Services Tax Update

Dec. 3, 2007: Services tax repealed, business tax increased: Saturday, Dec. 1, 2007, the governor signed into law legislation that repeals the services tax and replaces it with a surcharge on the Michigan Business Tax of 21.99 percent. The surcharge is capped at $6 million for any one taxpayer so that a handful of the state's largest corporations and the big three automakers could benefit. The governor also signed legislation that holds businesses harmless that didn't collect the tax for the brief period that the tax was in effect.

Most small business exempted: Although members of the S.T.O.P. Coalition were working hard to repeal the services tax, we did not support hiking other business taxes as the means to repeal the services tax. The coalition was successful in keeping small businesses that qualify for the Alternative Profits Tax method of filing exempt from the surcharge. In brief, any business with less than $18 million in gross receipts, not more than $160,000 in owner income and not more than $1.3 million in adjusted business income (owner income plus company profit) qualifies for the APT credit and will not pay the surcharge.

Additional small-business benefits removed from final bill: However, the expansion of the owner income criteria to $170,000 and indexing it to inflation that was put into the bill by the Senate was removed in the final bill. These changes were suggested by S.T.O.P. Coalition and Senate Republicans included them in their version of the legislation. The Senate version also included a lower surcharge rate of 13.85 percent. These changes would have allowed more small- and medium-size businesses to avoid the surcharge or pay a lower rate. However, other business groups supporting the higher business tax surcharge and working with the House Democrats removed the language.

Summary: While the repeal of the services tax will be a welcome relief to many businesses, the surcharge solution, rather than budget cuts, is another blow to the already beleaguered Michigan business climate. Members of the S.T.O.P. Coalition are disappointed that lawmakers seem unable to restrict spending at a time when many businesses are struggling to make ends meet. The only real heroes in this sad story are you, the business owners and members that stood up and said "we are not going to take this anymore!" and took action with your phone calls, e-mails, letters and faxes to let lawmakers know that you were serious about repealing this tax. It is only because of your efforts that they took action.

Thank you for your support!

Nov. 26, 2007: Services tax repeal: ThThis week, we will continue to pursue the repeal of the services tax by legislative means before the Dec. 1 deadline, when the new tax takes effect. Last week the Senate passed HB 5408, the bill that passed the House on Nov. 9 that would repeal the services tax and replace it with a surcharge on the new Michigan Business Tax. The Senate improved upon the House version.

Senate passed plan differs from the House passed plan as follows:

• Only replaces the business-to-business portion of the services tax revenue. So it will only raise $560 million instead of the $750 million in the House plan.
• Drops the surcharge rate from 32.9 percent to 13.85 percent.
• Raises the cap for big business tax liability from $2 million to $7.5 million.
• Has a 2011 sunset on the surcharge.
• Raises the owner income threshold that prevents full use of the Alternative Profits Tax Credit from $160,000 to $170,000 and then indexes it to inflation thereafter.

Changing the cap to $7.5 million, raising $560 million instead of $750 million in revenue and relying on $219 million in one-time revenue from the first year of the MBT, allows the rate to be cut from 32.9 to 13.85 percent.

The significance of the APT owner income threshold change is that it allows more businesses to use the APT credit and taxpayers that qualify for the APT credit will not pay the surcharge.

Although the Senate revisions to the House bill are an improvement, hiking other business taxes to finance a services tax repeal is not something we can support.

This week, the House can agree with the changes by vote, in which case the bill would go to the governor for signature or veto. If the House does not concur with the changes, the bill would then go to a conference committee composed of both Senate and House conferees to work out the differences. If the conference committee agrees to a final bill, then it would go back to both chambers for another vote and then to the governor. If the conferees cannot agree to a final bill, the bill would likely die.

The Senate's vote moves Michigan one step closer to repealing the services tax. Still, the tax isn't gone yet, and the clock is still ticking toward a Dec. 1 effective date.

If the Legislature does not act or the governor does not sign a bill repealing the tax, we are ready, willing and able to continue the petition drive to repeal the services tax.

Continue collecting signatures: In the meantime, petition efforts continue in the event a legislative solution is not reached before the Dec. 1 deadline. The petition drive route will allow us to repeal the tax if the Legislature does not act. Some members have called asking if they should stop collecting signatures because they have heard on the news that the tax was repealed. The tax has not been repealed! Stay tuned.

Nov. 20, 2007: Senate passes repeal and business tax hike: Minutes ago, the Senate passed HB 5408, the bill that passed the House on Nov. 9 that would repeal the services tax and replace it with a surcharge on the new Michigan Business Tax (MBT). Although the Senate did make revisions to the bill to make it better, hiking other business taxes to finance a services tax repeal is not something we can support. The bill now goes back over to the House. The House can concur (agree) with the changes by vote, in which case the bill would go to the governor for signature or veto. If the House does not concur with the changes, the bill would then go to a conference committee composed of both Senate and House conferees to work out the differences. If the conference committee agrees to a final bill then it would go back to both chambers for another vote and then to the governor. If the conferees cannot agree to a final bill, the bill would likely die.

