LANSING – A month before it is scheduled to take effect, the Michigan Senate Thursday passed a bill to postpone the business services tax, while a petition e drive to repeal the measure was announced.

SB 845 passed the Senate on a 22-12 vote, with Sen. Glenn Anderson (D-Westland) and Sen. James Barcia (D-Bay City) joining with a solid GOP caucus to approve the bill, which delays implementation from December 1 to December 20. The bill is also tie-barred to SB 838 , which would repeal the tax, but was not voted on.

The Senate action was the capped a day that began with Senate Majority Leader Mike Bishop (R-Rochester), during a taping of Michigan Public Television’s “Off the Record,” saying the services tax Gov. Jennifer Granholm?s baby and she should fix it since she agreed with Senate Republicans that the tax posed problems.

Bishop said the fervor over the tax would only get worse once it becomes law and businesses start to realize their liability to the state. But he said the only realistic way to get the measure repealed is to find a replacement first. He added that putting a surcharge on the Michigan Business Tax (a Michigan Manufacturers Association proposal) would deter businesses from coming to the state.

Asked if Granholm had a proposal for replacing the services tax, Liz Boyd, her spokesperson, said the administration wants to see a proposal from the business community, but also said that there had been “conversations” on the subject and more would come.

The later Senate’s action came as something of a surprise, but a spokesperson for Bishop denied the action was tied to the rally against the tax held by the Ax the Tax coalition.

Action on the bill had been discussed internally for several days, Matt Marsden said.

The aim of the bill is to give the Legislature more time to develop an alternative to the services tax, several officials said.

Sen. Wayne Kuipers (R-Holland), one of three Republicans who voted for the services tax on October 1, told reporters after the session the measure is designed to send a clear signal to the business community that the tax will be repealed when a replacement is developed.

And while some have called for the Legislature to cut the budget to make up the difference in revenues, Mr. Kuipers said that since there is no movement in the House to cut the budget, he would support replacement revenue.

Sen. Valde Garcia (R-Howell), another of the three Republicans who voted for the tax (the third is Sen. Ron Jelinek (R-Three Oaks)), said the bill is a good way for the state to get the needed time to “craft a better solution.”

But Senate Minority Leader Mark Schauer (D-Battle Creek) said the bill raised too many questions to warrant support now. He did say that the Legislature will work to “improve the state’s tax policy” but that a full replacement of the revenues the services tax would raise is required.

Boyd deferred on saying whether the governor would support the bill. “Let’s take it one day at a time. The Senate has recognized this is an issue they will need to focus on,” she said, adding that the bill is “obviously a recognition on both sides of the aisle that the services tax needs to be revisited.”

Over in the House, the Tax Policy Committee held its first public hearing on the 6 percent use tax on some 53 services.

Chair Rep. Steve Bieda (D-Warren) said from informal workgroup discussions he’s had over the past month, several concerns have been voiced by the business community including how business affiliates (mainly consulting and administrative services) would be taxed, how bundling services together would be taxed if some portion doesn’t fall under the list (mainly financial services) and what competitive disadvantage some businesses will have under the new law.

Bieda also said there are some industries, such as landscaping, that are upset because the tax was billed as a luxury tax, and they believe their business doesn’t fall into that category. Other concerns include the burden of simply complying with the new tax, how some industries would be taxed for services required by the state (environmental consulting) and why some services were selected for the tax and some were not.

The services tax is expected to bring in $614 million to the state during its first year of implementation but Scott Schrager with the Department of Treasury said they are continuing to review revenue estimates because of how the dynamic between services that cross state lines plays out.

Schrager began his committee testimony by saying the service tax debate has been around for years and that even with Michigan adopting one, the Federation of Tax Administrators still has Michigan in the middle of the 50-state pack for tax burden. He said with based on state and local taxes as a percentage of personal income, Michigan still falls below the national average.

But there are obviously some waters regarding the services tax the Legislature needs to tread into if the services tax is to stay in place, he said, including the affiliates issue. Schrager also suggested the transaction fee should potentially be raised because of the new start up costs associated with administering the tax.

Rep. Fulton Sheen (R-Plainwell) questioned whether Treasury believes the tax will be good or bad on businesses when only a handful of states have some form of a services tax. Schrager said there are states that tax different services or more services than Michigan, but the department hasn’t yet been able to conduct a comprehensive analysis of the economic effects of the statute.

Bieda asked Schrager whether personal services (remember baby shoe bronzing) had been defined yet by the department and Schrager said some definitions had been whittled down. He jokingly added, “I always thought baby shoe bronzing was a potential deal breaker.”

But Rep. Kimberly Meltzer (R-Clinton Twp.) took the tax to task, questioning both the necessity of it when other cuts and reforms could be done and whether anyone had thought about what happens if the tax doesn’t go into effect while businesses have already spent money trying to figure out their liability. Schrager said the department had been focusing on helping businesses get educated on the tax and not on penalizing them, but he said if there were any rebates to go out for it not going into effect, the Legislature would have to permit that.

Rep. Paul Condino (D-Southfield) and Rep. Tim Melton (D-Auburn Hills), expanding on comments from Rep. Andy Meisner (D-Ferndale) on the need for the tax to avoid a government shutdown, asserted that while business groups were coming up with alternatives to keep the state solvent, only two Republican committee members out of seven showed up the meeting. Meltzer defended her members for only having notice yesterday afternoon and that Thursday is not the committee’s normal meeting day.

“We are very willing to discuss this issue. We feel very strongly about this and our members, including the ones in committee, didn’t vote for this,” she said.

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