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Mich. Legislature delays compromise on service-tax substitute

November 29, 2007

Michigan’s Legislature is leaving businesses in limbo as to whether the service tax will be repealed by Saturday’s deadline.

The state House passed a bill Wednesday evening repealing the 6 percent sales tax on services and replacing it with a surcharge to the Michigan Business Tax, or MBT, a decision supported by many local businesses.

The MBT doesn’t go into effect until Jan. 1, while the service tax is scheduled to begin Saturday. The service tax is expected to generate about $614 million.

The House altered previous versions of the repeal and replacement of the service tax to decrease the surcharge to 25.7 percent and raised the business liability cap to $4.5 million, said Greg Bird, spokesman for House Majority Speaker Andy Dillon, D-Redford.

While legislators agree the service tax should be repealed, there is dissension regarding the best substitute for the tax.

Disagreements have included whether or not the surcharge should have an end date and how large the surcharge should be, Bird said.

“The solution we have passed needs to be revenue-neutral and permanent,” Bird said.

“When we arrived at our budget agreement a month ago, the revenue we agreed upon was permanent, and going back on that would be breaking our promise to schools, hospitals and police. The Senate version would have blown a huge hole in our budget, not just next year but the year after that and after that,” he said.

After passing the bill Tuesday, the House adjourned.

“If we have an agreement the governor finds acceptable we are willing to come back and vote on that agreement,” Bird said.

Businesses have said they are willing to pay for a higher business tax in the form of a surcharge, but they also are expecting a repeal of the service tax, Bird said.

Senate Majority Leader Mike Bishop, R-Rochester, was “shocked and disgusted” by the House’s actions and accused Democrats of walking away from the table, according to The Associated Press.

Bishop urged the House to return to session this week.

Gov. Jennifer Granholm supports the House bill and hopes the Senate will pass it before Saturday, said Liz Boyd, Granholm’s spokeswoman.

“We support the bill that came out of the House and we are encouraging the Senate to pass it,” Boyd said.

The bill has been sent to conference, where House Democrats could return to compromise, said Phyllis Washburn, spokeswoman for House Minority Leader Rep. Craig DeRoche, R-Novi.

“We’re cutting it way too short and these businesses have already spent too much money,” Washburn said.

“House Republicans have been here today and will be here tomorrow regardless, because we want to get rid of the service tax — there can’t be a solution without the House.”

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