The Senate's vote moves Michigan one step closer to repealing the services tax. Still, the tax isn't gone yet, and the clock is still ticking toward a Dec. 1 effective date.

If the Legislature does not act or the governor does not sign a bill repealing the tax, we are ready, willing and able to continue the petition drive to repeal the services tax.

Nov. 19, 2007: Services tax repeal: This week NFIB will continue to pursue the repeal of the services tax by legislative means before the December 1 deadline, when the new tax takes effect.  The House may be in session this week and the Senate is scheduled for tomorrow only. It is likely that the Senate will make changes to HB 5408, passed by the House, that would repeal the services tax but hike the Michigan business Tax by 33 percent to replace the revenue and then pass the bill back over to the House for final action next week. During testimony last Thursday before the Senate Finance Committee, NFIB urged committee members and the Senate to change the bill to replace the revenue with budget cuts and not tax increases.

NFIB will continue working toward a solution that addresses revenue losses from repeal with budget cuts and not tax increases. If tax increases are put forth, NFIB believes they should be broad based taxes on all taxpayers through either the sales tax (increase the rate) or the income tax, and not targeted at the already struggling business community.

Continue collecting signatures! In the meantime, petition efforts continue in the event a legislative solution is not reached before the Dec. 1 deadline. The petition drive route will allow us to repeal the tax if the Legislature does not act. Some members have called asking if they should stop collecting signatures because they have heard on the news that the tax was repealed. The tax has not been repealed! What has occurred is that both the House and Senate have passed different repeal bills. The Senate bill repeals the services tax without any revenue replacement. The House bill repeals the tax and surcharges the Michigan Business Tax to make up the revenue. Neither bill will become law until the other chamber passes it and the governor signs it. Repeal is still an uncertain event at this point. But the bottom line is that the pressure that is being brought to bear by signature collection is what is keeping lawmakers at the table. If you stop now, they will sense that the danger is past and they will not pursue a serious legislative repeal.

Nov. 12, 2007: This week, members of the S.T.O.P. coalition will continue to pursue the repeal of the services tax by legislative means before the Dec. 1 deadline when the new tax takes effect. S.T.O.P. will also be working toward a solution that addresses revenue losses from repeal with budget cuts and not tax increases. If tax increases are put forth, S.T.O.P. believes they should be broad based taxes on all taxpayers through either the sales tax (increase the rate) or the income tax, and not targeted at the already struggling business community.

Continue collecting signatures! In the meantime, petition efforts continue in the event a legislative solution is not reached before the Dec. 1 deadline. The petition drive route will allow us to repeal the tax if the Legislature does not act. Some have called asking if they should stop collecting signatures because they have heard on the news that the tax was repealed. THE TAX HAS NOT BEEN REPEALED! What has occurred is that both the House and Senate have passed different repeal bills. The Senate bill repeals the services tax without any revenue replacement. The House bill repeals the tax and surcharges the Michigan Business Tax to make up the revenue. Neither bill will become law until the other chamber passes it and the governor signs it. Repeal is still an uncertain event at this point. But the bottom line is that the pressure that is being brought to bear by signature collection is what is keeping lawmakers at the table. If you stop now, they will sense that the danger is past and they will not pursue a serious legislative repeal!

Nov. 9, 2007: House passes repeal and business tax hike: Last night the Michigan House passed HB 5408 that would repeal the services tax and replace it with a 32.9 percent surcharge on the new Michigan Business Tax (MBT). Although we appreciate the recognition by lawmakers that the services tax was a mistake that needs to be fixed, hiking business taxes to make up for the revenue loss is not something we can support. Members of the S.T.O.P. coalition feel strongly that revenue lost from a repeal of the services tax should be made up with budget cuts and not tax increases. If tax increases are put forth, they should be broad based taxes on all taxpayers through either the sales tax (increase the rate) or the income tax, and not targeted at the already struggling business community. Michigan will never recover economically if we continue to view business as a cash cow for undisciplined spending by our lawmakers.

We are not alone in that opinion. During Tax Committee testimony yesterday, S.T.O.P. was joined in opposition to this tax swap scheme by the Michigan Association of Independent Agents, the Michigan Association of Realtors and the Michigan Chamber of Commerce.

Business groups support tax increase: Unfortunately, other business groups testified and lobbied in support of the MBT surcharge tax increase. The big three and 24 other large corporations supported the tax increase as well because their liability would be capped under the proposal at $2 million. In other words, out of a tax increase that generates $750 million in revenue, these large corporations will only pay about $50 million.

According to testimony by Treasury, 55,000-60,000 mid-sized and small businesses would be affected by the surcharge. About 150,000 small businesses would not be affected, with 40,000 benefiting from the small-business alternative profit treatment. However, Treasury conceded that comparisons are difficult on winners and losers because it involves comparison a tax which has not gone into effect and which has no history to a surcharge on another new tax.

