LANSING – Lawmakers began delving more into the specifics of what a Michigan corporate income tax could look like with presentations Wednesday from the House Fiscal Agency showing Governor Rick Snyder’s proposal will amount to an 86 percent cut in business tax revenues to the state by the 2012-13 fiscal year.

Forty-four other states levy a corporate income tax, 31 of which have a flat rate similar to what Snyder is proposing. Michigan’s levy would be 6 percent, which falls into the range of rates out there with Kansas at the low end with 4 percent and Pennsylvania at the high end with 9.99 percent.

But in its presentation to the House Tax Policy Committee, the fiscal agency noted in addition to having a corporate income tax, all states levy some other type of business tax, such as a franchise tax, to minimize the volatility of corporate income tax collections.

Of those, 12 states have another business tax that generates at least twice as much revenue as their corporate income tax. Another 22 states generate about the same amount of tax revenue between their corporate income tax and other business tax and five states collect “considerably more” with their other business taxes than their corporate income tax.

Snyder has proposed eliminating the Michigan Business Tax starting January 1, 2012, and replacing it with a corporate income tax. The state would still collect about $900 million from the MBT for the 2011-12 fiscal year, since that begins October 1, but overall the state would lose $2.1 billion in revenue from its elimination.

The corporate income tax would net $460 million in its first year, while financial institutions, which would pay a separate tax, would net the state $27.7 million, according to the House Fiscal Agency memo. In its first full year of implementation, the corporate income tax is predicted to net just under $750 million.

The Snyder administration plans to eliminate many business tax credits, but will honor the tax credits awarded to specific businesses, some of which go through 2020, and those will cost the state $293 million in the 2011-12 fiscal year.

Snyder has also proposed several changes to the personal income tax, including taxing pensions, the net effect of which will mean an additional $820.9 million for state coffers in 2011-12 and $1.8 billion in 2012-13.

In his preliminary review of the budget to lawmakers, Fiscal Agency Director Mitch Bean said the instability of a corporate income tax, combined with the state honoring some business tax credits, could mean there will be some years the state will see a zero or negative collection in tax revenue from the corporate income tax.

Michigan had a corporate income tax briefly, but the unstable revenue stream was altered to a more stable value-added tax, which became known as the Single Business Tax. Lawmakers repealed the SBT and replaced it with the MBT in 2007.

The discussion of the volatility of such a tax alarmed several lawmakers in Tax Policy and the House Appropriations Committee.

Rep. Brandon Dillon (D-Grand Rapids) said negative business tax collections will put a burden on other taxpayers in some years.

And Rep. Jim Townsend (D-Royal Oak) said lawmakers may have to make changes to subsidize those fluctuations, which could affect businesses anyway.

“If revenue to the state is unstable it ripples through to other things,” Townsend said.

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