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A Better Partnership


Dec 2007
December 03, 2007

Michigan Tax Alert

Repeal of Ill-Fated 6% Use Tax on Certain Investment Advisory Services

Ill-Conceived Tax Repealed at the 17th hour

As Emily Litella (Gilda Radner) used to say on Saturday Night Live, "Never mind." The Michigan Legislature and Governor Jennifer Granholm have repealed the ill-conceived and inequitably applied 6 percent use tax on certain investment advisory services, consulting services, and certain other services, but not until 17 hours after it went into effect on Saturday, December 1, 2007. Legislative wrangling forced the Michigan Senate into an all-night session, ending in the wee hours of Saturday morning, and forced the Michigan House to call an extraordinary Saturday afternoon session to finalize the political compromise on the state's budget—already two months into its current fiscal year.

PA 145 of 2007 (House Bill 5408) was signed into law by the Governor on Saturday, December 1, at 5:10 p.m. with immediate effect. Among other things, to generate replacement tax revenue the law imposes a surcharge on a taxpayer's Michigan Business Tax liability. The Michigan Department of Treasury's Web site advises that any businesses that collected the 6% use tax for select services—during the roughly 17 hours that it was in effect—can either refund that money to the purchaser/user of the service or remit the revenue to the state of Michigan when the first use tax payment is due. For many businesses, that payment is scheduled to be remitted by January 20, 2008. According to the Michigan Treasury, part of the deal to repeal the use tax includes an agreement to pass legislation that will grant businesses amnesty if they did not collect the use tax on Saturday, December 1.

Before the repeal, the Michigan Department of Treasury is reported to have spent approximately a half-million dollars gearing up to advise businesses about their new tax obligation and to prepare to administer the tax. So, who should pay for this now wholly worthless effort? Certainly not the legislators and Governor who created the mess in the first place!

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