If this proposal succeeds, it would also end the ability to repeal the tax by the petition drive -- without the business tax hike -- as the tax would have already been repealed.

S.T.O.P. will continue to work toward a legislative solution that repeals the services tax by Dec. 1 and does not shift the services tax burden to other businesses while bailing out large corporations.

In the meantime, it is important that everyone continue to gather signatures on the repeal petitions. We are not out of the woods by any means on trying to repeal the services tax.

Nov. 7, 2007: The good news: The efforts of the coalition are working! The pressure on lawmakers resulting from our petition drive to repeal the services tax is giving us leverage toward a legislative solution. At a Policy Forum event held at Central Michigan University last night, all four legislative leaders (House Speaker Andy Dillon, House Minority Leader Craig DeRoche, Senate Majority Leader Mike Bishop, Senate Minority Leader Mark Schaurer) predicted that the services tax will never take effect, but they disagree on how to replace the revenue from repealing the tax.

The bad news: Some business groups and big corporations are pushing for a quick resolution to the issue of replacement revenue for the repeal of the services tax by pursuing a surcharge to the new Michigan Business Tax of as much as 20 percent or more. Although current proposals would allow any business that qualifies to file the MBT under the alternative profits tax (APT) option to avoid the surcharge, not every small business qualifies for the APT credit. Big businesses would have their total surcharge liability capped at $2 million, resulting in the high surcharge rate being applied to other taxpayers to keep big business taxes low.

Making up revenue for a services tax repeal: Senate Majority Leader Mike Bishop has proposed to let the citizens vote on Jan. 15, 2008, on hiking the state sales tax to 6.5 percent. If passed by the voters, this would replace the $700 million in lost revenue from repealing the services tax. House Speaker Andy Dillon was open to the 6.5 percent sales tax idea and indicated he would give that proposal consideration. Senate Minority Leader Mark Schaurer favors the surcharge on the MBT. House Minority Leader Craig DeRoche said he favored budget cuts rather than revenue replacement. Asked if he could eventually vote yes on the 6.5 percent sales tax plan, DeRoche said he wanted to see how far lawmakers could go on budget cutting suggestions first.

S.T.O.P. coalition position: S.T.O.P members feel strongly that revenue lost from a repeal of the services tax should be made up with budget cuts and not tax increases. If tax increases are put forth, they should be broad based taxes on all taxpayers through either the sales tax (increase the rate) or the income tax, and not targeted at the already struggling business community.  Michigan will never recover economically if we continue to view business as a cash cow for undisciplined spending by our lawmakers.

Nov. 5, 2007: This week coalition members will continue to pursue the repeal of the services tax capitalizing on the momentum from last week's successful "Ax the Tax" rally at the state Capitol. Petitions are now available from the www.axthetax.com Web site.

Efforts by the coalition have resulted in a number of "deals" to repeal the services tax being put forward by lawmakers who are beginning to realize what a mistake they have made. Unfortunately, the proposal that is gaining the most traction appears to be a plan to raise the new MBT (Michigan Business Tax) rates, or add a surcharge, to make up the revenue difference from the services tax repeal. This would mean that businesses would see a tax increase on the MBT in return for repealing the services tax. Some of the proposals would spare many small businesses from the increased MBT because if they qualify for the Alternative Profits Tax, they would be exempted from the surcharge or rate increase.

Oct. 31, 2007: On Thursday, Nov. 1, at 11 a.m. in the Capitol Rotunda, NFIB and the Ax the Tax Coalition will be having a news conference to announce next steps in the push to repeal the sales tax on services. Please consider this announcement an open invitation for all NFIB members to come to Lansing to help make this big announcement.

Petitions for repeal will be available on Thursday!

We are also happy that Oakland County Executive Brooks Patterson has agreed to help in this event and he will be joined by a few business owners who will talk about the impact of the tax on their business and their customers.

We would ask that people begin arriving at 10:30 a.m. on Thursday so we can begin right on time.

In addition, news conferences will also be held on Thursday in:

• Saginaw at 11 a.m. at The Commerce Building, 515 N. Washington Ave.
• Grand Rapids at 10 a.m. at Kent Communications Inc., 3901 E Paris Ave. SE.
• Troy at 2 p.m. at the Troy Chamber of Commerce, 4555 Investment Drive.

Oct. 29, 2007: Services Tax Repeal
NFIB efforts to repeal the services tax continue this week with printed petitions expected to be back from the printer on Thursday and a kick-off press conference at the Capitol with more than 50 organizations from the Ax the Tax coalition.

As a result of pressure from NFIB and the petition drive, some lawmakers are proposing moving the services tax start date from Dec. 1, 2007, to Jan. 1, 2008, as discussions continue over its repeal.

October 25, 2007 12:54 p.m.: Details of Possible Services Tax Repeal Deal
Here are some general details of a services tax repeal proposal that could be introduced in the Senate today. It repeals the newly enacted services tax and replaces it with a surcharge on the MBT (Michigan Business Tax).

