Single Business Tax Restructuring
This season's most controversial state policy issue guarantees months of debate

Over the last two and a half months, members of both the House and Senate have participated in the Price of Government project, with expenses for staffing that project provided by MAR and the Michigan Chamber of Commerce. Besides the Price of Government, the House and Senate Appropriations Committees approved Executive Order 2005-7 to correct the budget deficit for 2005. Additionally, by the time you read this, the full legislature will have begun debate on the governor’s Single Business Tax rewrite and a $2 billion bond proposal after returning from the spring break. To say legislators have their plates full this spring would be an understatement.

Currently, no issue has excited more comment in the halls of the Capitol than the Single Business Tax rewrite proposal. Since the announcement of the proposal in late January, legislators and lobbyists from a variety of interest groups have been opining on the matter, albeit with few details available. Many of the finer points of this proposal are still unknown, even after legislation has been formally introduced. Accountants had already begun their busy season, and many industries could not form final opinions until those experts weighed in.

Many organizations jumped in with support or objections on principle. Others did not want to jump completely on or off the ship, but instead are keeping one foot on the proverbial deck and the other in a life boat. To that point, the most boldly defined positions available were those from the banking and insurance industries which are opposed, and the manufacturing sector showing strong support.

The part of the plan that appears beneficial to all SBT taxpayers is a rate cut from 1.9 to 1.2 percent and 2 to 1.2 percent for the small business calculation. However, this reduction does not tell the entire story. There are offsets from other proposals in the package that eliminate particular reductions and increase the weight on profits in the SBT tax base.

As for REALTORS®, we do know that the governor’s proposal would try to change the assessment on commercial rental properties in a similar fashion to last year’s “WPW” issue, which we successfully defeated through two separate legislative initiatives. By eliminating the use of vacancy as a “loss” when determining a commercial rental property’s taxable value, the proposal is trying to offset tax breaks for manufacturing by raising taxes on commercial REALTORS® and property owners. The administration currently pegs this revenue at $60 million dollars: $30 million to the state, $30 million to the local government. As this number was pegged only last year at $110 million, we cannot accept this proposal as “revenue neutral” as its proponents claim.

Another counterbalancing measure is the elimination of the special credit for unincorporated businesses. This creates the option of opening up LLCs, S-corporations and partnerships to increased tax liability. Increasing the weight of profit in the SBT tax base would also offset any rate decrease. Additionally, the corporate profit component would be tripled when computing the SBT, which Treasury estimates to be a revenue increase of $330 million dollars to the state. Overall, this proposal moves the SBT away from a gross receipts calculation and into a calculation that puts more emphasis on profits by tripling the starting point.

An obviously negative portion proposes changing the taxation of insurers. The plan is to impose a 2 percent premiums tax and remove all previous SBT reductions for private insurers. The insurance industry predicts this to be a 125 percent tax increase on their industry and costs would ultimately be passed on to consumers, such as homeowners, this would ultimately increase all REALTORS®’ costs of doing business.

MAR has asked for members to provide feedback on the positives or negatives of the proposal through an e-mail campaign and by visiting our Web site at www.mirealtors.com for further details. Shortly after the SBT rewrite was announced, the State Treasury pointed out that the finance, insurance and real estate industries would most likely see increases under the proposal. Our MAR task force will be further studying this issue, along with industry accountants. But the initial signs don’t look good. We know it’s not revenue neutral — it pits businesses against businesses for lower taxation, and increases costs on the successful enterprises left in the state.

We will continue to take a closer look at the governor’s proposal and try to draft strategies to deal with those negatives.

Minimum Broker Services
Early last September, the MAR Public Policy Committee expressed an interest in promoting greater professionalism and accountability within our industry by clarifying regulatory protections for Michigan’s real estate consumers. A task force was convened with the intention of establishing minimum broker services in Michigan. Illinois and Texas have instituted similar minimum service levels with the support of the REALTOR® Associations in each state.
The recommendation of the task force to the MAR Public Policy Committee was to pursue minimum service levels via legislation, as that was considered the best route in strengthening the relationship between brokers and consumers. To serve as an example in drafting legislation, we reviewed legislation passed in Illinois with particular scrutiny on their basic minimum standards of operation. Among these basic duties (that our Board of Directors and Public Policy Committee felt needed to be addressed) were: exposing the property to the marketplace in a manner agreed upon by the client and broker; filling gaps in accepting and presenting offers and counteroffers on behalf of buyers and sellers; ensuring that brokers are making themselves available to the buyer and seller for anything that may arise between signing the purchase agreement and the closing (including satisfaction or waiver of contingencies) and providing a final accounting after the closing occurs.

Initial review of these minimum standards shows them as in complete accordance with any standards or current laws that may be of a conflicting interest. MAR has begun an educational campaign to educate you, the member, on this issue, and we look forward to moving ahead with this legislation in the State Legislature.

House Bills 4188 and 4065
Two bills recently introduced in the legislature have gained MAR’s interest and support. HB 4188, introduced by Rep. Tory Rocca (R-Sterling Heights), would increase the household income threshold for a summer tax deferral from $25,000 to $35,000, beginning in 2005. The summer tax deferral is particularly important to taxpayers on a fixed income and those with physical disabilities. The current threshold has been in place since 1992, and, as a result of not adjusting with inflation each year, the summer tax deferral has been available to fewer and fewer people who need it. HB 4188 recently passed the House of Representatives by a vote of 109–0 and now heads to the Senate Committee on Finance.

HB 4065, introduced by Rep. Bruce Caswell (R-Hillsdale), amends the general property tax act by providing property owners with a remedy if a mistake is made in reassessing their property. Currently, the Act states that in a transfer of ownership after 1994, the property’s taxable value for the calendar year following a transfer is the property’s state equalized valuation (SEV), and then the property value is reevaluated after a change in ownership. The legislation adds that if the taxable value of a property is adjusted (as mentioned above) but then later it is determined that there was no transfer of ownership, the value should be adjusted and a corrected tax bill issued. HB 4065 also recently passed the House of Representatives by a vote of 109—0 and now heads to the Senate Committee on Finance.

MAR welcomes Tony Daunt, the newest addition to our public policy team. A 2001 graduate of Michigan State University, Tony joins us with a wealth of experience in the public policy arena and will serve as the Southeast Michigan Public Policy Director for MCAR, WWOCAR and the Detroit Association of REALTORS®. Rob Snavely will continue to represent the remaining associations and boards in Southeast Michigan.

Prior to this newest opportunity, Tony was in Washington, D.C., for two months working for the 55th Presidential Inaugural Committee, and before that did political work throughout the 2004 presidential election. Tony has worked for several state legislators in the past, including David Farhat (91st), Marc Shulman (39th), David Mead (101st), and Bill Bobier (101st). Tony was a member of then-Senator Spencer Abraham’s Washington, D.C., staff in 2000, a field director for a gubernatorial race in Virginia, and was director of daily operations for a small D.C. fund-raising agency in 2002.

We’re excited about adding his expertise to an already exceptional team, and I’m sure we’re all going to benefit from his experience, energy and enthusiasm. Welcome, Tony. H