Feverish lobbying by the investment advisory community and other industries has Michigan lawmakers reconsidering a recently passed bill that would tax a vast array of business services-including investment advice.
The law, set to go into effect on December 1, would extend Michigan's existing 6% use tax to a mish-mash of activities ranging from bail bonding and balloon-o-gram services to phrenology and psychic services. The tax is expected to boost state coffers by as much as $725 million a year, but the outcry over the proposed law has lawmakers scrambling to find an alternative before month's end.
"The debate doesn't seem to be whether or not it should be repealed," says Matt Resch, a spokesman for the Coalition to Ax the Tax, a group of businesses, trade associations and chambers of commerce who joined forces to lobby against the bill. "There seems to be universal opinion that the tax should be repealed. The real debate is if they're going to repeal it, do they have to pass something to replace the revenue that would've been generated by the service tax?"
In a story in the Detroit News, Michigan Gov. Jennifer Granholm acknowledged that she and legislative leaders are open to repealing the unpopular tax.
One repeal bill was already passed in the Michigan Senate and is now in the House for consideration; the House passed its own bill that would kill the proposed tax and replace it with a different tax on Michigan businesses to replace the lost revenue if the service tax bill is quashed. The likely scenario is an expansion of the Michigan Business Tax (MBT) that was passed last summer and is scheduled to take effect on January The MBT is designed to overhaul the state's business tax system, and Resch says there's talk of enacting additional surcharges on the MBT to generate revenue.
Resch says the MBT proposal is splitting the Michigan business community: some see it as a better alternative than the proposed service tax; others want to make up the revenue shortfall from the repealed service tax by reforming the budget.
Either way, financial advisors in Michigan hope the service tax will be eliminated. "Our lobbyist is taking a wait-and-see stance due to unresolved questions about the replacement tax," says Evelyn MacIntyre of Capelli Financial Services in Bloomfield Hills, Mich., and president of the state's Financial Planning Association chapter. The national FPA, along with other financial-related groups such as the National Association of Personal Financial Advisors and the Investment Company Institute, are actively lobbying against the service tax.
The 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.