• The MBT surcharge comes prior to the calculation of credits and the percentage of the surcharge is likely between 20-25 percent.
• The proposal would not begin to be assessed on a company unless gross receipts are over approximately $18 Million annually.

If the bill is introduced today, there is a good possibility of Senate action next week and House action the week of Nov. 5.

Although NFIB will continue to work for repeal of the services tax by legislative action, we are not depending on the Legislature or the governor to do anything and will continue to work with the coalition of business groups to repeal the tax by a ballot petition drive until such time as the tax is repealed.

Stay tuned for more information.

Oct. 25, 2007: Lawmakers Looking at "Tax Swap" to Repeal Services Tax
Our efforts at repealing the services tax are moving forward and are beginning to pressure lawmakers to look for a way to repeal the tax before it goes into effect on Dec. 1. Unfortunately, some of the ideas being floated as a way to accomplish this are not the right approach.

NFIB has learned that some lawmakers have been meeting with big business lobbyists and some business groups to work out a deal whereby the services tax would be repealed before the Dec. 1 implementation date in return for hiking the profits tax rate on the MBT (Michigan Business Tax) to make up the revenue difference. Other versions of the "deal" would exempt the big three auto manufacturers and other large corporations from the services tax, leave the tax for everyone else and hike the profits tax rate on the MBT to make up the revenue difference. Why hike the profits tax rate on the MBT and not the gross receipts rate or both? Take a look at the income statement for the big three and you will have your answer: They won't pay anything more on the MBT because they are not making a profit. So, once again, the profit making companies are subsidizing a tax cut for a few large corporations. You might recall that this was the same basis for many of the Single Business Tax replacement plans that were opposed by NFIB.

NFIB does not support hiking the Michigan Business Tax to bail out lawmakers who bungled the budget battle and passed a services tax, nor do we support letting big corporations out of the tax and sticking small business with the tab.

Nov. 1 is Target Date for Petitions

Petitions to repeal the tax are targeted to be ready for distribution on Nov. 1. More information will be forthcoming, stay tuned.

Oct. 22, 2007: Services tax repeal
This week NFIB will continue work towards repealing the services tax. Work will include meetings with legal counsel and moving forward on ballot language and finishing the new campaign and ballot Web sites (see following story). In addition we are scheduling a meeting with Senate leadership to continue efforts on a legislative solution before the law goes into effect on Dec. 1.

The current Web site will continue to operate until the new site for the larger coalition -- www.axthetax.com -- is up and running. At that time persons visiting the old site will automatically be referred to the new site. Keep checking the S.T.O.P. site in the meantime for updates or other information.

Oct. 17, 2007: As you also know, NFIB has been engaged in an effort to broaden our original coalition of the S.T.O.P. (Stop Taxing Ordinary People) group that sponsors the Web site www.stoptheservicestax.com to include many other organizations and business owners in an effort to pursue a ballot initiative to overturn the services tax.

We have held two meetings that have resulted in positive steps in accomplishing that goal. As of now there is a third-party public relations firm under contract by the coalition, and we should have petitions ready to go within two weeks. I will be sending out an update with more details on that early next week. Suffice it to say that the petition drive will be similar to the process that resulted in the repeal of the Single Business Tax and it will not require the approval or involvement of the governor.

As a member of the coalition, NFIB will play a leadership role in the execution of this petition initiative to repeal the services tax. Please see the press release below; more information will be forthcoming.

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MISSION: Ax the Tax

Statewide coalition announces push to repeal the new sales tax on services

39 groups -- and counting -- join forces

LANSING, Mich. -- With just 45 days before a new sales tax on services is imposed on Michigan consumers, an expansive and diverse group of 39 business organizations announced today they are joining forces to push for an outright repeal of the expensive, convoluted and job-killing tax.

The Ax the Tax Coalition is made up of individual job providers, trade associations and chambers of commerce from across Michigan. Members of the group are committed to working with the Legislature to repeal the sales tax on services before it goes into effect on Dec. 1, 2007. Should the Legislature fail to act, the coalition is making plans to gather petition signatures and take the repeal directly to the voters through a statewide ballot effort.

"Our message is simple: Repeal this tax and repeal it before Michigan consumers and job providers take a financial hit they can't afford," said Aaron Samson, owner of Lush Lawn Inc., in Grand Blanc and a member of the National Federation of Independent Businesses (Contact: Charles Owens, state director, 517-485-3409). "While there is not a lot of time, there is enough time for the Legislature and the governor to fix this mistake if they act now."

