House approves business surcharge

House approves business surcharge Plan to replace service tax money faces Senate fight November 9, 2007 BY CHRIS CHRISTOFF FREE PRESS LANSING BUREAU CHIEF LANSING -- The drive to repeal an unpopular tax on services before it takes effect Dec. 1 got another boost Thursday from the state House, which voted to replace it with a bigger business tax. The vote sets up a political dance with the Senate, where majority Republicans support killing the service tax but not necessarily replacing the lost $614 million in revenue this year with another tax. AdvertisementThe House bill was supported by a long list of the state's largest businesses -- the Detroit Three automakers included. They determined a business tax increase was better than the 6% service tax passed Oct. 1 in a frenzied rush to balance the state budget with tax increases. Auto companies face big taxes for warehousing under the services tax. Although the Legislature is scheduled to begin a 2-week recess today, the House and Senate left the door open for meetings next week to try to resolve the tax issue. The House bill passed on a 58-48 vote, with only two Republicans joining 56 Democrats. The bill would repeal the tax on services -- roundly condemned by business groups for its impact on businesses large and small -- and instead impose a 32.9% surcharge on the new Michigan Business Tax. The MBT takes effect Jan. 1 to replace the Single Business Tax. The surcharge would drop to 27.3% after 2008. No business would pay more than $2 million. The surcharge would affect about 60,000 businesses that are expected to pay the MBT next year. It would not affect another 40,000 businesses that would pay a cheaper, alternative business tax, according to the state Treasury Department. Insurance companies would not pay the surcharge because they would not pay the MBT, but rather pay a different tax based on their premiums. Treasury analysts said that, compared with the sales tax on services, the MBT surcharge would shift a larger burden of business taxes to out-of-state companies. The Senate voted Wednesday to repeal the tax on services, but that bill did not address the lost revenue the repeal would cause. Some Senate and House Republicans oppose a replacement tax and called for further budget cuts instead. Democratic Gov. Jennifer Granholm, however, said she wouldn't support eliminating the services tax without a replacement tax that produces the same revenue. House Minority Leader Craig DeRoche, R-Novi, complained that Democrats would not consider a Republican plan to cut $650 million. DeRoche called the Thursday evening vote a Democratic rush to raise taxes. Majority Democrats rammed through the bill without allowing GOP amendments or debate on it. Democrats called DeRoche an irrelevant player who refused to take part in negotiations or committee hearings on the bill. House Speaker Andy Dillon, D-Redford Township, said it was important that the House pass the measure before the recess as a show of good faith to businesses that supported it. Earlier this week, Ford Motor Co. Chairman Bill Ford lobbied Granholm and legislative leaders in Lansing. The surcharge would have a relatively minor impact on automakers because of a $2-million cap on payments