New 6% Service Tax To Be Introduced in Michigan
Local Residents Can Expect To Pay Tax on List of Items
By Amy Polk

Michigan legislators agreed early October 1 to raise the state income tax rate and charge service tax in exchange for a 30-day extension on the current budget. A new budget with an estimated $440 million in cuts will be adopted at the end of October.

The move stopped the government shutdown that threatened to close state parks, including Mackinac State Historic Parks facilities on Mackinac Island and in Mackinaw City, and would have halted or stalled state services and payments to schools. Businesses were alerted to stop lottery ticket and Keno sales at midnight Monday, October 1. Liquor deliveries would have also been suspended.

Most Michigan residents, however, were sleeping during the brief shutdown that started at midnight, Monday, October 1, and ended at 4:18 a.m. when Governor Jennifer Granholm and legislators struck an agreement. They awoke to a higher income tax rate, raised from 3.9% to 4.35%, and a new 6% sales tax on services such as wedding planning, landscaping, and investment planning.

The other consequences of efforts to balance the $1.75 billion deficit are yet to be revealed. Legislators will hammer those out over the next three weeks, when the governor is expected to sign the package of new revenues and reforms.

"There were some general principles that were agreed to" in addition to the income tax increase and service tax, said Governor Granholm's spokesperson, Liz Boyd. The details will be worked out this month.

Among those principles are many government initiatives that include a new Government Efficiency Committee to find additional reforms, and significant changes to the teacher health insurance and retirement system. Public schools with more than 100 employees will now have access to health insurance claims data, which will allow districts to seek competitive bids for health insurance packages to save districts money, said Leslee Fritz, communications director for the State Budget Department. Districts previously did not have access to their employees' claims data.

Upon retirement, new teachers hired after this year's change will be expected to pay 10% of their health insurance premium and the state will pay 90% of the premium. New teachers will also contribute 2% of their income to the state's retirement fund.

Public schools are slated to get $71 per pupil in additional funding this year, which is less than half of the $178 that was proposed. Michigan's 15 state universities will share approximately $15 million in additional funding and community colleges will share an additional $2.9 million under the reformed budget plan.

"They will be perhaps the only part of the budget that will see an increase," Ms. Fritz said.

Other cost-saving measures include letting Michigan prisons contract with private providers for mental health services. The state will also eliminate "double dipping:" the practice of allowing retired state employees to return to state employment and draw pension and earn salary simultaneously.

These measures, Ms. Boyd said, "will prevent massive cuts to public education, health care, and public safety," and the new revenue stream will help balance the state budget. Last year's $1 billion deficit was erased by a series of temporary budget cuts, Ms. Boyd said, but that did nothing to remedy the budget crisis.

"Keep in mind we were trying to resolve a $1.75 billion budget deficit," Ms. Boyd said of the projected 2008 fiscal year deficit.

The income tax rate hike would remain in place through 2011. Then it would gradually decline through 2015 until it returns to 3.9%.

For example, an individual making $20,000 will pay an additional $90 a year in state income tax ($870, instead of $780). A person making $40,000 will pay an additional $180. A person making $100,000 will pay an additional $450. These figures do not include deductibles, such as those for dependents. The income tax increase will raise an anticipated $765 million.

"Michigan's income tax is still the fourth lowest among the states," Ms. Boyd said. "The state and local sales tax burden is around the national average."

A typical family of four making $50,000 will spend about $4 a week more for the additional income and service taxes, Ms. Boyd estimated.

The new service tax is hoped to raise another $614 million through the 2008 fiscal year, and average $750 million each year after. If adopted as proposed by House Bill 5198, consumers will pay taxes on the following services starting December 1.

Proposed Taxable Services: Lodging and Tourism - • Concierge services

• Check room services

• Scenic tours, skiing services, and tour guides

• Travel and reservation services • Porter services

• Ski service and operations

Personal Services and Financial Consulting -

• Business consulting • Investment advice • Document preparation • Office administration service

• Personal fitness trainer

• Astrology, fortune telling, numerology, palm-reading, phrenology, and psychic readings and services

• Specialized design services

• Dating, social escort and introduction

• Courier and messenger services • Genealogical investigation • Bonds person services • Bail-bonding services • Personal shopper • Credit card notification

• Shoe-shining

• Personal care like tanning, waxing, and massage (excludes hair care)

• Transit and ground passenger transportation

Event Planning and Celebration -

• Wedding planning

• Wedding chapel use (but not church use for weddings)

• Singing telegram service • Balloon-o-gram service • Party planning Home and Business - • Landscaping • House-sitting or house-watching • Carpet and upholstery cleaning

• Investigation, guard, and armored car services

• Janitorial

• Security systems

• Service contracts for personal items (extended service contracts for appliances, vehicles, etc.)

• Self-storage for individuals and warehouse storage for businesses

• Packaging and labeling services

Miscellaneous -

• Coin-operated blood pressure readers, personal service machines, rental lockers, and photography machines

• Rest room and comfort station operation

• Pay telephones

• Discount buying and consumer buying services

• Credit card notification • Baby shoe bronzing