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Monday, October 26, 2009

Michigan Again Considering Sales Tax on Services

In 2007, Michigan enacted law to apply its sales tax to selected services. However, the law was repealed on the day it went into effect. Legislators created an business tax to replace the expected revenues. For more information on that, see my 12/8/07 post.

In October 2009, legislation was introduced to repeal the MBT surcharge and apply the sales tax to services. [HB 5527, HB 5528 and HB 5529]

This is an interesting development. I'm doubtful that these bills will be enacted although there is likely high interest in repealing the MBT surcharge due to some confusion and complexity with it.

As I've noted in this blog and reports, it makes sense to have the sales tax apply not only to tangible goods we consume but also to services, intangibles (such as digital downloads), entertainment and services. The sales tax should not apply to purchases by businesses in order to avoid pyramiding. Click here for links to my reports on these topics.

The proposals are also interesting given the recent proposals by the CA Commission on the 21st Century Economy (here). They proposed to replace the corporate income tax and the state level sales tax with a business net receipts tax that is somewhat similar to Michigan's MBT.

What do you think? Should Michigan replace the MBT surcharge with a sales tax on services?

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