Governor Rich Snyder to Formally Roll Out His Tax Reform Plan on Thursday
Many Alternative Proposal to Replace the MBT Surface in the Legislature
Tomorrow, February 17th, the administration is expected to present to the Michigan Legislature their proposed budget for the next two fiscal years. The Michigan fiscal year starts on October 1 and ends on September 30. A major element in the proposal is expected to be repeal of the Michigan Business Tax and replacement with a Michigan Corporate Income Tax imposed only on C Corporations at a 6% rate.
Version 4 of the administration's proposal was released about two three weeks ago for vetting. From that proposal we can glean that not many taxpayers will be paying the new Michigan Corporate Income Tax, as compared to the Michigan Business Tax. The proposed tax would apply to only C Corporations, effectively eliminating from the tax rolls all small businesses, proprietorships, partnerships and Corporations with 100 or fewer shareholders. Because it is an income tax, many out of Michigan taxpayers, currently paying the Michigan Business Tax, would no longer have to pay the new tax if their activities in Michigan are protected by Public Law 86-272.
All of this is great if you are a small business in Michigan or an out of Michigan taxpayer soliciting sales of property in Michigan. You would not pay the new tax. However, the Governor must submit a balanced budget and the legislature must pass a balanced budget.
Don't be surprised if the administration pairs the Michigan Corporate Income Tax with a new Michigan Corporate Franchise Tax. The Michigan Corporate Franchise Fee, because it's not an income tax, could reach those out of Michigan taxpayers. However, if that happens, then were back to four taxes as with the Michigan Business Tax. Also, if it does happen, then we could be back to the tax structure in existence prior to 1976 when the Single Business Tax became effective.
Speaking of the Single Business Tax, I prefer we go back to a value added tax, but not like the Single Business Tax. The new tax should be a subtractive method value added tax. That's my proposal. Following are several proposals that have surfaced in the Legislature. I am sure there will be more.
Senator Dave Hildenbrand introduced Senate Bill 1 to repeal the MBT. He doesn't have a replacement plan yet, but he said the replacement must be simple, low rate and treat all businesses fairly.
Representative Kenneth Horn introduced a bill that would change the MBT without repealing it. It would remove many credits, eliminate the gross receipts tax and increase the base business income tax to 6%.
Representative Kurt Heise introduced a bill to repeal the surcharge retroactive to 2008 and refund the $1.5 billion collected.
Representative Mark Meadows proposes to tweak the existing MBT by removing the surcharge, cutting the gross receipts tax in half, reduce exemptions and expand the sales tax to service at a 5% rate.
I am sure the list will grow. The key persons are the chairs of the tax committees and the Speaker of the House and Majority leader of the Senate. They will decide which bills get consideration in their respective committees.
I have one more observation; I have not heard of anyone, outside of the administration, in favor of the Governor's proposal.
The debate should start as early as next week.