Michigan Developments
Eric Rule,
Director of Governmental Affairs

Republicans kill governor’s tax on services
Insisting that tax increases are not necessary to close the gap in this year’s budget, Senate Republicans killed Governor Jennifer Granholm’s proposed two-percent tax on some services and declared tax increases for 2007 were “off the table.”

Senate Republicans also proposed their own “no-new-revenue” budget plan. About a third of the Republicans’ budget plan comes from immediately adopting the $344 million in cuts proposed in the governor’s most recent Executive Order.

Tax restructuring proposals debated
Although negotiations on the replacement for the Single Business Tax, which expires at the end of this year, stalled late in March when no agreement could be reached between Gov. Granholm, Senate Majority Leader Mike Bishop (R-Rochester) and House Speaker Andy Dillon (D-Redford), several SBT replacement plans remain on the table.

The Michigan Chamber of Commerce is advocating a plan, contained in Senate Bill 151, sponsored by Sen. Jud Gilbert (R-Algonac), that uses the concept of a business license tax based on gross receipts. Businesses would pay a business income tax of 3.05 percent and a business license tax of 0.48 percent (general) and 0.24 percent (wholesale/retail), paid on the excess gross receipts above $350,000, capped at $2 million per return. It also includes a minimum 50-percent personal property tax credit for all industries (issued as a refund).

Emerging in the late stages of the game is a plan being shopped by various business groups, dubbed the “6 plus 6” plan. It calls for a 6-percent tax on most services, including business-to-business services, in exchange for no state business tax at all (no replacement for the SBT) and a reduction of the income tax by as much as 1 percent, from 3.9 percent to 2.9 percent.

In addition, “6 plus 6” would reduce the personal property tax by 24 mills. This plan may be gathering some momentum, as getting rid of a business tax altogether would be seen as a net tax break for companies and a move to a consumption-type tax.

Gift card regulation on legislators’ minds
Regulating gift cards and gift certificates is the purpose of at least two bills introduced this legislative session. With the increased usage and visibility of gift cards, regulating them has become a populist issue, especially with the news media’s focus on customers who feel they have been treated unfairly regarding expiration dates and activity fees.

Senate Bill 274, sponsored by Sen. Gretchen Whitmer (D-East Lansing), makes it illegal for a gift card or gift certificate to have either an expiration date or an activity fee associated with it. A House bill sponsored by Rep. Fred Miller (D-Mount Clemens) seeks a different resolution by focusing on informing the consumer about the terms and conditions that apply to the gift card or gift certificate.

Retailers would have to notify the consumer if a gift card is good only during a certain period of time, such as only during weekdays. The retailer would also have to post a sign that states that terms and conditions are applied to gift certificates and cards. If the retailer sells the gift card or certificate via mail or electronically, the terms and conditions would have to be disclosed prior to the sale. The retailer also would have to disclose the terms and conditions on either the certificate or the envelope or packaging containing the card if a toll-free number is used to access the terms and conditions.

A retailer also would not be able to charge a monthly service fee prior to the 13th month of dormancy and must apply the remaining balance to a purchase, even if the purchase amount is more than the value remaining on the card or certificate, a practice almost all retailers already follow.

Either of these bills could move in its chamber, as this issue is not as controversial as in previous years. MRA will continue to monitor and represent retailers’ interests on this issue to ensure that both the customer and retailer are treated fairly.

Update from Washington
James Goldberg,
MRA Washington Counsel

Supreme Court considers minimum resale price policies
For nearly 100 years, suppliers and retailers have operated under judicial rule that vertical minimum resale price maintenance agreements—in which manufacturers can require their resellers to adhere to a minimum price—are per se unlawful under the Sherman Antitrust Act. Now, the Court is considering whether to relax that rule.

The case involves Leegin Creative Leather Products, a small California manufacturer of women’s fashion accessories, which wanted to appeal to customers who value extra service and appreciate a pleasant product display, even if it meant slightly higher prices. So the company instituted a policy that required its retailers to adhere to a minimum price.

A Texas retailer, however, refused to follow the policy and regularly priced Leegin’s products at below the minimum price set by the company. Leegin suspended all shipments of its products and the retailer sued.

Both a federal trial court and an appeals court ruled against Leegin, which asked the Supreme Court to scrap the per se illegality rule and replace it with what’s called a “rule of reason” approach under which Leegin would be given the opportunity to show that its policy was actually pro-competitive.

A decision is expected before the June 30 end of the Supreme Court’s current term.

‘Drop dead’ date for analog TV: 2-17-09
The National Telecommunications and Information Administration (NTIA) announced a program designed to help consumers continue to receive free, over-the-air television when TV stations cease analog broadcasting after February 17, 2009. That’s the date mandated by Congress for the conversion to all-digital broadcasting.

Under the NTIA program, all households will be eligible to request up to two $40 coupons to be used toward the purchase of digital-to-analog converter boxes, which are expected to cost $50-75 each. The requests can be made starting January 1, 2008.

Not every household will actually need the coupons. Most television sets manufactured in the last two years (especially those over 25 inches) have both digital and analog, tuners. As of March 1, 2007, all televisions, even pocket-sized portable televisions, must include digital tuners.

And households with cable or satellite service won’t need the converter boxes because the signal supplier will make the conversion. But consumers who have TV sets simply plugged into a wall outlet must purchase a converter box or else their sets will go blank on February 17, 2009.

Moving TV broadcasts to digital will free up the 700-megahertz frequency band used by analog, meaning that spectrum can be used for emergency communications and auctioned for new wireless services.

Digital pictures are clearer and sharper than analog transmissions, but are not as sharp as high definition transmissions, which some broadcasters (especially sports channels) are moving toward.

MRA participates in LIFO coalition
MRA’s Washington Office has joined a coalition of business representatives seeking to assure the continued use of the “last in first out” method of inventory accounting, commonly called LIFO.

The LIFO method has been widely used for decades and generally enables a business to lower its net income (and thus its tax liability) by factoring in inflation to the value of its inventory.

The somewhat arcane inventory accounting method surfaced within Congress’ cross hairs last summer when the Senate Finance Committee began consideration of tax benefits used by the oil industry and realized that it is one of the prime users of the LIFO method.

What the lawmakers apparently did not understand is just how widespread the use of LIFO is. Many small retailers use the system, as do automobile dealers and others.

Repealing use of the LIFO method would generate huge revenue amounts for the federal government, while at the same time penalizing many businesses, including retailers.

Thus, the LIFO Coalition was born. MRA and its coalition colleagues have been quietly making the rounds of congressional offices to educate staff members on the fact that LIFO is a widely used, legitimate accounting method whose repeal would adversely impact many businesses.

Congressional consideration of repeal is not on the immediate horizon, and the LIFO Coalition hopes to keep things that way.