The votes come too late to stop the enactment of a 6 percent tax on services ranging from taxi cab rides to warehouses. The tax took effect at midnight, after signature by Gov. Jennifer Granholm (HB 5408 into law, PA 145 of 2007).
But if the deal goes through, businesses affected by the tax wouldn't be required to collect it, even though it technically will be on the books until it’s formally repealed. Businesses will be granted legal protection if they fail to collect the service tax until the effective date of the new law. It was less clear what would happen if businesses opted to collect the tax from customers, and the late timing of the tentative agreement likely will lead to some confusion. Some bills related to tax collection may not be passed until next week.
Granholm, Democratic House Speaker Andy Dillon, and Republican Senate Majority Leader Mike Bishop issued a joint statement on the tentative deal early Saturday.
“These negotiations were very difficult due to our challenging economic climate, but I am confident that this agreement is a fair compromise,'' Dillon said in the statement.
Bishop's statement issued through the governor's office said he appreciated “the spirit of compromise to repeal a tax that would have devastated Michigan business.''
Granholm said the deal would provide replacement revenue for the services tax and protect funding for vital state services.
The 6 percent tax on services would apply to consulting, some interior design, commercial landscaping, manicures and pedicures, ski lift tickets, taxi rides, astrology, carpet cleaning, wedding planning, warehousing, and a host of other services.
The much maligned tax passed as part of a last-minute plan to avoid a prolonged state government shutdown in the early hours of Oct. 1.
Both the House and Senate have passed separate bills repealing the tax in recent weeks. Their proposals also would replace some or all of the more than $600 million it's supposed to bring in this fiscal year with a surcharge on the state's new business tax that takes effect Jan. 1. But neither side liked the other's version, creating an impasse that now is on the verge of being resolved.
Democrats say a surcharge on the Michigan Business Tax should be permanent to avoid another budget crisis in a few years. Republicans want the surcharge to be temporary and to collect less money than Democrats want because they say the additional tax will hurt the economy. The compromise includes the phasing out of the surcharge, possibly by 2017, under certain economic conditions that were not immediately disclosed.
Business owners, already facing a challenging economy, have said for two months the tax on services was a bad idea. They fear it will make consumers less likely to buy their services, or push customers to shop out of state for better deals. Michigan's unemployment rate continued to lead the nation in October, when it hit 7.7 percent.
Some business groups would have preferred a plan that reduces tax liability for businesses overall. But they said the plan coming together in the Legislature early Saturday was better than the services tax, given a choice between those two alternatives.
“This agreement that they've put forward, with a surcharge that does indeed have a sunset date, is something we're willing to support and live with,'' said Tricia Kinley of the Michigan Chamber of Commerce. ``It comes down to you have to choose the lesser of two evils.''
The Coalition to Ax the Tax plans a major push Saturday to collect petition signatures in Okemos, Grand Rapids and Frankenmuth so voters can decide in November 2008 whether the tax should be repealed if the Legislature doesn't do it first. The ballot drive, led by Oakland County Executive L. Brooks Patterson, would repeal the tax without replacing the lost revenue.
Associated Press Writer David Eggert contributed to this report. On the Net: Michigan Legislature: http://www.legislature.mi.gov, List of services and tax status: http://www.michigan.gov/documents/taxes/SubjectIndex_214564_7.pdf
Click here to read the ENROLLED HOUSE BILL No. 5408 (pdf)