Founding members of the Ax the Tax coalition are:

• Affiliated Building Service Contractors of Michigan
• American Advertising Federation
• American Institute of Architects – Michigan Chapter
• Arboriculture Society of Michigan
• Associated Builders and Contractors of Michigan
• Burglar and Fire Alarm Association of Michigan
• Council on State Taxation
• Detroit Regional Chamber
• Evans Distribution Systems
• EWI & Associates, Inc.
• Grand Rapids Area Chamber of Commerce
• John Bailey and Associates, Inc.
• Lansing Regional Chamber of Commerce
• Michigan Business and Professionals Association
• Michigan Chapter of the American Society of Travel Agents
• Michigan Apple Association
• Michigan Association of Home Builders
• Michigan Association of Insurance Agents
• Michigan Association of Realtors
• Michigan Association of Recreation Vehicles and Campgrounds
• Michigan Chamber of Commerce
• Michigan Contract Security Association
• Michigan Council of Private Investigators
• Michigan Dairy Foods Association
• Michigan Farm Bureau
• Michigan Green Industries Association
• Michigan Grocers Association
• Michigan Hotel, Motel and Resort Association
• Michigan Manufactured Housing Association
• Michigan Milk Producer's Association
• Michigan Nursery and Landscape Association
• Michigan Professional Bail Agents Association
• Michigan Propane Gas Association
• National Federation of Independent Businesses
• Saginaw County Chamber of Commerce
• Self Storage of Michigan
• SEMCO Energy
• Small Business Association of Michigan
• Tree Care Industry Association

"It's not every day that a coalition of this size and scope comes together with a single mission in mind," Mike Ritsema, owner of i3 Business Solutions and a member of the Grand Rapids Area Chamber of Commerce said (Contact: Jared Rodriquez, vice president of advocacy, 616-485-4312). "This coalition is large, we are growing and we are 100 percent committed to repealing the sales tax on services before it does damage to our economy and costs Michigan jobs."

The Legislature and the governor extended the 6 percent sales tax to a list of still undefined services as part of a plan to balance the fiscal year 2008 budget. The new tax was approved in the middle of the night on Sept. 30. No public hearings were held on the new tax, how it would be implemented or who would be required to pay it.

In the two weeks since the tax was passed and in response to the anger and frustration of job providers and consumers, economic leaders have been meeting to form a coalition and develop a plan to repeal the tax.

David C. Rhoa, president of Lake Michigan Mailers, Inc., and a member of the Small Business Association of Michigan (Contact: Todd Anderson, vice president of government relations, 517-482-8788) said: "With 45 days to go until this tax goes into effect, the Legislature and the governor have both the time and the opportunity to fix this economic problem. No one underestimates the challenge that lawmakers faced in balancing the budget, but at the same time, no one should underestimate the lasting damage this tax will have on Michigan's economy and our competitiveness."

With today's announcement comes the official launch of an intense lobbying and grassroots effort to push for legislative repeal, as well as the gathering of petition signatures to put a repeal before the voters.

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Oct. 15, 2007: This week, NFIB and members of the www.stoptheservicestax.com coalition will meet with House Speaker Andy Dillon to discuss legislative action to repeal the services tax. The coalition will also be finalizing funding, organization and petition language details to begin the petition gathering process to overturn the tax. Again, although we are working to convince lawmakers and the governor to act before the Dec. 1 effective date of the tax, we are NOT depending on them to do anything.

Oct. 11, 2007: Yesterday, the Senate had posted a Senate Finance Committee hearing notice on the services tax.

You may have wondered why we didn't try to rally the troops and urge you all to come out to the hearing and be heard. Today, early this morning the hearing was cancelled.

The reason is that NFIB and two of the other groups in the S.T.O.P. coalition worked last night to get the hearing cancelled.

Why would we do that?

Because we do not need anymore hearings so our elected officials can show-boat about who voted for what and who is to blame. We bluntly told them that they are all to blame and that we -- and the people we represent -- are tired of the jawboning, posturing, finger-pointing and stalling tactics. More hearings are just that, stalling tactics to deflect the blame for a disastrous budget and tax deal. Meanwhile, the clock ticks away and Dec. 1 (effective date of the tax) approaches.

At a meeting this morning we suggested they skip the hearings and discharge the repeal bill to the floor and send it over to the House. After all, that is how they passed it in the first place, with no hearings. Why bother now unless it is nothing more than what it is? Showmanship.

We continue to work on a legislative solution as we begin the process of going around the legislature with a petition initiative.Oct. 9, 2007: NFIB will be meeting with Senate Leadership tomorrow to discuss overturning the services tax.

This afternoon, NFIB met with over 50 business groups and large companies to form a larger coalition to begin the process amending the state constitution to put a tax on services off limits to the legislature without a vote of the people, as is now required for increasing the rate of the sales tax. This means changing the constitution to repeal taxes or restrain the power of the governor and Legislature to tax. 380,126 signatures are required, but it's the best available protection from a legal challenge. Unfortunately, the tax would probably go into effect before the vote would take place on the November 2008 ballot.

There may yet be an opportunity to implement a legislative solution before the tax goes into effect as our activity in beginning a ballot process is causing the Legislature and the governor to get nervous on the decision they made to pass this tax and it may lead them to take some action on the issue.

However, it would be naïve to expect that these gestures are serious at this point. At best, we regard these actions to be attempts at pandering to the issue rather than anything substantive. At worst, they represent attempts to mollify angry constituents until "things blow over" and they go about their business and accept that the tax is here to stay.

