Todd Anderson, vice president of governmental relations for the Small Business Association of Michigan, said the Legislature damaged the state economy by passing the service tax.

“There is a big state budget problem in the state, but you don’t fix the state budget and haunt the economy at the same time,” Anderson said.

The expansion tax was passed Oct. 1 with an increase in the income tax rate as a revenue producing bill.

“For fiscal year 2008 it is estimated (the tax) will generate $613.8 million if in effect Dec. 1,” said Jay Wortley, senior economist for Senate Fiscal Agency. “In 2009, when it will be in effect for all 12 months, it would generate $751.3 million.”

The tax would continue until a separate law is passed to end it, Wortley said.

House Republicans have proposed a number of substitutions for the tax, including reducing the Department of Information Technology’s budget by $10 million, passing about $110 million in reforms for Department of Human Services and eliminating about $3.2 million to train volunteers with the Community Service Commission Grant.

“These are some reforms we would have liked to have seen in the budget the first time around, and since they weren’t addressed, this is a way to restructure government and repeal the sales tax,” said Phyllis Washburn, spokeswoman for House Minority Leader Craig DeRoche, R-Novi.

Gov. Jennifer Granholm has informed House and Senate members she will consider substitutions to the service tax only if certain requirements are met.

“Gov. Granholm is open to adjustments to the tax or a replacement to the tax,” said Megan Brown, spokeswoman for Granholm. “But it needs to be revenue neutral, it needs to be permanent and it needs to have bipartisan support.”

House members received the bill to delay the service tax but have not taken it up yet, said Greg Bird, spokesman for House Speaker Andy Dillon, D-Redford.

“House Democrats have been doing what Senate Republicans and the administration has been doing in regards to the service tax,” Bird said. “We’ve been meeting with the business community and holding public meetings. We need to take a reasonable and thoughtful approach to this matter.”

The Anderson Economic Group, an East Lansing-based consulting firm, provides services to the state’s three research universities — MSU, the University of Michigan and Wayne State University — that likely would be taxed under the service tax.

Anderson, who has no relation to the firm, said because the service tax would be imposed on the buyer, it would cost the universities more to provide the same services after Dec. 1.

“If a university wanted the Anderson Economic Group to conduct a study about something, presumably something important to the university, the group would have to add 6 percent to what they bill them,” he said.

The increased cost could force a firm like the Anderson Economic Group, which also has offices in Chicago and Dallas, to shift more of its work outside the state, Anderson said.

Patrick Anderson, CEO of the firm, could not be reached for comment Monday.