by Edward J. Castellani
The Michigan Single Business Tax (“SBT”) was enacted in 1976 to replace seven Michigan taxes, including the Michigan Corporate Income Tax and the Michigan Inventory Tax. The SBT is unique among the fifty states, as it is a business activity tax. One of the most unpopular aspects of the tax is that a taxpayer can realize a loss from a business activity, but still have a tax liability under the SBT. In its 30 years of existence, it has been the subject of much litigation, frequent amendment, legislative debate and numerous efforts to amend and revise the tax. There now seems to be significant support from a variety of sources to repeal the SBT.
The SBT is currently scheduled to expire on December 31, 2009. However, there has been substantial effort by legislators and other activists to end the SBT sooner than December 31, 2009. Recently, the Michigan House and Senate both approved a bill to repeal the SBT immediately. The bill was predictably vetoed by Governor Granholm, who was not willing to sign the bill until a replacement for the lost revenue was in place. The SBT currently raises approximately $1.9 billion of the state’s $9.0 billion general fund revenue.
Those that support the immediate repeal of the SBT favor a tax that is less burdensome on employers, less complicated and encourages investment and economic development. A petition drive to repeal the SBT was organized by former Oakland County Prosecuting Attorney, L. Brooks Patterson. Mr. Patterson is gathering signatures to place the repeal of the SBT on the ballot in November, 2006. Governor Granholm has announced she is willing to reconsider the SBT if a suitable replacement for the lost revenue to the state can be enacted.
There appears to be considerable bipartisan support for eliminating the SBT. The impediment to immediate repeal, and the topic that will be the subject of considerable debate, is what type of tax will replace the SBT and the lost revenue to the State of Michigan. Various proposals have surfaced to replace the SBT. These proposals currently include the following:
- SBT abolition proposed by Oakland County executive Brooks Patterson, and implicit in current law after 2009. This proposal involves immediate repeal of the SBT with no replacement of the $1.9 billion of revenue the SBT currently generates.
- SBT replacement with a gross receipts tax. A gross receipts tax proposal involves a tax on the gross receipts of a business without deductions.
- The Fair Tax. The Fair Tax proposal is essentially a universal sales tax applied to all goods and services, with a rebate for those under a certain income threshold, to replace all other personal and business taxes. The tax would be assessed on the consumer of goods and possibly services and not on business.
Finding a replacement for the SBT is the real challenge that confronts the State of Michigan. Questions that arise include who would be tax winners and tax losers under a new tax? What industries would pay more and which would pay less? How would Michigan’s economic climate be affected?
Businesses, employers and associations that are interested in the SBT replacement process may need legislative counsel to represent their interests. Fraser Consulting, LLC, our legislative and lobbying group, is actively involved in the legislative process to draft and adopt the replacement for the SBT. Anyone interested in information or representation in the SBT legislative process should contact any member of the Fraser State and Local Tax Group listed below.
Edward J. Castellani, 517.377.0845, ecastellani@fraserlawfirm.com
Michael S. Ashton, 517.377.0875, mashton@fraserlawfirm.com
Michael H. Perry, 517.377.0846, mperry@fraserlawfirm.com
Michael C. Levine, 517.377.0885, mlevine@fraserlawfirm.com
John D. Miller, 517.377.0879, jmiller@fraserlawfirm.com
Vincent M. Pecora, 517.377.0890, vpecora@fraserlawfirm.com