Personal Income Tax revenues from small business entities could be more than double in 2018
May 1, 2019 (Lansing) – The Michigan House Tax Policy Committee heard a presentation on small business taxes today from the state’s leading small business organization, NFIB. The testimony centered around a report that shows small business is paying the lion’s share of the state’s primary business taxes when special MEDC credits are netted out.
“A recent House Fiscal Agency report suggests 2018 net revenue from the Corporate Income Tax could be about $392 million, but just a few years ago small businesses paid $843 million in taxes on business income through their personal income tax returns,” said NFIB State Director in Michigan, Charlie Owens. “The lower Corporate Income Tax revenue is due to a potential $641 million in offsets from companies claiming past Michigan Economic Growth Authority (MEGA) credits.”
Owens based his conclusion on an Anderson Economic Group report that examined how Michigan taxes affect small businesses throughout the state. The report, commissioned by NFIB, examined data from the 2018 Anderson Economic Group Annual Business Tax Burden Study. Findings from the report indicated that Individual income taxes on so-called “pass-through” income from sole proprietorships, partnerships, and subchapter S corporations increased from $829 million in 2015 to $843 million in 2016 and was up 81% in five years.
“If you extrapolate that percentage increase to Fiscal Year 2018, you will find that Personal Income Tax revenues from pass-through business entities could be more than double the tax revenues from net corporate income taxes of C corporations,” said Owens. “Most of these pass-through entities are small businesses.”
Owens said the report indicated that small businesses tend to pay a large amount of property taxes, sales taxes, and individual income tax, while corporate income taxes and severance taxes fall mostly on big businesses.
“There is a misconception that small businesses that are not C corporations do not pay any business income tax because they do not pay the Corporate Income Tax,” said Owens. “Part of the confusion is because the typical reports and presentations provided by Treasury and the House and Senate Fiscal agencies do not break out business taxes paid from the Personal Income Tax revenue.”
Owens is concerned that spending pressures to implement new programs may cause policymakers to return to failed taxation models and policies of the past that caused Michigan to lose jobs and contributed to the “lost decade” of recession and economic downturn.
“This report helps set the record straight that, not only are small businesses paying taxes on their income, but it is often more than the net Corporate Income Tax when special credits are considered,” said Owens.
The report can be downloaded or viewed HERE.