For example, the governor's reaction has been nothing more than to massage the press. As reported in the legislative reporting service MIRS on Monday: "Granholm said her office had meetings scheduled with the business community today and officials will 'sit down and go over it, but I'm not replaying this. As far as I'm concerned, we are done. Now if others want to adjust it, they need to come to us,' she said."

In other words, it's "Lets Make a Deal" at the governor's office with the governor picking and choosing who may get an exemption from the tax and who will not in an effort to divide up the business community on the services tax issue.

On the House side, House Speaker Andy Dillon (Redford Twp.) indicated that he would like to revisit the recently enacted sales tax on services by giving Michigan voters a chance to change it to a 7 percent sales tax instead. Perhaps you should have done that instead of what you did?

And in the Senate, Sen. Cameron Brown (Sturgis area) introduced a bill today to repeal the services tax. It will be SB 824 and should be read in tomorrow. However, keep in mind that it was our good friends in the Senate that pushed for expanding the sales tax to services in the first place rather than support an income tax increase above 4.3 percent.

So what does all this mean? It means we will push forward toward the goal of a ballot drive and constitutional amendment. If we get a serious chance to fix this mess in the Legislature before that point in time, then we will look at that option. However, we are not depending on the governor or lawmakers to do anything. Only when they see we are serious in our efforts will they get serious in theirs.

Oct. 8, 2007: NFIB and the business groups that make up S.T.O.P. (Stop Taxing Ordinary People) have met with a well known Lansing public relations firm and the groundwork is being laid for an even broader coalition of groups to pursue a petition drive repeal of the services tax. This week, NFIB will meet with more than 50 groups to discuss strategy and the next step.

Oct. 1, 2007, 1:29 a.m.: Services Tax Passes House
We are disappointed to report that earlier this evening (Sunday) the House passed HB 5198 expanding the sales tax to services.

At the time of this update, the Senate has not yet passed the same bill, but it is expected that they will do so. We will continue to try and stop the bill in the Senate, but it appears that there may be enough votes to pass the bill.

A list of the services they propose to tax at this time is also posted to this Web site.

Oct. 1, 2007, 4:30 a.m.: Services Tax and Income Tax Passed to Balance Budget
While NFIB and the other business groups opposed to a sales tax on services (for a list of the groups go to www.stoptheservicestax.com) worked all through the weekend and the night to avert the new tax, in the end, lawmakers looked to revenue as the primary means to balance the budget.

In the wee hours of this morning lawmakers concluded a deal to avoid a government shutdown by raising the income tax and expanding the sales tax to a number of services. The tax increases will bring in $1.48 billion a year in new revenue to the state. The deal also included a 30-day continuation budget in order to prevent the shutdown. The regular bills that make up the state's Fiscal Year 2008 budget will be passed in the days to follow.

The Legislation that expands the sales tax to selected services will raise $613.8 million in Fiscal Year 2008, but for an entire fiscal year the tax will raise $751 million. Increasing the income tax rate to 4.35 percent will raise $765 million for the state in Fiscal Year. The following services will be taxed at 6 percent; revenue raised by each is in parenthesis. NOTE: for a complete listing of services within each category, read the full list of Proposed Services to Be Taxed.

• Business service centers ($9.5 million) 
• Carpet/upholstery ($5.2 million) 
• Couriers and messengers ($3.1 million) 
• Document prep services ($4.8 million) 
• Investigation guard/armored car ($27.0 million) 
• Janitorial ($43.8 million) 
• Investment advice ($16.8 million) 
• Landscaping ($40.5 million) 
• Mini-warehouse and self-storage ($3.9 million) 
• Transit and ground passenger, limo and cab ($10.5 million) 
• Office administration ($79.2 million) 
• Other personal services ($48.2 million) 
• Other travel and reservation ($6.7 million) 
• Personal care, no haircuts ($14.1 million) 
• Scenic transportation ($14.2 million) 
• Security system services ($14.2 million) 
• Service contracts ($23.5 million) 
• Skiing ($2.2 million) 
• Interior design ($27.8 million) 
• Tour operators ($2.6 million) 
• Consulting ($188.2 million) 
• Packaging and labeling services ($20.8 million) 
• Warehousing and storage ($21.0 million)

The 56 votes required for passage of the services tax in the House were supplied by Democrats only. In the Senate, there was a 19-19 tie with Lt. Gov. John Cherry casting the tie-breaking vote to pass the services tax. In bringing the final Senate tally to the 19-19 tie, there were three Republicans that voted for the services tax: Sens. Valde Garcia (Brighton area), Ron Jelinek (Three Oaks area) and Wayne Kuipers (Holland area).

Two Republicans joined in with the House Democratic caucus to raise the income tax rate from 3.9 percent to 4.35 percent. Those members were Reps. Ed Gaffney (Grosse Pointe area) and Chris Ward (Brighton area). In the Senate, four Republicans voted for the income tax increase: Patty Birkholz (Saugatuck area), Tom George (Kalamazoo area), Ron Jelinek (Three Oaks area) and Gerald Van Woerkom (Muskegon area).

