©2018 Michigan Economic Development Corporation

Engler Announces SBT Elimination

Tuesday, June 01, 1999

John Truscott
(517) 335-6397

Making Michigan Even More Competitive Better for Families, Consumers & Job Providers Governor John Engler today announced plans to eliminate Michigan's Single Business Tax (SBT) by gradually phasing it out over the next 23 years. "Our story is one of leadership - of factories and fighting machines, of freedom and forward thinking," said Governor Engler. "Today, I propose that we again step up boldly and stake out Michigan's claim for leadership in the 21st Century. Specifically, I am asking the legislature to strike a blow for our families and our job providers by phasing out the Michigan Single Business Tax. "Michigan has stood alone since 1976 in its approach to business taxation - the year the SBT went into effect. Now, Michigan will stand alone again." "One of the hallmarks of my administration has been creating a competitive tax environment. It's time to cut the costs of doing business and, over time, eliminate the primary cost of providing jobs. This will be a major new incentive for investment. We will make Michigan more competitive and attract thousands of new, high paying jobs to Michigan instead of other states or countries. "Michigan's economy is strong. I want to make it even stronger, and lock in a process to keep our economy growing into the next century." The Governor's proposal would reduce the SBT rate by 0.1 percent each year, retroactive to January 1 of this year, until it is completely phased out in 23 years. In current dollars, the SBT costs Michigan businesses $2.7 billion annually. The plan includes a unique provision to protect valuable state programs and services in future years. If the Budget Stabilization Fund (BSF), also known as the Rainy Day Fund, were to close a fiscal year at an amount below $250 million, the next calendar year's 0.1 percent rate reduction would not take place. Future rate reductions would continue as scheduled, when the BSF balance returns to at least $250 million. "Eliminating the SBT is great news for Michigan job providers and great news for Michigan consumers. As we all know, when the cost of doing business is higher than it should be, it's the consumer who ends up paying the bill," said Engler. In addition to the elimination of the SBT, Governor Engler announced additional plans to improve Michigan's competitiveness by providing more fairness, incentives, clarity, simplicity and flexibility to Michigan's employers. Fairness To keep Michigan's job providers on an equal footing with foreign firms, the Governor is proposing that every company competing in the Michigan marketplace be subject to the same tax treatment. Employers and Main Street businesses in Michigan should no longer be placed at a competitive disadvantage because they have to pay taxes that foreign companies don't have to pay. The proposal would require foreign companies doing business in Michigan to pay SBT even if they do not have a physical establishment here. This applies only to firms involved in business activities in Michigan that go beyond merely selling into the state. It also would allow multinational firms with nexus in Michigan to file separately rather than on a combined basis with their parent. Incentives To provide an incentive for job providers to invest in Michigan, the current capital acquisition deduction (CAD) would be replaced with a Michigan investment tax credit (ITC), which will provide strong incentives for businesses to invest in Michigan and greater certainty for Michigan taxpayers in their tax planning. In order to ensure that the change to this new ITC is revenue neutral, the rate will be set at 0.85 percent of Michigan investments and no apportionment factors will be applied. Clarity To provide more clarity for taxpayers, the proposal would codify what the Department of Treasury and the majority of Michigan businesses have followed for decades - apportioning sales and use tax between exempt and nonexempt uses. It retroactively apportions the industrial processing sales and use tax exemptions and provides clarity for taxpayers by ensuring that they get an exemption for any portion of exempt use of their property. For the telecommunications equipment, apportionment will apply proactively only. Simplicity To simplify and clarify the legal responsibilities of sellers who collect the use tax, the proposal provides a definition of uncollectable debts by relying on existing federal law - the Internal Revenue Code. It will treat bad debt the same for both sales tax and use tax. Flexibility Currently, some Michigan job providers are penalized by higher state taxes when they restructure, streamline or spin off subsidiaries to compete more effectively in the marketplace. To give major employers more flexibility when streamlining and restructuring their organizations, there would be a seven-year hold harmless period on inclusion of intercompany sales between the former parent firm and the spun-off corporation. The alternative SBT calculation will only apply to firms that experience a tax increase merely as a result of a spin-off, and that have committed to a minimum investment of $500 million in the state during the initial five-year period with a two-year extension if an additional $200 million in capital investment is made. "Eliminating the Single Business Tax is another important step to long-term strength for our economy," the Governor noted. "When I meet with potential new Michigan employers, I've been able to sell Michigan's excellent workforce, tax cuts, education and training and natural resources, but when the accountants added up the SBT, many of them decided against Michigan. "To quote Michigan's former revenue commissioner and the state's first SBT Administrator Tom Hoatlin: 'The only way to reform the SBT is to abolish the SBT.' "We already know that Michigan is the best place in the world to live, work and raise a family. By phasing out the SBT, we are removing a last significant business barrier and positioning Michigan for an even brighter future."