R.Public lawmakers are putting forward bills that would cut Michigan’s corporate tax rate by 20 percent and create tax credits for companies that lost at least a quarter of their revenues during COVID-19 restrictions.
The law is designed to help businesses recover from the pandemic through tax breaks rather than new government grant or loan programs. A lower tax burden would free up the cash flow it needs while avoiding the tedious grant or loan application process, according to proponents of Bill.
“When you try to offer scholarships and programs that meet all of these criteria, you are burdening them with paperwork that most are unfamiliar with or unable to find their way around. Those companies that have this type of expertise, which tend to be larger, are usually swallowing up that limited amount of money very quickly, ”said Charles Owens, director of the Michigan Chapter of the National Federation of Independent Businesses (NFIB).
“When you’re using the tax system to help small businesses, it’s a pretty straightforward process. It’s a pretty straightforward calculation, ”he added.
Owens quoted Governor Gretchen Whitmers Michigan Economic Whit Jumpstart plan proposed this month that would use billions of dollars in federal funding on a variety of initiatives. For example, the Michigan Mainstreet Initiative would provide $ 300 million to small businesses in the form of restart grants, micro-business grants, and SmartZone funding.
Owens said that while grant programs are well-intentioned, they also include administrative costs that siphon off some of the funding.
“If we can focus most of our efforts on these broad programs that are having a far-reaching impact and affecting many of these companies, we think this is a smarter approach,” he said.
Senate Bill 392 – introduced in late April by Senator Jon Bumstead, R-Newaygo – would cut Michigan’s corporate tax rate from 6 percent to 4.9 percent over two years. If approved, the state’s corporate tax rate would decrease retrospectively to 5.5 percent in 2021 and 4.9 percent in 2022.
The Senate Finance Committee approved the bill on June 2 according to party specifications and sent it to the entire Senate for consideration.
“The pandemic has been an economically challenging time for our local businesses,” Bumstead said during a May hearing on the legislation. “Providing tax breaks immediately is the most direct way to help our financially troubled businesses keep their doors open now and in the future.”
Bumstead argues that a lower corporate tax rate would make Michigan more competitive against other states as well. He cited the Indiana corporate tax rate of 5.25 percent, which will drop to 4.9 percent this summer, and the current Kentucky tax rate of 5 percent.
“This tax break is important so that our state can compete not just with these neighboring states, but with all states across the country,” said Bumstead. “Lowering our business tax to a competitive rate like other states near us is important in encouraging businesses to stay in Michigan.”
The Grand Rapids Area Chamber of Commerce also supports the bill to keep Michigan competitive with other states.
“This is about signaling to our business world and our companies that they are making the state a little more business-friendly, and especially to take this into account as we get out of COVID mode and return to this new normal,” said Alexa Kramer, director for government affairs of the Grand Rapids Chamber. “This is something we can do to help businesses so we can get our businesses back, get our communities back, and put Michigan in a really good position to compete with other states.”
According to an annual report by the Washington, DC-based Tax Foundation, Michigan ranks 14th nationwide for general corporate tax climate and 20th for corporate tax rates. The only state in Great Lakes that ranked higher was Indiana, which ranked ninth in terms of tax climate and 12th for the state’s business climate report, according to the Tax Foundation’s report. The Tax Foundation’s overall business climate ranking is based on corporate taxes, individual income taxes , Sales taxes, wealth taxes and unemployment insurance taxes.
Michigan’s corporate tax rate is currently lower than rates in Wisconsin (7.9 percent), Illinois (9.5 percent), and Pennsylvania (9.99 percent). Ohio, ranked 39th in the overall corporate tax climate, instead levies a gross income tax of 0.26 percent, which is a statewide ranked 42nd corporation tax, according to the Tax Foundation.
The state’s corporate income tax reduction bill is endorsed by the Michigan Manufacturers Association, the Small Business Association of Michigan, and the Michigan Chamber of Commerce.
The state Treasury Department and the Michigan League for Public Policy expressed their opposition at the hearing last month.
“Simply put, now is not the time for major corporate tax cuts as we need investment in our people such as childcare, road and water systems, education, government safety net services and more, ”said the Michigan League President for Public Policy and said CEO Gilda Jacobs in a statement to MiBiz. “We understand that the pandemic has hit our employees, our businesses and our economy hard, but as we seek to overcome this health crisis, we believe strategic investments in what Michigan workers and their families need to thrive are ours Benefit companies and “also state budget.”
Refundable tax credit
Meanwhile, Senate Bill 393 would create a two-year refundable tax credit for businesses that had to close for at least six weeks during the pandemic and lost at least 25 percent of sales. These companies could claim an income tax credit for the years 2020 and 2021 up to the amount of their total property tax for the company concerned.
The legislation “creates another source of relief” for businesses hit by last year’s closings, said Senator Kevin Daley, R-Lum, the lawmaker.
The state Senate passed Lums bill on June 9th by 19-16 votes. The bill, which is also supported by several state and local corporate groups, now sits before the House of Representatives’ tax policy committee.
Legislators passed property tax breaks twice in 2020 for businesses hit by the pandemic, though Whitmer vetoed both efforts. A similar measure, contained in an additional funding bill earlier this year, has been vetoed.
The Treasury Department took a neutral position on SB 393 despite having “a number of concerns,” said Aaron Keel, director of legislative affairs for the Treasury Department. These concerns include the “incredibly difficult” tax credit management process, their retrospective nature, and the verification of lost revenue of affected companies.
Still, the Whitmer administration is open to working with lawmakers on potential tax credits as part of the broader budget negotiations for the state’s fiscal year 2022 beginning October 1, Keel said.
He noted that the proposed tax credits could result in a potential loss of revenue of $ 150 million to $ 400 million for the state.
“We believe this is a high price tag that should be part of a broader discussion of how best to provide and targeted relief for companies struggling most with the resources we have,” said Keel. “We want to be a partner in identifying and supporting the companies that need relief the most. Once that goal is achieved, we want to make sure that we are able to manage the program and ensure that it is successful. “
Daley and supporters of the bill estimate that the bill would result in a loss of revenue of $ 75 million in fiscal 2022. Although it is unclear how many companies might apply for a retrospective tax credit, the Senate Treasury reported that the bill would reduce the state general fund and school aid fund revenue by an “unknown and potentially significant amount, depending on the number of those eligible Taxpayers would depend “.
Owens said the Treasury’s willingness to at least discuss the legislation gives him hope for some kind of tax break in the next fiscal year for companies hard hit by the pandemic. Whitmer and leading GOP lawmakers also recently agreed to negotiate a budget for 2022, and Owens expects both sides to get a part of what they want.
“I think there is a possibility that some of these things will be legally signed,” he said.