House Concurrence Seem Unlikely, Governor's Veto Certain

As expected, the Michigan State Senate took action today (Tuesday) on House Bill 5408, legislation to eliminate and replace the newly expanded Michigan Use Tax.  Although disappointing to those that held out hope the Senate’s actions would ensure clarity before the Thanksgiving holiday, today’s session narrowed the negotiating range by establishing the Senate Republican’s initial position.

The original version of the bill, passed by the House of Representatives on November 8th, places a “surcharge” on the newly enacted MBT of 32.9% through 2008 and 27.3% thereafter.  It also contains a $2 Million dollar cap on total exposure.  The substitute bill (S-4) as adopted by the Senate today on a strict party-line vote, increases the exposure cap to $7.5 Million and lowers the surcharge rate to 13.85 percent. Additional changes from the House-passed version include “sun-setting” or eliminating the surcharge after tax year 2010.

To meet the “revenue-neutral” line for service tax replacement as drawn by the Administration, this new proposal counts on a roughly $219 Million windfall from the implementation of the MBT.  Additionally, by including a sunset provision, the measure passed by the Senate today is clearly a non-starter with the Administration and the Democratic-controlled House of Representatives.

Instead, this action is seen as the Senate establishing their negotiating position with the House and the Governor for a continued debate next week, which may include the appointment of a conference committee.  This is further evidenced by the Senate Majority’s rejection of an additional substitute (S-5) offered by State Senator Mike Prusi (D-Ishpeming) that would have increased the cap to $3.5 Million and lowered the surcharge rate to 27.3 percent – a substitute viewed as palatable to both the House of Representatives and the Governor.  More action is not expected until Monday, November 26^th at the earliest.

From John Lindley, Michigan Association of Certified Public Accountants