the Citizens Research Council of Michigan, although the actual gross revenue to the state (including revenue later rebated to certain taxpayers) exceeded $2 billion.[1]

Petition to Initiate Law Repealing the SBT

The petition drive to initial the repeal law was headed by Oakland County executive, L. Brooks Patterson.

The proponents gathered 291,741 signatures for the petition, 37,535 more signatures than required by the Secretary of State.[2]

Text of the Repeal Law

The text of the repeal law is below.[3][4][5][6] It was written by economist Patrick L. Anderson, who had previously written the Michigan's 1992 Term Limit Amendment.[7]

The first section of the initiative stated:

"Sec. 1. The purpose of this initiated law is to:

(a) Repeal the single business tax on business activity in this state after December 31, 2007; and

(b) Encourage the legislature to adopt a tax that is less burdensome and less costly to employers, more equitable, and more conducive to job creation and investment."

The next sections lower the rate to zero, allow for pro-ration, affirm tax liabilities for previous years, and allow for severability. Section 2 states:

"Sec. 2. The department of treasury shall prorate the liability for the tax imposed under the single business tax act as necessary to impose the equivalent of a tax at the rate of zero on business activity after December 31, 2007."

Support for the repeal

Supporting organizations included the Michigan Chamber of Commerce, Detroit Regional Chamber, the National Federation of Independent Business - Michigan, the Small Business Association of Michigan, the Michigan Business and Professional Association, and the Michigan Food and Beverage Association.[8]

  • Michigan levied one of the nation's highest effective tax rate on corporate income (over 15% by some calculations), although as the nation's only value-added tax, it was difficult to directly compare the tax burden with those of other states.
  • The state extracted the 7th highest per capita corporate tax revenue[9]
  • It discouraged business from coming to the state because it was an unusual tax within the United States.
  • It placed too big a burden on business
  • Over time, the SBT had accumulated numerous special provisions, resulting in at least five different methods of calculation of the tax (including a "small business-low profit" method, and a gross receipts method). It therefore became viewed as unfair by the businesses still paying the value-added tax.

Opposition to the repeal

Opposing organizations included the Michigan League of Human Services, AFL-CIO and United Auto Workers.[10]

  • Michigan ranked in the "middle of the pack" for taxes with a state-local tax burden at 22 and a business tax climate ranking at 26th.[11]
  • The SBT effectively taxed out-of-state companies doing business in Michigan, and that encourage companies to bring jobs and production to Michigan
  • According to the 2002 Department of Treasury in 1999, 91% of the SBT was collected from only 18% of businesses, so it was not harming small business[12]
  • Although value added taxes were unusual in the United States, they were common in Europe and Canada, and many economists considered the VAT to be the most efficient and least disruptive form of tax on business activity.

Legislative Efforts at Reform

In 1999, Public Act 115 was enacted, providing for the reduction of the SBT rate by one-tenth a percent per year until the tax was eliminated, which theoretically would have repealed the tax after 23 years if the legislature took no action to delay the reduction.[13]

On March 31, 2006 Governor Jennifer Granholm vetoed legislation that would have sped up the repeal of the SBT saying that she could not support a repeal without a replacement income. The Senate Minority Leader, Bob Emerson said he supported her choice and that if Republican's really wanted the repeal they should have "work through the spring break to make it a responsible proposal."[14]

Rep. Leon Drolet (R-Clinton Twp.) was the sponsor of the legislation and vowed to work with the petition drive to see the repeal passed.

Ari Adler, spokesperson for Senate Majority Leader Ken Sikkema (R-Wyoming) said,

it was "unfortunate Ms. Granhom chose to remove herself from the discussion on ending the SBT. The initiative will completely bypass her office. She had an opportunity to engage with us and her council of economic advisers, but instead she brought out old arguments that didn't fly last year and new arguments that have no basis in fact."[15]

The Legislative Vote

Under Michigan's 1963 Constitution, Initiated Laws that are certified for the ballot are presented to the legislature for a vote, without amendments. Those that are approved by the legislature become law without the governor's signature. Those that are not are presented to the people at the next election.

The Senate voted 22-16 in favor of the initiated law in a party-line vote, with Republicans favoring.

The House voted 64-36 for the initiated law.

The initiated law became Public Act 325 of 2006.

Governor Jennifer Granholm called the vote an act of "utter irresponsibility."[16]

See also

External links

References

  1. Single Business Tax, Citizens Research Council of Michigan
  2. Michigan Single Business Tax Repeal Accelerated to December 31, 2007, Plante, Moran LLC
  3. Anderson Economic Group, "Analysis of “Repeal SBT” Initiated Law, Memo from Patrick L. Anderson to L. Brooks Patterson," March 9, 2006
  4. Citizens Research Council of Michigan, "Single Business Tax, Citizens Research Council of Michigan," accessed October 18, 2011
  5. Mackinac Center for Public Policy, "MBT: A More Burdensome Tax?," August 6, 2007
  6. "Michigan legislature site: PA 325 of 2006," accessed October 18, 2011
  7. Mackinac Center for Public Policy, "Bio of Patrick L. Anderson," accessed October 18, 2011
  8. Michigan Chamber of Commerce, "Repeal of the Single Business Tax," April 25, 2006
  9. Single Business Tax is Dragging Down Michigan's Economy, Tax Foundation, March 30, 2007
  10. Michigan Technology News, "Repeal Of Michigan's Single Business Tax Clears House Committee," March 9, 2006
  11. Single Business Tax is Dragging Down Michigan's Economy, Tax Foundation, March 30, 2007
  12. Michigan's Single Business Tax: Should it Be Replaced or Reformed?, Michigan League for Human Services, Nov. 2003
  13. Michigan Legislature, "Public Act 115 of 1999," accessed October 18, 2011
  14. Granholm, As Promised, Vetoes Single Business Tax Repeal Legislation, Michigan Tech News, April 2, 2006
  15. Granholm, As Promised, Vetoes Single Business Tax Repeal Legislation, Michigan Tech News, April 2, 2006
  16. Tax repeal ruffles Wall Street, Muskegon Chronicle, Aug. 10, 2006