LANSING - The expected repeal of the Michigan Single Business Tax could potentially gut the state's economic development efforts, Gov. Jennifer Granholm said Friday in a special message to the Legislature that called on lawmakers to quickly pass legislation that will guarantee continued development incentives.
The message said that the Department of Treasury will send language to the Legislature by Tuesday proposing changes in state law to ensure that the promises made business for locating or expanding in the state remain in place.
A spokesperson for one legislative Republican leader said lawmakers are already moving to provide those protections and would be happy to see the department's proposal.
Granholm has argued on many occasions that eliminating the SBT without a replacement would shift taxes onto families, and she said that is still a concern under the initiative to move the repeal date up to December 31, 2007. But she said the move also puts current and future economic development efforts in a state of flux.
The Department of State is currently reviewing the initiative, led by Oakland County Executive L. Brooks Patterson. If it is found to have sufficient signatures, the Legislature could act on it within 40 days, putting it on the books rather than on the ballot. A number of legislators have indicated an interest in approving the measure, which would then avoid both the uncertainty of an election and the governor's veto.
But Granholm said in her special message that adopting the measure would mean uncertainty for business, particularly those granted tax credits for new development. She urged replacement of the SBT with a broader tax that will still allow development incentives, but she urged that, by the end of the year, there be legislation to ensure that new tax will honor credits approved under the existing one.
"Uncertainty about taxes is a power disincentive to the new investment and job creation that Michigan needs," Granholm said in the message. "Many projects on the drawing board seeking approval this year are now in peril. Financing for many of these projects has been withdrawn or put on hold until this issue is resolved."
And she said the repeal puts in question the SBT credits that have been granted to a number of businesses in recent years to attract them to or keep them in the state.
She is proposing legislation that would guarantee that Michigan Economic Growth Authority and Renaissance Zone credits would be continued under a new business tax structure in a way that does not increase tax liability for the affected facilities.
And for projects with brownfield redevelopment and historic preservation credits, she is proposing that the projects be able to take those credits for the 2007 tax year even if the project is not completed until after that. Current law requires that the credit be taken in the year the project is completed.
"To assist you in acting quickly to address the negative impact of the proposed repeal of the Single Business Tax and preserve vital economic development and job creation incentives, I have directed the State Treasurer to provide you with proposed language to accomplish these changes before the Legislature reconvenes on Tuesday, June 13, 2006," she said in. "The Michigan Economic Development Corporation also is available to provide information and answer questions about the important need to make these changes for Michigan's economic development efforts."
Ari Adler, spokesperson to Senate Majority Leader Ken Sikkema, said in retrospect the special message wasn't that special. "It's telling us to do something that we're already doing," he said.
In a press release House Speaker Craig DeRoche (R-Novi) said the House has also been working on the issue. "The House of Representatives is committed to creating a business tax code in Michigan that encourages new investment, creates jobs and promotes economic development again," Mr. DeRoche said in a letter responding to Granholm's message. "The SBT is the worst business tax in America. The Legislature is committed to ending it, and creating a structure that welcomes every industry and every employer - not a select few."
The House Tax Policy Committee is scheduled to meet on legislation to address some concerns businesses have raised. Bills dealing with other aspects of the concerns will be introduced in the Senate next week.
Adler said Senate officials have heard from many businesses worried about the implications to tax breaks their companies have received if the SBT is eliminated.
A Treasury official said language is still being drafted in the department to ensure that Michigan Economic Growth Authority credits are honored and businesses located in renaissance zones can maintain their tax status. Some of the bills are similar to what the House is already reviewing, the official said.
DeRoche faulted Granholm for not having Treasury participate in the process earlier. "To find out today that you have been sitting on solutions while blocking access to critical data needed for this transition is extremely frustrating," he said. "The uncertainty you cite as a concern could have been alleviated long ago by allowing administration officials to work openly with members of the Legislature."
DeRoche also said the governor would also have to expect that the new business tax would mean tax cuts. "I will not be party to any shifts or revenue-neutral schemes similar to your proposal last year," he said in the letter.
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