Volume 6 Number 6 December 2006

> SPECIAL BULLETIN

ArtServe Michigan
GRAAND
GrassRoots Arts Advocacy Network Distribution
Editor: Drew Buchholz
2006 Issue 20

Just in case you haven't heard...

Governor Jennifer M. Granholm unveiled details of the Michigan Business Tax (MBT), her new plan to replace the out-going Single Business Tax (SBT). Michigan's proposed new business tax will allow the state to compete more effectively with other states, Governor Jennifer Granholm said Wednesday, due to a rate that is among the lowest in the nation and preservation of incentives. In submitting the $2.4 billion plan to the Legislature, the Governor continued to draw a hard line on keeping it revenue-neutral and not letting it get caught in negotiations on other issues.

Granholm is recommending a new business tax based on three factors - gross receipts at .125 percent, assets at .125 percent and profits at 1.875. Granholm said the first two rates are the lowest in the nation.

The proposal, now embodied in a five-bill package slated to be introduced by Senate Minority Leader Bob Emerson (D-Flint) and House Minority Leader Dianne Byrum (D-Onondaga), exempts commercial and industrial users from the 6-mill state education tax and the 18-mill school operating tax, amounting to a 46 percent personal property tax cut statewide.

Small businesses that make less than $350,000 a year would still not be required to pay the MBT. Currently, these small businesses are not required to pay the SBT either. But for those small businesses that make between $350,000 and $700,000, the tax liability is phased-in, eliminating what Granholm called the "cliff effect."

Michigan-based insurance companies would see their gross receipts tax of 1.07 percent raise to 1.25 percent, which is less than the 2.0 percent Granholm wanted to tax insurers in 2005. She said that even with this increase, Michigan's insurance tax rates would still be the sixth lowest in the country. However, the insurance company's tax credits would be eliminated. The industry argues this will hurt its ability to give discounts to good drivers. The tax increase would make Michigan look less attractive to companies and likely increase rates.

Other economic development credits such as MEGA, Brownfield, Renaissance Zones and Historic Preservation credits would be preserved in MBT. A new $500,000-per company research innovation credit would be established. It also cuts taxes for knowledge-based industries by $125 million.

Overall, the Governor's proposal is projected to collect $2.53 billion in 2008 ($2.445 billion from the MBT and $90 million from the higher insurance company rate), but $600 million would be giving back to local schools through the School Aid Fund to compensate for the 24-mill personal property tax cut.

Under the SBT, the tax base is made up with 73 percent by compensation, 7 percent by income and 20 percent through other factors. The MBT is made up of 45 percent assets, 36 percent sales and 21 percent income, according to the Department of Treasury.

Click Here for a copy of the Michigan Business Tax PowerPoint presentation presented on November 29, 2006.