LANSING – A Grand Rapids Area Chamber of Commerce proposal to deal with the impending repeal of the Single Business Tax includes full repeal of the personal property tax as well while replacing most of the nearly $4 billion the two taxes produce with a widely-applied gross receipts tax.

The proposal also uses cash grants rather than tax credits as incentives to businesses to stimulate economic development.

The proposal, which provides an overall tax cut of about $350 million, would benefit manufacturers the most, officials at the chamber said. It would ensure the local governments, which are the beneficiaries of the personal property tax, would not see a reduction in revenue.

Under the new tax – a Michigan Business Activities Tax which is similar to a modified gross profits tax – all companies would be required to pay something, beginning at a minimum flat rate of $150 for small businesses. The tax, imposed at a rate up to .75 percent, would apply to Michigan sales or service revenue, with deductions for the cost of property acquired for resale, manufacturing, leasing or cost of funds for financial institutions.

Jeanne Englehart, president of the Grand Rapids chamber, said the proposal “will help Michigan move from having one of the most onerous tax climates in the country to one that encourages businesses to locate here. It is simple, has a low rate, does not punish struggling businesses and lessens the burden on our manufacturers, who invest heavily in equipment and machinery.”

Officials said the biggest improvement in the state’s business climate comes from elimination of the personal property tax, which 29 other states have, but which is being eliminated or reduced in some of them, such as Ohio’s 10-year phase-out.

The plan calls for the state to adjust to its revenue cut through Medicaid reform and creation of incentives to promote government and school consolidation.

The proposal for cash grants rather than tax credits for economic development incentives is a unique approach, Jared Rodriguez, vice president of public policy and government affairs, said. That approach, he added, keeps the tax code simpler and makes it easier to hold businesses accountable for the jobs they promise to create.

A spokesperson for Gov. Jennifer Granholm said officials had not had time to study it, but found a number of aspects “very troubling.” Liz Boyd said it is a complicated proposal and “obviously creates problems for thousands of small businesses which do not now pay taxes.”

She also noted the loss of revenue to the state, which counters Granholm’s call to replace all of the lost revenues when the SBT is repealed.

John Truscott, spokesperson for Republican gubernatorial candidate Dick DeVos, said the proposal had not been seen by officials there and DeVos would not be taking a position at this time. And although he said it sounded like some elements have merit, “we won’t know until we see the numbers run and how they compare to real experiences.”

In creating the model, Rodriguez said data by industry was unobtainable for the 2005 year which was used as the basis for devising a new tax, and personal property tax information could have been obtained only by contacting each municipality. He said most sectors were involving in devising the proposal, as were local governments.

Rodriguez said the big winners under the proposal are manufacturers and others which pay the personal property tax, but “losers, I’m not so sure about.” He said initial concerns by retailers and financial institutions were addressed with the deductions included in the final proposal. Insurers would continue to pay a premium tax.

Joint Select Committee on Economic Growth Co-Chair Rep. Fulton Sheen (R-Plainwell) that all the proposals coming out are structures and that except for the Fair Tax and Detroit Regional Chamber of Commerce proposals, the numbers have not been crunched so it’s hard to know everything about them.

Sheen said he likes how the Grand Rapids proposal institutes cash incentives, which are effective in other states and that they are given out on a quarterly basis and only to companies that are fulfilling their obligations.

While he wants to see the numbers, Sheen said he’s seeking input from businesses across the state to understand how each of the proposals will affect a company’s bottom line and customer base.

Sheen said he’s not crazy about having a gross receipts tax, but any tax code will be better than the complicated SBT and he likes that the proposal incorporates losing the personal property tax.

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