Michigan Developments
Eric Rule,
Director of Governmental Affairs

Governor's budget heavy on sin taxes
A 75-cent increase in the state’s tobacco tax and a 9-percent increase in the state’s liquor tax were among the most significant items included in Governor Granholm’s proposed budget for the fiscal year beginning Oct. 1.

The tobacco tax is expected to generate an estimated $295 million to fill the projected $1.3 billion budget hole, with $154 million of it going to Medicaid rather than the state’s Rainy Day Fund. The increased tax on liquor, which does not cover beer or wine, is estimated to raise $30 million, which would be allocated to fund fire protection grants to local governments.

MRA will lobby against these tax increases based on the competitive disadvantage they create between businesses in bordering states and those in Michigan. Michigan already has much higher state taxation on cigarettes than its neighbors do, and the governor’s proposal would only exacerbate the problem.

DTE seeks to repeal electric choice
Electric choice is in jeopardy. Legislation will be introduced that would eliminate the ability of customers who reside in the DTE service area and use less than one megawatt of power per meter to shop for lower rates.

Almost all the commercial customers in Michigan use less than one megawatt per meter. The proposed legislation would, in effect, kill electric choice in Michigan. Most customers who use an alternative supplier are saving 15 to 25 percent on their monthly bills.

MRA is strongly opposed to any legislation curtailing or eliminating electric choice, as it would amount to a new cost for those businesses saving money under the current system. In fact, MRA, acting as an aggregator for businesses in Michigan, has saved its members hundreds of thousands of dollars since the program’s inception.

MRA and other affected groups have formed the Customer Choice Coalition and are aggressively fighting DTE’s efforts.

Republicans unveil Jobs II plan
Republican legislative leaders Ken Sikkema and Rick Johnson announced their Jobs II plan. The nine-point plan’s goal is to keep jobs and attract new jobs to the state. Chief among the plan’s points is to exempt added payroll costs from the Single Business Tax (SBT). In addition, Jobs II proposes to:
• “Get broadband on Main Street” by expanding Michigan’s Broadband Authority to allow for funding of high-speed Internet infrastructure.
• Create a Red Tape Task Force to recommend ways to remove burdensome regulations for businesses.
• Create a personal property exemption for the first $10,000 of a business’s personal property value.
• Keep business bankruptcy assets in Michigan by providing an incentive for companies to participate in the bankruptcy proceedings of other in-state companies.
• Simplify filing of Michigan Single Business Tax forms.

Streamlined sales tax bills ready for action
The package of bills bringing Michigan into compliance with the national Streamlined Sales Tax Project agreement cleared its last hurdle prior to introduction and action. All the groups involved in the discussions have now given their blessing to the final wording.

House Minority Leader Dianne Byrum (D-Onondaga) intends to bypass testimony on the package in committee and send it straight to the floor for action.

Senate considers petoleum pricing bill
The Senate Labor and Commerce Committee heard testimony on the so-called Petroleum Marketing Stabilization Act, legislation that would require all service stations to mark up the retail price of gasoline by a minimum of 13.38 cents per gallon.

MRA went on record opposing the legislation, SB 519, calling it and similar legislation in the House state-sponsored price fixing. In addition, the bill would mean an increase of at least $250-300 million per year in the price consumers pay for gasoline.

The committee chair, Sen. Jason Allen (R-Traverse City), indicated that further action in his committee might be forthcoming. MRA hosted an educational luncheon for subcommittee legislators and staff to reinforce its position on the bills. The Association will continue to educate committee members in both the House and Senate about the flaws in these bills.

Update from Washington
James Goldberg,
MRA Washington Counsel

House tries bankruptcy reform again
With consumer bankruptcies hitting an all-time high of 1.7 million case filings in 2003, the House of Representatives has once again passed bankruptcy reform legislation supported by MRA and other retail and financial services interests.

This time the legislation was attached to a Senate-passed bill that would permanently extend Chapter 12 of the federal Bankruptcy Code pertaining to agricultural bankruptcies.

The move is an effort to break the Senate logjam that scuttled the bill in 2003 and prevented a vote last year. Bankruptcy reform legislation has passed both the House and the Senate in each of the last three Congresses, only to fail for reasons not related to the bill itself.

The bankruptcy reform bill requires individuals who can afford to repay a significant part of their debt to file under Chapter 13 reorganization, rather than under Chapter 7, which erases all debts.

The National Retail Federation estimates that consumer bankruptcies cost the average U.S. family more than $500 a year in higher consumer prices.

IRS calls for withholding on non-wage workers
The Internal Revenue Service’s National Taxpayer Advocate, Nina E. Olson, has called on Congress to end years of debate on whether to classify workers as employees or independent contractors and instead require tax withholding for so-called non-wage workers.

Olson’s report estimates that $81.2 billion goes unreported or underreported at tax time from independent contractors, the largest single component of the “tax gap,” defined as the difference between the actual income earned and the income reported to the IRS and on which tax is paid.

Olson recommends that Congress require withholding 5 percent on payments of more than $600 a year to independent contractors not generally maintaining an inventory or receiving payments for materials and supplies—3.5 percent for others unless the IRS authorized a different rate.

The proposal would not require employers to make Social Security payments for independent contractors as they do for employees; the money withheld would be part of the contractor’s income.

The IRS report acknowledges that the recommendation is likely to be controversial—indeed, the National Federation of Independent Business indicated its opposition a few days after the report was sent to Congress.

Retailers win in patent infringement case
A federal trial judge in Nevada has blocked a charitable foundation from trying to obtain license fees from retailers and others for the use of bar code technology.

The judge held that the Lemelson Foundation waited too long after the patents were issued to sue more than 400 retailers who use bar code equipment. Manufacturers of the equipment sued the Foundation in 1998, trying to block the litigation against their customers.

Inventor Jerome H. Lemelson, who died in 1997, formed the Foundation. Its current patents are based on preliminary applications filed by Lemelson decades before bar-code technology was perfected. The Foundation contends they are valid under patent law that gives rights to an invention to the first person to file an application, even if that application does not describe the final form of the invention.

Small online retailers targeted
Another patent claimant, PanIP, LLC of San Diego, has resumed sending letters to small retailers alleging that the retailers have violated patents granted for text and graphics used on websites and the interface that allows credit-card purchases. The letters say PanIP will go away if the retailer pays $250 or more in license fees.

The company made a similar effort in 2001-02, when letters—and lawsuits—were filed against numerous small retailers; the company adroitly avoided large e-commerce sellers like Amazon who might challenge their claims.

Several small retailers banded together to hire defense counsel, who has persuaded the U.S. Patent and Trademark Office to review and reconsider the PanIP claims.

Any MRA member who receives a letter claiming possible patent infringement should treat the communications seriously and check with an attorney to determine the proper response. In addition, MRA would like to know of members who are contacted by PanIP.

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