A law set to go into effect on December 1 will tax investment advice services in Michigan, and the state's financial advisors are up in arms and fighting to repeal it.
The recently-passed bill expands the number of services included in Michigan's existing 6% use tax. According to the state treasury department's website, most telecommunications, hotel/motel-type accommodations and industrial laundry services have been subject to the use tax for years. The expanded list of discretionary services under the new law runs the gamut from astrology and baby shoe bronzing services to social escort and singing telegram services. And, of course, investment advice services.
"It's the stupidest thing I've ever seen and we think it needs to be repealed," said Ted Feight, owner of Creative Financial Design in Lansing, Mich. "If you're not going to tax attorneys or CPAs, then why are you taxing financial planners?"
The specific investment advice services affected by the bill are described in the North American Industry Classification System (NAICS) industry code number 52393. NAICS is a standard used by Federal statistical agencies to classify, measure and analyze various economic sectors. The NAICS code in question covers a list of advisory services ranging from investment "advising," "consulting," or "counseling" services, to financial "planning" or "investment advice" services, to "certified financial planners." All offer services that are "customized, fees paid by client."
As it's interpreted, the new law would apply to financial planners and not to brokerage commissions or insurance services. The state is in the process of updating its website to include an index that specifies which professions-across various industries as spelled out by NAICS-will be subject to the use tax.
Both the Financial Planning Association's national headquarters and the Michigan chapter are working together to lobby lawmakers to exempt investment advice from the new law.
"The FPA is against anything that could negatively impact financial planning," says Evelyn MacIntyre of Capelli Financial Services in Bloomfield Hills, Mich., and president of the state's FPA chapter.
"The services subject to this tax are those that really apply to middle-income people," she says. "Michigan is reeling from the upheaval in the auto industry. We have the nation's highest unemployment rate and thousands of people have lost their defined-pension plans. This tax is another financial burden that can make a difference." MacIntyre is concerned that the 6% tax could discourage middle-income folks from seeking professional financial assistance.
Feight doesn't think the expanded use tax will seriously impact his business, but he believes it helps cultivate the state's high-tax culture that he says is contributing to Michigan's jobs and population drain. He is confident that the uproar over the bill from the advisory community will hasten its repeal, or at least result in the exclusion of investment advice services from the law.
Michigan treasury department spokesman Caleb Buhs says that various businesses group lobbyists-including the financial advisory industry-are currently stating their case to the House tax policy commission for exemption from the law.It is believed that Michigan is the only state currently taxing investment advice services.