LANSING – The 22 percent surcharge on the Michigan Business Tax would be eliminated in two years under a bill reported on a 4-3 straight party line vote by the Senate Finance Committee Tuesday.

SB 1 could see action by the full Senate yet this week, as it is a top priority of Senate Majority Leader Mike Bishop (R-Rochester).

But Democrats on the committee said the repeal of the surcharge should be tied to a broader restructuring of Michigan’s tax system as House Speaker Andy Dillon (D-Redford Twp.) has endorsed.

A spokesperson for Governor Jennifer Granholm said any elimination of the surcharge has to be paid for since it would cost the state revenues.

Under the bill, the 22 percent surcharge (more precisely, 21.99 percent) would be cut in half for 2009 and then eliminated beginning in 2010.

Currently the surcharge would be eliminated in 2017 if overall state revenues grow in the three years before that.

According to the Senate Fiscal Agency the bill would cut revenues by at least $166.1 million in the 2008-09 fiscal year, a figure that would grow to $457.5 million in 2009-10 and then $593.4 million in 2010-11.

While most committee members discussed the impact the bill would have either on businesses or the state budget, Sen. Mark Jansen (R-Gaines Twp.), sponsor of the bill, said eliminating the surcharge was important simply so that businesses could see what the actual impact of the MBT is on them. The MBT has been slammed by businesses, but Mr. Jansen said the effect of the tax has been masked by the surcharge.

Jansen, however, also said the state should eliminate the surcharge to help businesses which are struggling. “For those who say we cannot afford this, we can’t afford not to move forward,” he said.

Sen. John Pappageorge (R-Troy) acknowledged the bill would cut state revenues if it passes. But, “we’ll have even less revenue if jobs keep going out the door and businesses keep moving out,” he said.

But Sen. Gretchen Whitmer (D-East Lansing) said that while all lawmakers wanted to repeal the surcharge it could not be done in a hasty fashion. Moving too quickly generally ends up creating bad legislation, she said, and making major changes to the tax code requires reflection.

Business groups urged quick action, saying companies across the state are struggling with basic survival and cutting the surcharge will help them.

Over in the House, two bills were introduced Tuesday repealing the MBT surcharge (HB 4120 and HB 4126 ). Both measures were referred to the House Tax Policy Committee.

However, HB 4126, introduced by Rep. Richard LeBlanc (D-Westland), makes the repeal retroactive to the start of the MBT on January 1, 2008.

That bill also goes further in increasing MBT credits for items such as compensation and research and development.

The legislation also stipulates that the state has to collect more than $2.398 billion for the refund to kick in for the 2008 tax year (60 percent going back to businesses with the other 40 percent put in the rainy day fund). And for the 2008 tax year and beyond, the refund would be calculated using Michigan personal income, not the U.S. Consumer Price Index.

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