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SBT - February 8, 2007 Granholm Tax Restructuring Plan Released

February 8, 2007
The Tax Restructuring Plan will be based primarily on a new Michigan Business Tax, a 2% Excise Tax on Services and an increase in sin taxes.  There are seventeen (17) tax bills being drafted to be introduced "soon."  The key provisions of the restructuring proposal include the following.  A Michigan Business Tax on gross receipts, assets and business income similar to the legislation introduced in November.  The Michigan Business Tax will include a 10% tax credit for Michigan employees of Michigan headquartered companies and an overall $450 million tax cut to business.  The rate has not been released but it is rumored to be the same as before at .125%.  We have been told that the basic features will be the same as the prior bills.  We do expect some changes such as possible elimination of the fallback tax.  A2% Excise Tax on Services, excluding education and health care services. This is proposed as a new excise tax, not an expansion of the current sales tax. The majority of the tax is projected to fall on business-to-business transactions. It is unclear whether there will be any provisions to prevent pyramiding of taxes on services that are inputs to provision of other taxable services. Elimination of "Loopholes" including imposition of affiliate nexus based on the Multistate Tax Commission's affiliate nexus proposal.  Under affiliate nexus sharing a trademark, trade name or business plan creates nexus in Michigan.  The affiliate nexus has been proposed and defeated twice before.  In addition, the proposal seeks to overturn the WPW case under which an increase in commercial property occupancy cannot be used to increase the property's value beyond the Proposal A cap.  Commercial property will be taxed under a new tax to avoid this case holding.  Additionally, the proposal will return Michigan's penalties for failure to file or pay tax to 50% from the current 25%, making the penalties the highest in the nation and out-of-step with other states and the federal government.  When bills are introduced we will provide further details and analysis.