As Michigan's law makers at the last hour tried to keep the government from shutting down they needed to come up with a new budget that would have to dig deeper into the pockets of those of us who live in Michigan.
After the government shutting down for four hours they came up with the new budget.
Monday Oct.1 the details of the new law became clear to the businesses around the state. The 6% sales tax that would now apply to many services will affect small businesses as well as the auto companies. Many are shocked and confused as to the effect it will have on their businesses. Whatever will affect these businesses will affect everyone who lives in Michigan.
The new law is to go into effect Dec.1. This state is already struggling. It has the highest unemployment rate in the nation and has lost many auto-related jobs. Many jobs that are not directly auto-related are lost due to the effects of plants being closed and those jobs lost.
Some service businesses who have a strong lobbying clout in the Legislature were not listed to have their service taxed. These included golf courses, real estate and cable and television companies.
Some of those to be taxed are janitorial services, landscapers, couriers, car services, consultants, investment advisers, private investigators and others.
Another hard hit for Michigan's already struggling automakers is the tax on consulting services. They are huge spenders for this service. The Senate Fiscal Agency estimates that taxing consulting services would generate $188.2 million, or 31% of the $614 million that is expected to be raised from the expanded sales tax.
General Motors Corp., Ford Motor Co. and Chrysler LLC rely heavily on business and technical consultants as they are struggling to turn their business around. Each of the automakers could see their expenses go up by tens of millions of dollars.
The three Detroit automakers raised concerns about the consulting taxes and other parts of the tax bills with Granholm's office Monday. Granholm spokeswoman Liz Boyd said the governor's staff expected to meet with automakers later this week.
"We certainly are interested in hearing their concerns," Boyd said. "We are very supportive of our manufacturers and the Big Three, and if they have concerns we will make certain we hear them and understand them."
The tax can lead to higher prices for the consumers as the companies will try to increase the cost of their services. It can also cut into slim profit margins by those companies that cannot raise their prices due to the economy.
This 6% tax will mean the difference for some companies of staying in business or closing their business. It can also give the competitors from other states a big advantage.
Peter Psarouthakis, president of the Michigan Council of Private Investigators -- whose members do work for state and local governments, law firms, corporations and others -- said he had received several e-mails Tuesday from his group's members, telling him it was time to pack up and move to another state.
"We are really concerned about it," said Psarouthakis, who owns EWI & Associates Inc., a private investigative firm in Chelsea.
What angers Psarouthakis and others is not all services are taxed.
Among those that are excluded are lawyers, auto dealerships, sports teams, accountants and others.
Those who support the tax say the state's service companies need to help bear the burden as Michigan is shifting to more service -related jobs. The state's Single Business Tax was replaced this year with a new tax that will provide some relief to the state's struggling manufacturers.
Curtis Dubay, an economist at the Tax Foundation, a research group, said there's nothing wrong with taxing service businesses, but the tax should have included all companies, not just those without strong lobbyists.
He also said the 6% rate should be lowered and that it should not affect business-to-business transactions. That was a major contention this spring when Gov. Jennifer Granholm first offered a proposal to include more services.A pinch to small businesses
Business groups believe the new tax will keep new companies from coming into Michigan. Business taxes in Michigan are slightly above the national average.
"Our elected officials gave lip service to how much they value small business, but at crunch time they couldn't walk the walk and support us," said Todd Anderson, vice president for government relations for the Small Business Association of Michigan.
"Small business owners, struggling to survive and create jobs in the nation's most depressed economy, now have to dig deep into their own pockets to find a way to absorb the impact of a sales tax on services and a higher state income tax," he added.
According to Patrick Anderson, chief executive of the Anderson Economic Group in East Lansing, the tax may force him to shift his work to his offices in Dallas and Chicago.
"The state is never going to realize the revenue they expected from it," he said, noting that many companies are likely to lose sales or move employees outside Michigan.
Michigan's Department of Treasury will spend the next few months
with business owners about the tax.
