LANSING – Michigan manufacturing companies pay a higher overall tax rate than other companies, officials with the Michigan Manufacturers Association said Tuesday, and to make the state more competitive the overall tax rate should drop to the national average that manufacturers pay.
Meeting that goal could be helped if the state would eliminate its personal property tax, Chuck Hadden, president of the organization, and Mike Johnston, vice president for governmental affairs, told reporters. But since eliminating the tax would cut a major source of funding for county and local governments, they also acknowledged that some revenue source for local governments had to be found.
And they also said there was some concern that unless Governor Rick Snyder’s proposed tax replacement for the Michigan Business Tax took into consideration some key elements, such as not being based on gross receipts and allowing for investment tax credits, then the suggested 6 percent rate could end up a tax increase for the state’s largest manufacturing firms.
The state needs to look at a major restructuring of its tax system, they said, since it is out of line with other states. Michigan charges relatively low personal taxes and high business taxes, while in most states it is the opposite with low business taxes and higher personal taxes.
The two spoke at a press conference where they unveiled the results of a study on the effective tax rates paid by Michigan manufacturers compared to other companies in the state as well as the average tax rate paid by manufacturers nationwide. The study was conducted by the accounting firm of Ernst and Young.
That study showed that when all state and local taxes are calculated, Michigan manufacturers pay 14.2 percent of their gross operating surplus.
Nationally, manufacturers paid an average of 11 percent of their gross operating surpluses in total taxes.
The comparison is even more extreme when considering other Michigan businesses, they said. Other business sectors pay an average of 9.8 percent in total state and local taxes.
The rate paid by Michigan manufacturers is 45 percent higher than that paid by other Michigan businesses.
And despite the efforts to reposition Michigan’s overall economy so it is not so heavily dependent on manufacturing, manufacturing is still the largest overall sector of the economy and the state has to be more competitive to keep and attract companies, Hadden and Johnston said.
They also outlined their legislative agenda, which includes eliminating the personal property tax. That alone would save companies $1 billion a year and go a long way to making the state more competitive.
Many states, such as Ohio, have drastically cut or even eliminated their personal property taxes.
They also called for eliminating the MBT surcharge, benchmarking the state to overall tax rates nationwide and eliminating the gross receipts bas of the MBT.
But they also recognized that on some provisions there would be a difference within the business community, so the state has to develop a better overall tax system, they said.
All businesses should pay taxes because all businesses benefit from state services, they said, so state taxes should be broad based but at a low rate.
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