Michigan Developments
Eric Rule,
Director of Governmental Affairs

Gross receipts tax should exclude sales tax
Michigan Retailers Association is currently working to clarify an important element in the new Michigan Business Tax (MBT). Under the MBT, businesses pay a modified gross receipts tax. The Treasury’s interpretation of that tax expects retailers to include sales taxes they collect in their gross receipts, effectively paying a tax on the taxes they are merely collecting and passing on to the state.

MRA is working with legislators to resolve this issue. Having retailers pay tax on a tax is not what the crafters of the tax intended, as the sales tax collected by retailers is not part of their gross receipts.

Businesses fight new services tax
More than 30 state business groups are forming a coalition to repeal the new tax on more than 60 selected services that came out of September’s budget negotiations. MRA will work to achieve fairness for members who may be adversely affected by the new service taxes.

Now subject to sales and use tax are services such as landscaping, consulting and janitorial services. Golf courses will not have to charge customers tax on their services, thanks to MRA’s efforts to keep it off the list.

One of the most concerning aspects of the new service tax is that it will be very easy to add more services in the near future. As the saying goes, “the nose of the camel is under the tent,” and it may be only a matter of time before the list of taxed services grows.

Lawmakers to cut $440 million from budget
Now that the revenue side of the budget equation is set, the tricky work of deciding on cuts is underway, with a goal of trimming $440 million from the state budget. Cuts of about 2.5 percent from each department are projected.

The governor has said there will be no more new taxes in the near future, but there are potentially other hits to come. These range from increasing the list of services to be taxed to raising more revenue through licensing and user fees.

Fortunately, an attempt to increase user fees—which many perceive to be taxes by another name—was rejected, but some fees, which were scheduled to expire through sunsetting clauses, may remain in effect.

The proposed telephone tax, mentioned in this column in September, was not included in this budget, but it has not been defeated yet. Because this tax would pose an onerous burden on businesses, MRA continues to oppose it and will work toward defeating it when it comes out of committee.

Considering all the cuts and sacrifices being asked of other state workers, the fact that legislators’ generous lifetime health benefits remain intact has opened the lawmakers to harsh criticism. Legislators say there just wasn’t time to address this issue during the budget negotiations, and action is expected on this in the next month.

Bottle deposit fraud prompts action
When the attorney general’s office and law enforcement busted a fraud scheme involving illegal redemption of out-of-state cans for Michigan deposits last month, interest was renewed in improving the state’s bottle deposit system. Officials are looking at legislation regarding can labeling and the reverse vending machines retailers use to collect and redeem bottles and cans.

The fraud involves millions of non-redeemable out-of-state cans that were collected, crushed, packaged in plastic bags and sold at a discount to merchants who then redeemed them. It defrauded the Michigan Bottle Deposit Fund, whose proceeds are used to pay for environmental cleanup efforts.

For years, distributors and wholesalers have been seeking ways to prevent or deter abuse of the bottle deposit system. Now they are pressing for hearings in October, even though the technology for the proposed solutions does not yet exist.

Michigan Retailers supports the attorney general’s efforts to stop bottle deposit fraud. However, the bills attempting to stem the fraud, House Bills 5147-48, may not adequately address this fraud and could place an undue burden on retailers that is out of proportion with the fraud.

Michigan Retailers will continue to be involved in any discussions of bottle deposit legislation and will argue the case that reforms, if necessary, must be fair to retailers.

Update from Washington
James Goldberg,
MRA Washington Counsel

H-2B visa cap reached for first half of FY08
Less than 12 hours after the federal government’s new fiscal year started, the U.S. Citizenship and Immigration Services agency (USCIS) announced that it had received a sufficient number of petitions to reach the congressionally mandated H-2B visa cap for the first half of the fiscal year, ending March 31, 2008.

USCIS will apply a computer-generated random selection process to all petitions subject to the cap that were received on or prior to September 27. All petitions not randomly selected will be rejected and application fees returned. Petitions for new H-2B workers seeking employment start dates prior to April 1, 2008, that were received after September 27, will be automatically rejected.

The cap was reached quickly because Congress has thus far not reauthorized or extended “returning worker” provisions for fiscal year 2008. Under previous law, a worker counted toward the H-2B numerical limit in fiscal 2004-2006 was exempt from being counted against the fiscal 2007 cap.

MRA’s Washington Office has been working with other interested groups to try and get the “returning worker” exemption made permanent or at least extended for another year or two. When the controversial immigration reform legislation failed earlier this year, it set back the H-2B visa extension effort.

The current freeze on applications is only applicable to workers whose employment start date is prior to April 1, 2008. MRA members seeking H-2B workers to begin employment after that date may still apply for a visa for the second half of the year.

“Honest Abe” gets a makeover
First it was the $10, $20 and $50 bills that got a pastel-color makeover to thwart counterfeiters.

Then, in mid-August, the Bureau of Engraving and Printing announced that the $100 note, a favorite of the counterfeiters, would be getting a high-tech redesign, complete with micro-printing and 650,000 tiny lenses that will make the image of Ben Franklin seem to move up and down or side to side, depending on which way the customer moves the bill.

Now it’s “Honest Abe’s” turn. The Bureau has already started printing some 1.5 billion of the new paper money at its facility in Fort Worth, Texas. The new design features a large-size “5” in the lower right-hand corner of the backside of the bill in high-contrast purple ink. That feature was added to help the visually impaired.

While President Lincoln’s portrait will remain on the front and the Lincoln Memorial stays on the back, the bill will be spruced up with an arc of purple stars and small yellow numerals.

The new five-spot is expected to go into circulation later this year. While it was originally not slated for redesign, the Bureau felt it was necessary because counterfeiters were bleaching the ink off the current $5 bill and reprinting them as $100 bills.

Compliance clock ticking for Real ID Act
Homeland Security Secretary Michael Chertoff reminded state legislators attending a national convention this summer that the clock is ticking toward a deadline for compliance with the controversial Real ID Act.

Signed in 2005 as part of an emergency military spending and tsunami-relief bill, the Act sets minimum federal standards for state driver’s licenses and other official identification and requires states to issue the new licenses beginning in May 2008.

By 2013, all 245 million holders of licenses or state IDs must visit their local departments of motor vehicles to apply for a replacement. Applicants will have to bring photo ID, a birth certificate, proof of Social Security number and proof of residence.

Nearly 20 states have passed legislation or symbolic resolutions stating their intent not to comply with the law. In Michigan, a resolution has been introduced but not acted upon.

Opposition is growing because of the massive costs of compliance, estimated by Chertoff to be $23 billion over 10 years. A recently passed homeland security appropriations bill contained only $50 million in state aid, after the Senate rejected an amendment calling for an additional $300 million.

If states do not comply, their citizens will not be able to use state-issued driver’s licenses for “federal” purposes, such as boarding domestic airline flights or having a picnic in a national park.