LANSING – A proposal to expand the Michigan tax benefit for small businesses by some $251 million got a first look Thursday in the Senate Finance Committee where proponents described it as an essential part of a strategy to rebuild the economy and critics said it would undercut essential state services.

The bill (SB 69 ) would basically affect businesses with gross receipts above $700,000 up to $20 million, a group that does not now qualify for the alternative 1.8 percent tax rate in the Michigan Business Tax. It would also increase to $250,000, from $180,000, the compensation allowed to top executives or shareholders in order to qualify for the exemption.

The measure allows an entrepreneurial tax credit to be claimed beyond 2010, the current expiration date for that provision, and expands that credit to equal the entire MBT liability rather than just the portion that is due to increased employment.

Edward Kisscorni, director of State and Local Taxation with Echelbarger, Himebaugh, Tamm & Company in Grand Rapids, said the changes do not solve the entire problems facing small businesses under the MBT, but do address some of the issues.

“The change to the entrepreneurial credit is very welcome,” he said. “The recovery to Michigan will be driven by small businesses.”

Sen. Nancy Cassis (R-Novi), sponsor of the bill, said as the new MBT gets fully implemented and businesses understand how it affects them, “It’s clear that the credit to small businesses was shortsighted.”

Kisscorni, who said 80 percent to 90 percent of his business clients do better under the MBT than the prior single business tax, said one complication is the unitary filing requirements that fold into one tax return the obligations of multiple entities under one company that previously could have filed several returns that each qualified as small businesses.

Sen. Gilda Jacobs (D-Huntington Woods) questioned why the state should make the change to help 10 percent to 20 percent of businesses whose tax liability did not go down under the MBT. And while saying the budget would take “a big hit,” she also questioned whether anyone could quantify the number of jobs created with the more generous provisions for owners and executives.

Kisscorni said the money left in the hands of the business could be used for employee benefits, improved software, expanded offices or other job-enhancing moves, but acknowledged it is not required.

The Michigan Chamber of Commerce also supported the bill, with Jim Holcomb saying, “It does send a strong message to entrepreneurs that we want to attract and keep them in Michigan. We need to attract every job we can and this bill does that.”

Addressing the budget implications, Holcomb noted the Chamber was part of a group that outlined $1.5 billion in cuts, and committed the group to working with the Legislature to identify where savings can be made.

The Small Business Association of Michigan and the National Federation of Independent Businesses/Michigan also supported the bill. NFIB’s Charles Owens said because the bill is targeted at the sector in the state that is creating jobs, it is broad-based relief in contrast to tax breaks for designated companies or sectors.

The Department of Treasury opposed the bill, with Schott Schrager saying it does not correct something that is unfair, but rather makes the exemption more generous. He added the MBT does already encourage entrepreneurs through a new business exemption that allows start-ups to not pay taxes for five years.

Nonetheless, Schrager said the administration is willing to discuss further the proposed change for entrepreneurial credits to make them more beneficial to companies expanding their operations. “It’s the part of the bill that says you don’t owe any taxes at all is what troubles us,” he said.

The Michigan League for Human Services and the AFL-CIO also opposed the bill, with the labor union saying the revenue loss for the state would translate into further job losses on top of the 1,500 already proposed in the executive budget.

And the MLHS said it was alarmed by the prospect of further cuts in state revenues, saying any adjustment should be considered in the context of comprehensive tax reform and the services government needs to provide.

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