In a move extremely unfavorable to small businesses in Michigan, Lansing lawmakers passed a 6% services tax on many services including “consulting”. How can this state say they want more small businesses and then spring this tax on us?
Here’s a response to an email our firm sent to Rep. Pam Byrnes’ office:
Extending the sales tax to services was part of negotiations between the Democratic controlled House and Republican led Senate. The Senate would not agree to a raising the income tax from 3.9% to 4.6%. They would only agree to raise the rate to 4.35%, which left a shortfall to be filled by extending the sales tax on services.
Extending the sales tax to discretionary services was agreed to by both sides of the aisle as the best alternative to the higher income tax rate. As we move from a manufacturing based economy to a service based economy, economic experts have recommended that we join the growing ranks of states who tax services as they tax goods.
While unfortunate, increasing state revenues to fill our projected $1.75 billion deficit was necessary, justifiable and responsible. This increase was accompanied by reforms that will help the state realize millions of dollars in savings. An example of the cuts and reforms we have enacted include a reduction in pay and the elimination of lifetime health benefits for lawmakers and ending double dipping for retired state employees who come back to work for the state.
The deal reached by the legislature will allow state government to fulfill its responsibilities while investing in Michigan and its people.
Well Rep. Byrnes, you may be investing in Michigan’s people but you are certainly not investing in its economy. Since we moved our business from Seattle to Ann Arbor a year ago, we have been floored by the amount of taxes and paperwork we have to file compared to Washington State where there was a simple 1.5% business tax, NO state income tax, and no unemployment insurance required for a firm’s officers.
Justifying a 6% tax on services to out-of-state clients who are not familiar at all with state services taxes is going to be a tough sell.