Michigan Developments
Eric Rule,
Director of Governmental Affairs

Services tax repeal underway; replacement debated
Due to widespread opposition from business groups and the general public, legislators and Governor Granholm have agreed to repeal the tax on discretionary services passed October 1. Large demonstrations, committee hearings, and an effort to place repeal on the ballot all prompted lawmakers to reconsider what they had done at 4 a.m. in an effort to avert a government shutdown.

The major issue now is what to replace the tax with, if anything. House Republicans favor additional cuts to government and no replacement revenue. However, neither Democrats nor the governor support such a strategy.

In fact, the House passed a bill mid-November that seeks to replace the lost revenue with a surcharge to the Michigan Business Tax of 32.9 percent through 2008, falling to 23.7 thereafter. The surcharge would only apply to companies with revenue of $18 million and above, and the legislation sets a cap at a company’s liability at $2 million.

Large retailers in the state have expressed a willingness to go along with this plan, as it reduces their tax liability when compared to the services tax with all of its business-to-business implications. Smaller retailers, whose revenues do not exceed the $18 million threshold, would not be impacted by the surcharge.

The Senate also passed a repeal bill but neglected to include a replacement provision. The House will undoubtedly reject that proposal, and the issue of replacement revenue can be worked out in conference committee. The main issues of contention are likely to be making the surcharge temporary, reducing the rate, or both.

Timing is also critical. The services tax is set to take effect December 1. At press time, lawmakers were scheduled to take an 18-day hunting and Thanksgiving break starting November 9, but were tentatively scheduled for the following two Tuesdays in order to wrap up this issue prior to the enactment date of the services tax.

Discussions underway on data breach bill
MRA met with Sen. Randy Richardville’s (R-Monroe) staff to discuss draft language requiring anyone responsible for a data breach to pay for the costs associated with it.

Pushed by the Michigan Credit Union League, the bill states that in the event of a data security breach, any individual or business that maintains a computerized database that includes personal information about a depository institution’s customers can be the subject of a civil action to recoup costs associated with the breach. Damages may include the costs associated with:

• Cancelling or reissuing any credit or debit cards affected by the breach;
• Closing any deposit, transaction, share draft or other accounts affected and any action to stop payments or block transactions;
• Opening or reopening any accounts affected;
• Any refund or credit made to a credit or debit cardholder to cover the cost of any unauthorized transaction related to the breach;
• Notifying any customers of the depository institution affected by the breach.

Richardville chairs the Senate Banking and Financial Institutions Committee and reportedly is interested in taking the bill up later this year. He has assured MRA he will convene a workgroup and has indicated a willingness to work with MRA on language to make the bill more palatable, possibly through an exemption for small businesses. There may be some wiggle room as well for businesses that are following the data security standards, known as PCI, required by the card associations.

Bills to regulate lead content move
A package of bills aimed at keeping toys and jewelry with lead content above 6 parts per million off store shelves is poised for final approval in the Senate. MRA secured a very important provision that states if a retail business shows due diligence in attempting to comply with the law, it is exempt from fines under the provision.

This language allowed MRA to remain neutral on the bills.

Update from Washington
James Goldberg,
MRA Washington Counsel

Online auction sellers could help fight retail theft
Congress may soon weigh in on organized retail theft after a hearing at which retailers called on the lawmakers to require online auction sites such as eBay to post the serial numbers of items offered for sale and to provide more information on high-volume sellers.

Organized retail theft involves groups of shoplifters who steal vast quantities of goods and resell them on websites or at flea markets, pawn shops and other stores. The industry estimates it loses some $30 billion annually to such organized theft.

“The size and complexity of this topic shows a need for assistance from the federal government,” said House Judiciary Subcommittee Chairman Bobby Scott (D-VA) during a hearing on the subject. But Scott gave no hint as to when—or if—legislation to combat the problem would be introduced.

An eBay spokesman told the subcommittee that it was reasonable to think about what the website could do about high-volume sellers, but he noted that sellers are generally nervous about posting their names and contact information on product listings, and requiring them to post serial numbers could lead to the posting of made-up numbers.

NRF: Give retailers choice about credit card data
Citing concerns over data breaches, the National Retail Federation has requested that the Payment Card Industry (PCI) Security Standards Council make changes in how the credit card industry requires merchants to store credit card data.

Card companies typically require retailers to store credit card transaction data for 12 to 18 months in order to satisfy retrieval requests. Retailers that store this data—which includes credit card account numbers—in electronic form can be the target of data security breaches.

Instead, urged NRF, credit card companies should give retailers the option of keeping only the authorization code provided at the time of sale and a truncated receipt.

Such a move, said the Federation’s letter, would eliminate the incentive for hackers to break into retailers’ computer systems to steal sensitive consumer data, the theft of which puts many at risk.

Congress extends Internet tax prohibition
President Bush has signed legislation extending the congressionally imposed prohibition on state taxation of Internet access until 2014.

The prohibition was originally adopted in 1998 for a three-year period and has been extended twice, each time for three years, since that time. The legislation stops state governments from imposing sales or similar taxes on Internet-access services.

However, the legislation does not deal with the issue that’s still a top priority for MRA’s Washington Office: passage of legislation to authorize states to require Internet and other remote sellers to collect sales taxes for states where they don’t have stores or other physical presence.

Homeland security retreats from ‘Real ID’ mandate
Notwithstanding public statements that the “tide is moving more rapidly” in favor of the “Real ID” law, the Department of Homeland Security (DHS) is reportedly preparing once again to extend the deadline for state compliance with the controversial law that requires states to implement new—and costly—changes to the issuance of more secure driver’s licenses.

DHS Secretary Michael Chertoff announced earlier this year that he would extend the original May 2008 compliance deadline and set a new target of 2013 for getting all 245 million U.S. driver’s licenses to comply with the new law. Reports now suggest that the deadline may be extended to 2018 for older drivers to reduce costs associated with a surge of customers at state motor vehicle departments.

And, in a recent meeting, DHS officials told state leaders to expect the “Real ID” price tag to fall by “billions of dollars” as DHS eases previous demands that the new licenses be renewed every five years, that expensive, tamper-resistant materials be used to create the ID cards and that each state develop its own verification systems.

Meanwhile, DHS has reached agreement with four states to create more secure state-issued ID cards.

The Michigan House has passed a resolution urging Congress to repeal the law and provide no funds to implement it.