Michigan Developments
Eric Rule,
Director of Governmental Affairs

Governor's budget heavy on sin taxes

Michigan Treasurer Jay Rising dismissed notions that business groups have been talking seriously of a sales tax on services in their discussion about how to restructure the state’s corporate tax system. He told reporters that they are not willing to propose such a tax at this time.

Rising did acknowledge that both Speaker of the House Rick Johnson (R-LeRoy) and the chair of the House Tax Policy Committee, Republican Lorence Wenke (R-Richland), have indicated an openness to discuss the issue. But Rising insists nothing is either on or off the table at this point in the restructuring process called for by Governor Jennifer Granholm. Michigan, he believes, has drifted away from a tax policy that served as a stimulus for capital investment. “We need to go back there,” he said.

MRA opposes tobacco tax increase

MRA is part of a new state-wide business coalition—The Michigan Business Alliance for Fair Taxes—formed to prevent legislators from imposing the $.75 tax per pack increase on cigarette sales recently proposed by Gov. Granholm. The coalition held a press conference designed to educate the legislature and the public that business groups in Michigan oppose an increase in the tobacco tax.

Michigan businesses would undoubtedly be hurt if Michigan’s tobacco tax widened the disparity between Michigan and its neighboring states.

Michigan’s tobacco tax would rise from $1.25 to $2.00 if the governor’s plan were approved. The $2.00 rate per pack would make Michigan’s tobacco second highest in the nation, trailing only New Jersey at $2.05.

In comparison, Michigan’s neighboring states enjoy a much lower rate with Illinois at $.98 per pack, Indiana at $.55 per pack, Ohio at $.55 per pack.

A recent poll showed strong public approval of the tobacco tax increase to fill Michigan’s budget gap.

However, the phrasing of the polling question—which asserted that without the funds, Medicaid coverage for children and seniors would be cut—is likely to have skewed the responses in favor of the tax increase. If the public were informed about the numbers of potential jobs lost and businesses closed because of lost sales and revenue, the polling numbers would turn around.

Committee phases in tax exemption

A bill to exempt the first $10,000 of a business’s personal property tax was amended after a difficult battle in the House Tax Policy Committee; the exemption will be now phased in over three years. House Bill 4234, sponsored by Rep. Glenn Steil, Jr., (R-Grand Rapids), was the first bill in the highly vaunted Jobs II Plan recently unveiled by House and Senate Republicans.

Committee Chair Rep. Lorence Wenke (R-Richland) allowed little time for testimony and could not garner sufficient votes to pass the bill from committee, so he was forced to recess the committee until after session was completed. That gave municipalities and townships enough time to put enough pressure on lawmakers to agree to the phase-in. Republicans were forced to agree to the change when testimony focused on how much the exemption would cost local units of government.

The phase-in essentially says that in 2005, the first $3,000 of personal property would be exempt, then $6,000 in 2006 and $10,000 in 2007. The bill is not certain to pass on the House floor, but odds are in its favor, as both the Speaker and Senate Majority Leader have made the bills’ passage a priority.

Retailers exempt from movie-piracy bill

A bill making its way through the legislature seeks to prohibit individuals from operating an audiovisual recording device in a facility where a motion picture is being exhibited and sets penalties for doing so. House Bill 5347 has already passed the House and is before the Senate Judiciary Committee. The bill, introduced at the request of the Motion Picture Association, is aimed at piracy of films in movie theatres. The bill was cruising along until MRA was alerted to the possibility that retailers could be penalized for simply showing movies on televisions for demonstration purposes.

The concern is that such a retailer could be at fault if a customer were somehow able to record any of the film’s images, even if done by a cell phone with photo capabilities. MRA met with the bill sponsor and the representative for the Motion Picture Association and was able to get retailers exempted from the bill.

Update from Washington
James Goldberg,
MRA Washington Counsel

Retail faces ‘year of defense’

Political analyst Norman Ornstein recently told MRA’s Washington counsel and other D.C.-based retail representatives that 2004 is “a year of defense” for all industry lobbyists.

“Your job is to keep bad things from happening,” said Ornstein, “and it’s not going to be easy.”

Ornstein, a resident scholar at the American Enterprise Institute, said that because 2004 is an election year, Congress will not get much legislative work done this year. What work is done will be accomplished against the backdrop of the presidential election and the impact of voting patterns.

For example, the Department of Labor’s controversial reform of “white collar” overtime regulations, due out in final form this spring, is certain to spark a congressional backlash which could be accompanied by a move to increase the federal minimum wage.

Retail and financial services industry pressure to finally pass a bankruptcy reform bill could lead to other restrictions put on the industry as part of a legislative trade-off.

Bush pitches Health Savings Accounts

President Bush recently told an audience of small business representatives that he strongly supports health savings accounts as means of providing affordable health care to the country’s employers and employees.

Health savings accounts (formerly known as medical savings accounts) allow small business owners to obtain high-deductible health insurance and supplement the catastrophic coverage with tax-free contributions to specially designated savings accounts. The accounts grow on a tax-free basis and can be used to pay the cost of routine health care.

Bill seeks faster depreciation

Legislation aimed at reforming depreciation schedules for retail store improvements was introduced by Rep. E. Clay Shaw, Jr. (R-FL), an influential member of the House Ways & Means Committee.

Under current law, both building and real estate improvements such as store fixtures must be depreciated over a 39-year period.

However, since successful retailing periodically requires a fresh look, many retailers remodel their stores as often as every five years to reflect changes in customer taste and for general improvements such as energy-saving efforts.

Shaw’s bill (House Resolution 3561) would allow improvements to owned or leased retail space to be depreciated over 10 years, which would help retailers get tax write-offs sooner and more realistically reflect actual marketplace practice.

MRA’s Washington Office is working with the National Retail Federation and others to have the bill attached to a larger tax bill.

Military seeks to remove sales restrictions

As part of their annual testimony on military spending authorization legislation, Department of Defense officials have told the House Armed Services Committee that they will soon submit justification for removing current restrictions applicable to the sale of TV sets, jewelry and furniture in military exchanges.

The Committee had prohibited sales of TV sets larger than 35 inches, diamonds over one carat and furniture costing more than $900 unless and until the department could demonstrate that such sales would not adversly affect surrounding businesses.

Now, the department appears to have surveys confirming the lack of an appreciable impact and will soon submit them to the Committee.

Gift card bill may be introduced

Sen. Charles Schumer (D-NY) has indicated he will soon introduce legislation to place regulations on the issuance and redemption of gift cards.

The details of Schumer’s bill are still not final, but the lawmaker’s staff says that he’s concerned about fees and expiration dates placed on the cards if they are not used within a certain period.

Schumer’s planned legislation may also address accounting issues associated with the cards, since, under many state laws, retailers may not treat the issuance of a card as a retail sale until the card is actually used.

A federal bill regulating gift cards is not likely to pass this year, but MRA’s Washington Office will be closely monitoring the issue.

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