LANSING – Whether Gov. Jennifer Granholm’s Single Business Tax is the most the significant retooling of the tax in its 30-year history – it is at least the third major set of changes proposed to the tax – the plan outlined will leave the tax less like a pure value-added tax and more like a business profits tax.

One major attribute of the current SBT that will be changed if the proposal is adopted is the tax’s impervious nature to revenue volatility. Michigan Treasurer Jay Rising said the changes – proposed to take effect January 1, 2006 – would make the tax more volatile, but still not subject it to the wide revenue swings the state saw before 1975.

As was first reported by Gongwer News Service, the changes proposed by Granholm include a cut in the tax rate, a credit for a company’s tangible personal property tax paid, and changes to the apportionment system and be offset with the elimination of a variety of current deductions.

Asked at a reporters’ briefing if the SBT could still be called a value-added tax, Rising said it could because it continues to “have all the components of the value-added tax” even though it will be weighted more heavily towards profits. Factors such as a company’s compensation paid will still be included in the tax’s base.

The SBT was adopted in 1975, replacing seven other business taxes including a profits tax. After the first two years of experience with the tax, the state adopted major changes to its structure and operation in 1977.

Following those changes there were a number of amendments added through the 1980s and 1990s raising the receipts thresholds that would require a company to pay the tax, cutting the tax rate, and adding specific exemptions for specific industries.

But in 1999, the state adopted legislation phasing out the tax over some 22 years, with interruptions in case of economic downturns. The tax rate has been frozen since 2001 despite business efforts to restore the rolldown. As part of a budget agreement passed several years ago, the tax is now scheduled to expire in 2010.

Under Granholm’s proposal to shift $1.1 billion:

The current SBT rate would be cut from 1.9 percent to 1.2 percent;

The small business tax on profits would be cut from 2 percent to 1.2 percent;

A 35 percent personal property tax credit for manufacturing, research and development would be created;

A credit for research and development labor expenses would be created;

The apportionment factor used would be switched from 90 percent sales, 5 percent payroll and 5 percent property to 100 percent sales.

Higher revenue would be produced by changes that would:

Increase the premium tax on insurance companies to 2 percent for Michigan-based companies, from a current SBT assessment of 1.0735 percent of a company’s adjusted tax base;

Eliminate the state’s gross receipts reduction;

Eliminate the special credit for unincorporated businesses;

Eliminate the special credit for telephone property taxes;

Eliminate the excess compensation reduction;

Eliminate the special property tax treatment for commercial rental property.

The proposal also calls for the state to treat the compensation of workers leased through a professional employer organization as compensation of the client business.

One of the most controversial provisions is the insurance tax, but Rising said that proposal would put Michigan’s premiums tax more in line with other states.

And Michigan now taxes insurance companies on a retributive basis, taxing out of state companies at the same rate that their home states tax Michigan firms, so some insurance companies may actually see an overall tax cut.

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