Michigan Developments
Eric Rule,
Director of Governmental Affairs

Sluggish progress on budgets and SBT replacement
Gov. Jennifer Granholm signed the 2007 Fiscal Year budget agreement, as provided in Senate Bill 436 and several companion bills. The agreement combines cuts, reforms and additional use of the tobacco settlement securitization to fill the ’07 revenue shortfall of $803 million.

Granholm’s signature and the legislature’s actions on SB 436 take care of a third of the state’s problems. The ’08 budget has to be in place by October 1, and the state’s Single Business Tax (SBT) needs to be replaced before it expires on December 31, 2007.

While the ’08 budget can wait until October, the SBT replacement probably cannot. The business community is telling the legislature it needs about six months to fully adjust to a new business tax.

The original deadline of March 15 slipped to April 1, then June 1; now Granholm and Senate Minority Leader Mark Schauer (D-Battle Creek) are proposing July 1 as a deadline. The governor stated that no legislator should take a vacation until this issue is wrapped up.

Senate Majority Leader Mike Bishop (R-Rochester) has said the two sides are very close to a deal, taking various schemes from the GOP plan and meshing it with some from the House Democrats’ plan.

At several points it appeared a compromise had been reached, only to have the negotiations stall or blow up. It does appear inevitable, however, that a plan will be in place by July 1 or very close to that date.

Regarding budget negotiations, Bishop and the Senate GOP were strident in their opposition to revenue enhancement (taxes) to balance the ’07 budget. However, they left the door slightly open for revenue enhancements for the ’08 budget, in exchange for various governmental reforms.

The two most probable taxes are an income tax hike—probably from the current 3.9 percent to between 4.4 and 4.6 percent—and a 6-percent tax on luxury items and services. Things such as rounds of golf and theatre and sporting event tickets would be taxed under this scenario.

When an agreement on the SBT replacement is accomplished, its details will provide an indication of the revenue enhancements needed in the ’08 budget. Then budget chairs will know their targets and the summer will probably be spent negotiating individual budgets.

Gift card regulation bills clear Senate
Two bills seeking to place restrictions on gift certificates and gift cards passed the Senate Commerce and Labor Committee as expected.

Senate Bills 387 and 388 were the subjects of numerous workgroups coordinated with MRA. Sponsored by Republicans, these bills originally called for a minimum five-year expiration date and a requirement to escheat the remainder of the balance to the state upon expiration.
After numerous negotiations, MRA was able to win approval for removing the escheating requirement.

As passed by the Senate, the bills would eliminate dormancy fees and require a retailer to honor a gift card for a minimum of five years.

If a card has an expiration date (at least five years after purchase), any value left on the card would revert to the retailer after the expiration date.

The bills face an uncertain future in the House, as numerous Democratic-sponsored bills in that chamber call for much more stringent regulation. In all of those bills, retailers would still have to escheat remainder balances as well as publicize all policies associated with the cards.

Part-time legislature linked to changes in term limits
In an effort to save the state money and enact essential governmental reforms, several high-ranking public officials are suggesting the legislature become a part-time body. Senate Majority Leader Bishop is leading such talks and believes the move should be linked with altering term limits to expand the length of time a legislator can serve.

Gov. Granholm reportedly is on board with Bishop’s proposal, saying the current terms are too short. She also claimed that solving the state’s budget crisis and replacing the SBT have been more difficult because of all the relatively new legislators with less experience.

The current term limits law allows House members to serve three two-year terms and senators to serve two four-year terms.

Update from Washington
James Goldberg,
MRA Washington Counsel

Federal minimum wage to increase
For the first time in 10 years, the federal minimum wage is on the increase, by a whopping 41 percent over a two-year period. Included in legislation that provides for continued funding for the Iraq war is a boost from the current $5.15 per hour to $7.25 per hour.

Beginning in late July—60 days after President Bush signed the bill—the federal wage floor goes to $5.85 an hour. It increases to $6.55 a year later, and then to $7.25 on the same date in 2009.

The federal hike should have minimal initial impact in Michigan, where the state minimum wage (applicable to those who employ two or more workers) will rise to $7.15 on July 1, and goes up again to $7.40 on July 1, 2008. Many other states also have minimum wages higher than the federal floor.

As part of the federal increase, Congress extended the Work Opportunity Tax Credit, used by employers who hire individuals formerly on welfare, for another two years. In addition, the legislation raises the amount of otherwise-depreciable equipment that many small businesses can expense from $112,000 to $125,000 annually.

Bill restarts remote sales tax collection effort
Though similar proposals have failed in the past, Sen. Mike Enzi (R-WY) has restarted the congressional discussion aimed at forcing online retailers to collect sales taxes for all purchases made over the Internet. With Democrats in charge of Capitol Hill for the first time in more than a decade, the time may be right for favorable action.

Enzi’s bill, the Sales Tax Fairness and Simplification Act (S.34), has been referred to the Senate Finance Committee. A similar bill will be introduced shortly in the House.

Enzi’s bill builds on the work of the Streamlined Sales Tax Agreement, under which Michigan and nearly two dozen other states have simplified many aspects of their sales tax laws as a prelude to the day when remote sellers must collect sales taxes.

The Enzi bill would provide congressional authorization to states to require out-of-state sellers with no physical presence within their borders to collect sales taxes for the jurisdictions into which taxable products are shipped. Remote sellers with annual sales of less than $5 million would be exempt from the tax collection requirement.

MRA, along with major retail industry and real estate groups, support the legislation, as does the National Governors Association and the National Conference of State Legislatures. Amazon has indicated it could support the bill if the coverage exemption was reworked to include its major online rival, eBay.

The House Judiciary Committee has indicated a willingness to consider inclusion of a sales tax collection requirement in legislation that it must pass by the end of this year to extend the federal moratorium on states’ taxation of Internet access.

Watch out for Title III of immigration bill
Most press coverage of the compromise Senate bill to deal with the immigration issue has focused on sealing the borders and the so-called “guest worker” program. But many employers are also keeping a watchful eye on provisions requiring employer verification of new hires.

Since the 1986 immigration law was passed, employers have been required to review employee documentation (e.g., driver’s licenses and Social Security cards) to determine eligibility to work. However, the new bill, at least in its present form, would require all employers to electronically verify worker eligibility through a federal government database. As currently drafted, the bill would require electronic verification for new workers within 18 months after the bill becomes law (or later if the Department of Homeland Security can’t get the database up and running in that period).

In addition, employers would be required to reverify the work eligibility status of all employees within three years after the bill becomes law.

The Senate compromise bill would also replace the H-2B visa program—which many Michigan businesses currently use to hire seasonal workers—with a Y-2B visa. The Y-2B visa program appears to retain many of the positive features of the H-2B program, and it increases the annual cap to 100,000 employees and retains the Returning Worker Exemption.

MRA supports this program and will continue to work for its inclusion in any immigration bill passed by the Congress this year.