Fight Looming in Michigan Over Single Business Tax; Dayton’s Earnings Tax Up for Renewal

Officials and voters will be deciding state and local tax policies in Michigan and Ohio in coming weeks. Michigan lawmakers took the first step toward repeal of the state’s 30-year old Single Business Tax (SBT) last week when a House committee voted to repeal the tax, although it is not due to expire until 2009. Governor Jennifer Granholm said she would veto any bill to repeal the SBT unless lawmakers come up with a replacement tax, the Detroit Free Press reports.


Advertisement


Thousands of executives with financial reporting responsibilities use the Comperio on-line library to access the type of information and interpretive guidance PricewaterhouseCoopers' own professional audit staff use around the world. Key content areas include guidance from the FASB, EITF, PCAOB, SEC, and others as well as PwC's interpretive guidance. Get more information and sign up for a complimentary 30-day trial.


In Dayton, Ohio, voters will get to reconsider the city’s request for renewal of a 0.5 earnings tax through a special election on Wednesday, March 14. The city has a permanent 1.75 earnings tax and the total of the two taxes will bring in about $113.3 million this year. Voters are likely to approve the measure; the off-day election historically “leads to low turnouts and high passage rates,” the Dayton Daily News says.

Michigan House Tax Policy Committee Chairman Fulton Sheen (R-Plainwell) said that he personally favors replacing the income, personal property and SBT, with a bigger sales tax on more goods and services, the Free Press says. But Speaker Craig DeRoche, (R-Novi) added to the controversy by saying he wasn’t looking to replace a business tax with a consumer tax.

The SBT was created in 1975 to replace seven business taxes in Michigan, including a corporate income tax. It now taxes business’ gross receipts, as well as payroll and fringe benefits, the Free Press says. The current rate is 1.9 percent, but credits and exemptions have been added to the tax, making it confusing for Michigan business owners.

“I haven’t got a clue what I own or how a business decision will affect it,” Jim Donahue of Sterling Solutions & Systems in Plymouth told the Free Press in a separate story.” It’s not tied in any way to making money. If I have a terrible year, I can still end up owing it. It seems to defy logic.”

Local earning taxes, like Dayton’s, are the subject of a study by University of Missouri-Columbia economics professor Joseph Haslag, who says that a city’s income growth is slowed ,compared with its surrounding suburban areas, if it taxes wages, according to the Kansas City Star. The study used U.S. Census data and earnings tax figures from 101 cities. One in four, including Kansas City, has an earnings tax, Haslag says.

Kansas City officials acknowledged that the earnings tax was unpopular, but said that the tax was the largest source of income for the city, 45 percent of revenues. “We just can’t cut that amount out of the budget,” said Kansas City Councilman Charles Eddy, chairman of the Finance and Audit Committee.

Economists argue that Michigan’s SBT discourages investment, despite a report from the Tax Foundation of Washington, D.C. that ranked Michigan 26th among the 50 states in overall business taxes. But Patrick Anderson, an East Lansing economist, questioned the validity of the study, the Detroit Free Press reports.

Changes made on behalf of special interests have corrupted the original SBT, Anderson says. The original SBT gave a break for money spent on equipment or facilities, which was helpful to the auto industry, and Anderson thinks that future changes should also benefit the industry. “People who call the auto industry a dinosaur forget that manufacturing constitutes 40 percent of investment in this state,” Anderson said. “It’s one of the biggest hi-tech employers in the country.”

The Michigan Chamber of Commerce opposes the SBT, Tricia Kinley, the Chamber’s tax policy director, told the Free Press. “Most people feel it’s a disincentive to doing business,” she said. “Any replacement has to be simpler, less of a burden to pay and easier to comply with. And it must encourage economic development.”

You may like these other stories...

AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...
Many accountants struggle with payroll, either because they have too much of it or they don't want to do any of it. Either way, they are at odds with the needs of their business clients. Most clients are looking for a...
Hertz and Icahn make peaceThere won’t be any nasty, protracted proxy battle between Hertz Global Holdings and activist investor Carl Icahn. The rental car chain agreed last Thursday to give Icahn – who has...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.