Sept. 30, 2007: $600 Million in Services Tax is Part of Attempted Deal
The business groups sponsoring this Web site worked late into Saturday night and early Sunday morning to derail a budget deal that would expand the sales tax to more than 25 services and raise almost $600 Million dollars. The House and Senate went into session Saturday afternoon and were still in session at the writing of this update (5:10 a.m.) Sunday morning.

The budget deal consisted of reforms to school teacher health-insurance plans and extra payments for schools in lawmaker's districts that put up politically tough votes on increasing the income tax and expanding the sales tax to include services.

Members are urged to continue contacting lawmakers and let them know your position on tax increases and a services tax.

Sept. 30, 2007, 6:05 p.m.: Conference Committee Moves Services Tax Bill
About an hour ago a joint House-Senate conference committee reported out the sales tax on services vehicle bill HB 5198. The bill now goes to the House for a straight up or down vote (bills from a conference committee cannot be amended on the floor of either chamber they can only be voted on as is, yes or no). The bill would raise about $600 Million in revenue by expanding the services tax to a number of services. A document detailing the services and the revenue is included as a link on this Web site for you to download.

In a disappointing development, it is now the Senate Republican leadership that is pushing for expanding the sales tax to services as opposed to an increase in the income tax to 4.6 percent. This is the same caucus that originally opposed Gov. Granholm's original "two-penny" tax on services. The reason appears to be that the Senate would rather expand the sales tax to some services than support an income tax increase above 4.3 percent.

Small-business groups sponsoring this Web site and united against the services tax worked late into Saturday night and early Sunday morning to derail this budget deal. As of 6:05 p.m. today we are still working to kill the services tax expansion.

Early in the afternoon we released a letter to all lawmakers reminding them of the political fire storm that resulted when Florida passed a similar services tax in 1987 and ended up repealing it before it even went into effect. We also provided a detailed breakout of the services that were included in the conference bill report to each lawmaker, as the bill and the committee did not provide that information.

Deadline on state shutdown approaches: If lawmakers do not come to an agreement by midnight tonight, Michigan government will begin the process of a partial shutdown with 33,000 state employees not coming into work Monday. Corrections officers, 200 state police officers and a minimal staff of human services workers will be about the only state employees remaining at their posts.

Sept. 25, 2007: House Hikes Business Taxes; Garcia Services Tax Appeal Falls Flat
Both the House and Senate met on Monday late into the evening to continue efforts to close the 2008 budget gap. Unable to get 56 votes from its own party to raise the income tax or a services tax, the Democrat controlled House decided to hike taxes on business instead by voting to eliminate a number of current tax exemptions provided for in law. Calling them "loopholes," the list is basically the same one that Gov. Jennifer Granholm has been unsuccessfully trying to pass since she came to office.

On the Senate side, Republican Sen. Valde Garcia made his pitch to the Republican Senate caucus for his version of a services tax hike to raise revenue. Garcia announced on the Senate floor during Sunday session that he would be presenting his plan after he voted against $900 million in cuts proposed by Senate Republicans. However, reports are that his plan fell on deaf ears in the Republican caucus and he was advised to give up on plans for a services tax. Please urge Senate members not to take action on the services tax shell bill HB 5198.

Also, the Senate Appropriations committee is scheduled to take up a number of fee bills this afternoon (pet shops, pesticide applications, securities, environmental protection fees, etc.). There is concern that efforts may be made to increase the fees on business in light of the current budget situation.

Time is running out for resolution to the budget by Thursday of this week, the deadline to avoid a partial government shutdown. Speculation is that the conference committee on HB 5194 (the income tax hike shell bill mentioned in yesterday's update) could recommend an income tax rate of about 4.45 percent in return for a continuation budget that would buy lawmakers a few extra weeks to find a permanent budget solution.

Please continue contacting lawmakers and let them know your position on a services tax.

Sept. 24, 2007: Senate Acts on Budget Cuts; Garcia Pushes Services Tax
Both the House and Senate met Sunday evening to continue efforts to close the 2008 budget gap. While the House continued to be unable to move a tax increase other than the "shell" bills sent over to the Senate on Thursday of last week, the Senate moved forward with $900 million in budget cuts. The Senate also passed the income-tax shell bill HB 5194 back over to the House with minor changes (no tax increases) that would allow the House to reject it so it could be sent on to a conference committee for final action, which the House did.

In an important victory for small business, the services-tax shell bill HB 5198 remains in the Senate. However, an attempt was made by Senate Democrats to tie-bar the services bill to the income-tax bill, meaning that both would have to pass for the income-tax bill to pass. All Democrats voted in favor of the tie-bar and the lone Republican to vote for it was Sen. Valde Garcia. Garcia has made it public that he favors a services tax to generate a major amount of any revenue shortfall. Remember that last week there was a similar effort in the House to tie-bar the income tax and services tax bills that failed.

