Michigan Developments
Eric Rule,
Director of Governmental Affairs

House passes tax relief package

House Republicans passed their tax-relief package on a straight party-line vote prior to the Labor Day weekend. Speaker Craig DeRoche (R-Novi) was hoping to win at least a few Democratic votes, but that caucus retained its solidarity against the GOP package.

The $1-billion tax-cutting package was tie-barred to a package of bills closing some tax loopholes in Michigan, helping to pay for some of the cuts. While Democrats agreed with the loophole closings, they remained unified in their opposition to the overall package, claiming it goes too far and that the GOP left the negotiating table.

Senate Majority Leader Ken Sikkema (R-Wyoming) also voiced reservations about the package and said Senate consideration won’t take place until the budget is completed for the fiscal year that begins Oct. 1.

The main components of the proposed tax relief are as follows:
• Reduce the Single Business Tax standard filing rate from 1.9 percent to 1.8 percent for 2007 and 1.7 percent for 2008 and beyond. Allow a 15-percent personal property tax credit for all industrial personal property, which would phase up to 20 percent for 2009 and beyond.
• Reduce the small business tax rate (businesses must meet specific criteria to file as a small business) from 2.0 to 1.4 over three years, beginning in 2008.
• Shift the apportionment formula for multi-state businesses to 100 percent sales by 2008; for 2006 and 2007 the formula would be 95 percent sales, 2.5 percent property and 2.5 percent payroll.
• Grant up to a 50-percent personal property tax credit for industrial personal property purchased in 2006 and 2007. Eliminate the remaining 50-percent tax on employer-provided health care over four years, beginning in 2008.
• Increase the income disqualifiers for the small-business credit from $115,000 to $175,000 for 2007 and beyond and provide for an inflationary adjustment.

The tax loopholes do not appear to affect most Michigan retailers and include:
• Eliminating the use tax exemption for driver training vehicles and the use tax exemption for international calls and WATTS lines.
• Creating a tax amnesty period and enhanced penalties for those businesses that do not participate.
• Returning to the post-Proposal A system where the taxable value of commercial and industrial rental property is adjusted upward or downward based on occupancy changes.
• Requiring business activity of out-of-state affiliates to be consolidated in determining eligibility for small business credit.
• Preventing manipulation of credit/loss carry-forwards.
• Increasing thresholds for gross receipts and excess compensation.
• Eliminating the sales tax exemption for prison sales.

Violent video game sales restrictions pass House

A package of Senate-passed bills making it illegal to sell or rent video games that contain “ultra-violent” material won approval in the House and should reach the governor’s desk by mid-September. MRA opposed the bills, which have not survived constitutional scrutiny in the other states that have passed similar measures.

A lawsuit will almost certainly be filed by the video game industry as soon as Gov. Granholm signs the bills, which she is expected to do. Granholm has come out strongly for the bills, and both the GOP and Democrats want to claim credit on the issue.

Public meeting on groundwater withdrawals

Sen. Patty Birkholz (R-Saugatuck) called one last town hall hearing on Sept. 6, on the Water Legacy Plan seeking to regulate groundwater withdrawals in the state.

Birkholz is also apparently planning on revealing her comprehensive legislative plan on water on Sept. 15. No details are available yet on what she will be proposing.

Post-labor day school start bill moves

A bill that would require all school districts in the state to start school after the Labor Day weekend—House Bill 4803—recently passed the House and is now before the Michigan Senate. This is the first time this issue, which has been considered several times before, has cleared a chamber of the legislature.

The bill is important to retailers because it would extend the summer vacation season. It would also enable school-age employees to work through the Labor Day weekend.

Update from Washington
James Goldberg,
MRA Washington Counsel

Michigan joins streamlined sales tax system

Michigan is one of 11 states accepted as full members of the Streamlined Sales and Use Tax Agreement’s (SSUTA) governing board, a milestone in years of effort to develop a simplified multi-state sales tax collection system.

The participating states and six others that were accepted as associate members hope that the new system, which becomes operational October 1, will be the precursor to federal legislation that would require all remote sellers to collect state sales taxes. MRA has long championed this effort to “level the playing field.”

Although some Internet sellers are voluntarily collecting state sales taxes, the participating states hope that implementation of the new agreement will encourage more retailers to register and begin collecting those taxes this fall.

Indiana, Iowa, Kansas, Kentucky, Minnesota, Nebraska, North Carolina, Oklahoma, South Dakota and West Virginia also gained full membership. The associate member states include Arkansas, North Dakota, Ohio, Tennessee, Utah and Wyoming.

The concept underlying the agreement is that if states simplify their sales tax systems—by creating uniform definitions of what constitutes “food” or “clothing,” for example—multi-state retailers would have an easier time complying with the sales tax collection laws of multiple states. Individual states would still be free to decide whether to tax food, and, if so, at what rate, but at least all participating states would agree on what constitutes “food.”

MRA is an active participant in the Tax Fairness Coalition, which is lobbying Congress to enact legislation requiring retailers with more than $5 million in annual sales to collect sales taxes from all the states in which they do business without store locations. A Supreme Court decision more than 10 years ago makes federal legislation a requirement for state tax collection.

Now that the SSUTA implementation has become a reality, it is expected that legislation will be introduced in both houses of the U.S. Congress in the not-too-distant future.

Sears dealers challenge Kmart’s tool sales

The Dealer Store Owners Association, which represents about 250 of the more than 800 dealer-owned Sears stores in small towns across the country, has filed a lawsuit in Minneapolis accusing the nation’s third-largest retail chain of unfair competition.

The dealers are asking a federal judge to stop Sears from selling Craftsman hand tools and other Sears brands in competing Kmart stores.

Dealer stores are typically about one-fourth the size of a regular Sears department store and they typically sell a much smaller selection of merchandise, primarily hardware, appliances, electronics and home and garden equipment. Under contracts with Sears, the dealers are given exclusive areas in which to sell certain brands. The dealer stores reportedly contributed 4.4 percent of Sears’ $36.1 billion in sales last year.

In response to the suit, a Sears spokesperson said that the exclusivity agreement says only that Sears cannot sell Kenmore appliances within the same ZIP code as a dealer store.

Terrorism insurance program draws fire

The Bush administration says it is opposed to extending the govern-ment’s terrorism insurance program in its current form, but indicated it could accept a more restricted, clearly temporary measure that would encourage development of private coverage.

The Terrorism Risk Insurance Act of 2002 (TRIA) was enacted in the wake of the 9/11 disasters and provides a federal backup for commercial insurance such as business property damage and workers’ compensation.

In the event of a foreign terrorist attack, TRIA allows insurance to pay a deductible related to premium income, after which the federal government would pay 90 percent of damage claims, up to $100 billion. Many insurers dropped terrorism coverage from their property and casualty lines after 9/11, but reinstated it after enactment of TRIA, scheduled to expire Dec. 31, 2005.

Treasury Secretary John W. Snow has said that the White House would accept an extension of the program only if the event size that triggers coverage is significantly increased; if dollar deductibles and percentage co-payments from insurance carriers are increased; and if certain lines of coverage, such as commercial auto and general liability, are eliminated from the program.

Congress is expected to continue the program later this year, and may well adopt many of the admini-stration’s recommendations.

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