In 2008, the complicated MBT replaced Michigan’s previous business tax, called the Single Business Tax. Rather than taxing business’ profits, as the single business tax did, the MBT taxes everything a company sells with no thought to how much it has to spend, MSU economics professor Charles Ballard said.

One other major problem with the MBT is it tacks on a surcharge, meaning after a business’ tax is assessed, another 22 percent is added to the amount owed, Ballard said.

All of these expensive components cause problems for area small businesses, such as Good Fruit Video, 325 E. Grand River Ave., a video production company that began in March 2009. The new company required an extension on its taxes and is now working to pay its 2010 taxes.

Affording the MBT out of their available profits is difficult, co-owner Justin Caine said.

“Taxes in general, for a small business, are never an easy thing to give over,” Caine said. “It’s one of those Catch 22s ­— you want to grow your business and make a lot of money, but at the same time, you are nervous about making more money because … you owe (more) to Uncle Sam.”

In their quest to bring new businesses and jobs to Michigan, both gubernatorial candidates pledge to ease this tax burden on in-state companies.

Republican candidate and Ann Arbor businessman Rick Snyder wants to eliminate the MBT entirely and replace it with a flat 6 percent corporate income tax for large corporations, a campaign representative said. Small businesses would pay nothing.

Overall, this would create a $1.5 billion tax cut for businesses across the state, the representative said.
A corporate income tax works like the Single Business Tax did, taxing profits rather than sales, Ballard said.

Rather than eliminating the MBT entirely, Democratic candidate and Lansing Mayor Virg Bernero wants to eliminate the 22 percent surcharge portion of the tax, spokesman Cullen Schwarz said.

“Bernero believes that we need to make Michigan the number one place in the country to do business, and that includes having a more business friendly tax system,” Schwarz said. “He would work with the business community to overhaul the MBT to make it more equitable, predictable and fair. He would keep tax incentives for manufacturing and special incentives for export-oriented manufacturing.”

Whatever solution is chosen to fix the MBT, right now, the tax structure makes business difficult for Good Fruit Video, Caine said.

“Businesses growing in Michigan is going to do nothing but help our economy, and overtaxing that is like biting the hand that feeds you,” Caine said.

“We’re creating more jobs and we’re helping to move money throughout this community.”