Reacting to the Senate not passing the services-tax shell bill, House Speaker Andy Dillon said a sales tax on services was still on the table for House Democrats and he said he could yet ask the upper chamber to return bills implementing a services tax.

The income-tax shell bills will be assigned to a conference committee where rates and other details will be determined. The conference committee is made up of House and Senate members and any changes to the bill that they adopt must then be voted on again and passed in each chamber before becoming law. Conference committee bills are not allowed to be amended or changed by either chamber -- they must vote for the bill exactly as reported from the conference committee.

To avoid a partial government shutdown, action must be taken on the bills by Thursday of this week. Sen. Garcia is expected to pitch the Republican Senate Caucus for his version of a services tax hike to raise revenue on Tuesday of this week.

Sept. 21, 2007: Early this morning the Michigan House was still in session trying to muster the votes to pass a tax increase, coupled with spending reforms, to balance the 2008 budget before the Oct. 1 deadline. The "deal" was brokered by Speaker Andy Dillon and a handful of Republicans that promised to vote with the Democrats if they could put up 54 votes. The Democrats control the chamber with 58 seats. However the deal unraveled and the House adjourned after Dillon cold only get 52 Democrat votes to back the plan.

The deal in question linked $600 million in spending cuts through reforms to an increase in the income tax rate to 4.6 percent that would rollback to 4.2 percent in 2011.

Although we are holding the line on a services tax, part of the deal included passage of HB 5198, another vehicle bill that would allow for a sales tax on services to be inserted later by Senate action. However, the tie-bar to the bill as part of the deal was removed late in the night.

The spending reforms in the deal would:

• Require that the Public School Employees Retirement System pay 90 percent rather than 100 percent of health-care premiums for retired teachers and that retirees be at least 60 years of age before getting benefits ($300 million).
• Require a consolidated school calendar for all districts within intermediate school districts by July 1, 2008.
• Require school board elections to be held in November.
• Create a nine-member commission appointed by the Legislature to collect all information necessary to evaluate the efficiency of each state agency.
• Eliminate lifetime benefits for lawmakers ($4 million).
• Amend the State Employees Retirement Act to freeze pension benefits for state employees and public school employees who become re-employed by the state.
• Eliminate the automatic assignment of state cars to state department directors.
• Require state or public school employees to put in 10 years of service, up from five, before being allowed to purchase employee service credits that allow employees to retire up to five years earlier with a full pension. It would also no longer allow employees to purchase health-care credits ($45 million).
• $50 million in unspecified corrections savings.
• Require state departments to adopt professional purchasing programs for all state purchases (projected $200 million).

Both the House and Senate are scheduled to begin again on Sunday, Sept. 23.

Sept. 20, 2007: The state House is expected to attempt another vote this evening to raise the income tax to 4.6 percent and enact spending cuts. House Speaker Andy Dillon said the vote is part of a comprehensive solution to an estimated $1.75 billion budget deficit in 2008.

It is believed that there is an agreement with a handful of Republicans to pass the measures that may also include extending the state sales tax to some services.

The House reconvenes at 4 p.m. today and the vote will take place sometime after that.

Sept. 18, 2007: The Michigan House of Representatives continues with day four of a marathon session that began on Friday of last week. Two weeks remain before the constitutional deadline of Oct. 1 to have budgets in place for the next fiscal year. There was no progress during the weekend session for any form of tax hike. However, an income tax and services tax option is still in the mix. House Speaker Andrew Dillon made it clear in an interview on Sept. 16 that an income tax increase alone will not bring in enough revenue and that there could be a tax on services or a select set of services, to make up the difference.

Members are urged to continue calling, faxing and e-mailing their lawmakers and tell them not to support any taxes on services.

Sept. 6, 2007: Lawmakers began debate over increasing taxes in order to balance the 2008 budget. Although no consensus was reached at that time, it is expected that in the coming weeks there will be an effort to send bills dealing with the income tax act and sales tax act to a conference committee where a leadership agreement could be inserted on a higher income tax rate and/or imposing a tax on some or all services.

This move could trigger a ballot proposal asking voters to approve an increase to the sales tax, but the services tax part of the proposal could end up being permanent with no ballot option to undo it.

Aug. 22, 2007: State Rep. George Cushingberry (Detroit Area) introduced House Bill 5135 which creates a sales tax on services. Although the bill does not specifically identify those services taxed, the bill states on Page 5, lines 10 and 11, Sec. 7:

"Services subject to the tax levied under this act include only those services specifically identified by the Legislature."

In other words, the Legislature will decide what "luxuries" are to be taxed at 6 percent. As written, the new tax would take effect Oct. 1, 2007.

In the language of the Legislature, this is what is known as a "vehicle" bill, a bill that can be changed at a moment's notice and passed into law in order to expedite the legislative process to a predetermined conclusion (tax increase).

Say No to New Taxes