Michigan Service Tax Recap

SEARCH BLOG: MICHIGAN SERVICE TAX

It's December 1 and it's time to start collecting 6% of service revenues. Not sure if that applies to what you are doing as a businessman or the services for which you are paying as a customer?

Don't worry, the state government will get around to clarifying that. Trust them.

But, first, how about a recap of what has been posted here during the past year regarding the Michigan Service Tax. For those of you who are interested in the full versions, the links to the right are to previous posts [newest on top] about this shining example of Michigan government.

For those of you who would like the "Cliff Notes" version, here are some excerpts:

January 21 - Rather than creating a whole new tax structure with whole new administrative burdens for both businesses and the state (don't you think there will be a whole new department just to administer this new tax?), perhaps a simple way is this:

Implement a two-year special, non-renewable, 1% increase in both the sales tax and income taxes. The government would have two years to work out a new budget and structure based on significant reductions in revenue (if the economy doesn't recover).

January 24 - [after giving this more thought] It's time for the state to do the same with less or simply do less. Increasing taxes will only exacerbate a bad economic situation for residents and businesses. Options will vary depending on the expenditures. They include:

1. reducing operating and staffing budgets
2. eliminating operating and staffing budgets
3. eliminating new projects
4. extending timelines for existing projects (such as road construction)
5. privatizing some functions where feasible

The usual response is "we can't" and the appropriate response is "you must."

February 9 - Besides ignoring the will of the voters with regard to taxes, the Governor has proposed a tax that is likely to be a source of a giant accounting and administrative mess. Are the taxes only applicable to retail transactions or also applicable to business-to-business services? Sales taxes can be audited through inventory records. How do you audit the number of lawns cut or heads of hair cut? The "proof of transaction" disappears in a few weeks.

This seems like a natural incentive to move toward a cash-transaction marketplace. Rather than be satisfied with taxes on the incomes of service providers, the Governor thinks that they ought to collect a fee for the service provider's privilege of earning that taxable income. More than likely, some part time service providers will "go out of business" as far as the state is concerned rather than deal with honestly reporting those extra-hours dollars.

September 21 - The philosophy of the governor and her friends that "all perceived needs of special interests must be met by the state regardless of consequences" is driving out businesses and people. This is pretty much the same approach used the Detroit's city government as the first million people left town. Now there is just fighting over scraps.

The governor and her friends have talked about revitalizing the state for the past 5 years... or was it the state government?

The inability of the governor and her friends to face the reality that business-as-usual left the state and government-as-usual must follow, leaves the state in pretty much a sad state.

September 30 - However, as reported by Nolan Finley of The Detroit News, not all government in Michigan feels the need to expand continually. An examination of the differences between the State's government and Oakland County's [biggest county government] comes up with these differences:

The state begins anew each year with a revenue estimate, budgets spending to consume every dime and then adjourns to watch everything fall apart in short order.

Oakland budgets two years at a time and works with five-year revenue projections. Right now, [Bob] Daddow [Oakland County] sees a $10 million deficit in 2010, so he's building in cuts over the next three years to wipe it out before it becomes a crisis.

... Why bother to plan ahead or take help when you can just take the taxpayers money?

The difference between a badly run business and Michigan state government is that the business goes out of existence.

October 2 - It's amazing that so many people... and government officials(?)... believe that just the state government must continue to expand while the economy of the state shrinks. By some strange accounting logic, a $2 billion increase in the budget offset by a $440 million cost reduction is considered good management... and a reduction in government.

What seems to be the case is that some believe a reduction in the rate of increase is a reduction. What taxpayers want is an absolute year-to-year reduction in government spending. Cut the damn budget by 5% and learn to live with it.

October 7 - The state's economy has badly affected the business climate and now our governor and legislators have enacted an onerous business service tax that has me seriously thinking about shutting our business down. After 25 years, it just doesn't seem worth the time or effort to be a Michigan business anymore.

October 12 - In today's Detroit Free Press website, Tom Walsh posted an article implying that people were over-reacting to the new service tax and taxes in general for Michigan.

One of those "over-reacting" readers wrote the following: see Michigan Service Tax Anger

October 17 - If you have someone help you on a project where their work is integrated into a product you are selling, then you pay a tax for the service and pass the cost on to the customer who is buying your product. Currently, if that customer is another business who will sell your product as a retail item, then he is exempt from the sales tax, but ends up paying it as a hidden service tax.

The state effectively revokes the sales tax exemption and makes the product cost 6% more from a Michigan retailer than a retailer in another state.

October 30 - Well, I'm going out on a limb here, but I'm predicting that 1) the Democrats will do everything they can to make sure the service tax sticks and 2) the service tax revenues will be far less than the Democrats predict which will bring them back to the trough for increases in other taxes. [It should be noted that the income tax is increasing, too]. The turnip is drying up and the Democrats are still trying to squeeze it.

November 1 - As I said earlier, the process was "Fire, ready, aim."

November 7 - The Michigan Senate voted to repeal the service tax before it begins reports The Detroit News. That may turn out to be only symbolic.

The Democrat party controls the House and governorship. Therefore, it is unlikely that the service tax will be repealed without a pound of flesh being taken elsewhere.

Although businesses do it all of the time, when is the last time you saw a state or federal budget reduced from one year to the next... even when it is appropriate to do so?

Sadly, it's just too easy to predict the way our Governor's gang operates.

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