LANSING – Although the agreement on just how much of a sales/use tax exemption colocation centers such as Switch, a company out of Nevada looking to expand in Michigan, should receive varied from Thursday morning to Thursday afternoon, the Senate ultimately decided to allow such entities to receive the full extent of an exemption on a 21-15 vote.
SB 616 and SB 617 on the sales and use tax exemptions saw minimal discussion on the Senate floor, but outside of the Capitol, the debate roared, especially among traditional allies for Republicans.
The Michigan House, although it was widely expected to, did not vote on similar legislation in its chamber on Thursday.
Gideon D’Assandro, spokesperson for House Republicans, said members still have a lot of questions on the issue and want to take more time to discuss the legislation before making decisions.
Sources familiar with the situation speaking on background said the caucus is struggling – ideologically – with the concept of providing a tax break for one industry. There are also questions about existing data centers, which have operated in the state without the exemptions being proposed now.
Leading the charge of conservatives against the legislation was the Michigan Chamber of Commerce. Rich Studley, the chamber president and CEO, lambasted the legislation repeatedly on Twitter. And it was the strong opposition from his organization that sources said had slowed efforts to pass the bills in the House.
“We are very disappointed with the Michigan Senate’s decision to hastily grant hundreds of millions of dollars in sales and use tax breaks to an out-of-state company without the guarantee of a single job,” Studley said a statement. “It’s time for state lawmakers to stop the bait-and-switch approach to tax policy. From failed state battery credits to ineffective Hollywood film subsidies, we’ve seen this movie before, and it ends badly for Michigan taxpayers.”
Besides Studley, the National Federation of Independent Business-Michigan ripped the bills, hitting them with criticism sure to sting usual legislative Republican allies that the legislation was Granholmian. And then prominent Republican strategist Greg McNeilly called legislation “corporate cronyism” and “sad” on his Twitter feed and made sure to mention the House and Senate Republican caucus Twitter accounts to be sure they got the message. U.S. Rep. Justin Amash (R-Cascade Township) said the legislation would “destroy” jobs.
The bills would provide a 15-year exemption from the sales tax and the use taxes at the full rate of 6 percent – a version that cleared the Senate Michigan Competitiveness Committee earlier in the day permitted only exempted 4 percent – for collocated data centers.
Senate Majority Leader Arlan Meekhof (R-West Olive) said the change from 4 percent to 6 percent was a result of their belief of what the House would end up doing as well.
The bills go on to specifically define “internet data center,” “data center equipment,” and a “collocated business.” The bills were expected to apply only to collocated data centers, a relatively small number, not captive data centers, of which there are more.
But they do not include another provision the Chamber sought to have included, Tricia Kinley, senior director of tax and regulatory reform for the Chamber, said.
“In their rush to pass this legislation, senators declined to protect businesses already located in Michigan by refusing to adopt a simple amendment to close the door on the Treasury Department’s relentless effort to impose the sales tax on cloud computing and data services,” she said in a statement.
Charlie Owens with the National Federation of Independent Businesses-Michigan likened the proposal to Democratic former Governor Jennifer Granholm’s “failed economic development policies” that are “still haunting our state with more than $9 billion in unclaimed credits,” he said, likely referring to the now defunct Michigan Economic Growth Authority tax credits.
“While we appreciate attempts to broaden the focus of the bills to include all data center operations, the legislation is still a narrowly targeted proposal,” Owens said. “We offered, in both House and Senate committees, an opportunity to make changes to these bills to broaden their scope by increasing the current small business Personal Property Tax exemption of $80,000 of True Cash Value to $160,000. Since more than 90 percent of all businesses in the state are small businesses … this change would have made the proposed legislation a more broad-based economic development proposal.”
But without that change, he said, NFIB Michigan cannot support their passage.
U.S. Rep. Justin Amash (R-Cascade Township) tweeted that the “corporate welfare deal” would “result in higher taxes on everyone down the road, harm Michigan’s economy and destroy jobs.” He later sent followers to his Facebook page for a more detailed explanation on why the “targeted tax breaks” were a bad idea.
But contrary to those opinions, the Grand Rapids Area Chamber of Commerce said it supports the legislation, recognizing that its views differ from the state chamber.
“(Our members are) excited about the potential of supporting and growing this industry in Michigan,” Andy Johnston, vice president of government and corporate affairs, told Gongwer News Service in a phone interview. “Our board has been extremely supportive of the legislative package.”
In committee and on the Senate floor, some senators, especially Sen. Rebekah Warren (D-Ann Arbor), took issue with the potential loss of revenue for schools.
“(The legislation) doesn’t bind us to any future payments to these companies, but it shortchanges our School Aid Fund and our General Fund and funds to our local communities that they would otherwise be getting. That’s a concern,” she said. “We have gone through this process many times where we have considered tax policy that makes carve-outs and special exemptions to a particular industry or a particular industry that has made it very difficult for our budget. And we have found too often in the past that the promises in the press releases don’t end up being honored on the ground here.”
An amendment by Sen. David Knezek (D-Dearborn Heights) was adopted on the Senate floor to SB 616 that assures the appropriation of money from the General Fund to the School Aid Fund if any SAF funds were lost as a result of the legislation.
Johnston said the GRCC’s members hadn’t really raised such a concern on schools.
“The question before policymakers is whether or not we want to have a competitive tax structure in order to grow this industry in Michigan. It’s about making sure we do it in a way that’s best for Michigan,” Johnston said. “We’re happy to see the Senate take action today and move the process forward.”
Warren said she and the rest of her caucus wanted to get to a “yes” vote, but “we need assurances the taxpayers’ monies are going to be protected, these jobs are going to be protected, that those investing in our state aren’t going to be harmed by a competitor … that doesn’t have to play by the same rules.”
She continued, “I can’t assure my colleagues we’ve done our due diligence. I can’t assure my constituents we’re being good stewards of the taxpayer money, and I can’t assure them this company is even going to come, let alone spend a dollar or hire one employee, because we have no assurances of that at this time.”
To that end, Meekhof said such requirements are worth discussing, and they may become part of the final product, but for now, “It’s kind of like a poker game – we have to put the ante in to be able to compete, and we put the ante in, so now we’re ready to compete.”
PERSONAL PROPERTY EXEMPTION: The chamber also passed on a 21-15 vote SB 618, which provides a 10-year exemption for eligible internet data center property if the local governments approved the exemption no later March 31 of the first year the eligible Internet data center property would be subject to the collection of those taxes, or if the local governments did not reject the exemption via resolution or ordinance by April 1, 2016.
Knezek and Sen. Virgil Smith (D-Detroit) broke with the majority of their party to support the bills while Republicans Sen. Judy Emmons of Sheridan, Sen. Joe Hune of Whitmore Lake, Sen. Rick Jones of Grand Ledge, Sen. Marty Knollenberg of Troy, Sen. Phil Pavlov of St. Clair and Sen. Tory Rocca of Sterling Heights voted in opposition against the majority of their party. Sen. Jim Stamas (R-Midland) and Sen. Patrick Colbeck (R-Canton Township) were absent.
This story was published by Gongwer News Service. To subscribe, click on www.gongwer.com
