Michigan legislators voting on tax repeal

12/1/2007

LANSING - Legislative leaders in Michigan and Gov. Jennifer Granholm's administration reached a tentative deal late last night to repeal and replace an unpopular tax on services.

The Legislature could begin voting on the deal early today, but those votes weren't going to be finished until after the 6 percent tax on services ranging from taxi cab rides to warehouses took effect at midnight.

Officials said businesses affected by the tax won't have to collect it, however, even though it will be on the books until it's formally repealed.

"Part of the agreement is there will be legal protection for businesses that fail to collect the service tax from Dec. 1" until the new deal takes effect, said Liz Boyd, a Granholm spokesman.

The Senate was in session last night, but a vote was not expected until 2 a.m. or 3 a.m. today.

The House was not in session but was expected to come in to vote at 3:30 p.m. today.

The 6 percent tax on services would apply to consulting, some interior design, commercial landscaping, manicures and pedicures, ski lift tickets, taxi rides, astrology, carpet cleaning, wedding planning, warehousing, and other services.

The much-maligned tax passed as part of a last-minute plan to avoid a prolonged state government shutdown in the early hours of Oct. 1.

Both the House and Senate have passed bills repealing the tax. Their proposals also would replace some or all of the more than $600 million it's supposed to bring in this fiscal year with a surcharge on the state's new business tax that takes effect Jan. 1. But neither side liked the other's version, creating an impasse.

Democrats say a surcharge on the Michigan Business Tax should be permanent to avoid another budget crisis in a few years.

Republicans want the surcharge to be temporary and to collect less money than Democrats want because they say the additional tax will hurt the economy.

A compromise could include a phase-out of the surcharge and possibly the use of some money that otherwise would head to the state's rainy-day fund. Exact details of the plan were not available last night.

Business owners, already facing a challenging economy, have said for two months that the tax on services was a bad idea. They fear it will make consumers less likely to buy their services, or push customers to shop out of state for better deals.

Many business owners had said that, if the tax takes effect, they'd have to pass the extra charge along to customers. That's something they fear could drive away customers and lead to even more lost jobs in Michigan.

The state's unemployment rate led the nation in October, when it hit 7.7 percent.

"The tax is going to further exacerbate the problems we already have," said Amy Frankmann, executive director of Michigan Nursery and Landscape Association. "This is going to have a much larger impact on the businesses in the state of Michigan than we had first thought."

The Coalition to Ax the Tax plans a major push today to collect petition signatures in Okemos, Grand Rapids, and Frankenmuth so voters can decide in November, 2008, whether the tax should be repealed. The ballot drive would repeal the tax without replacing the lost revenue.