LANSING – A sales tax increase to finance road construction and improvements would “put a dagger in the state’s economic recovery,” a letter from the Michigan Retailers Association to Governor Rick Snyder and the Legislature says.

The letter, dated Wednesday and signed by James Hallan, CEO of the retailers association, said increasing the sales tax would drive more shoppers away from traditional stores and onto online shopping. Online retailers located outside Michigan are not now required to collect and remit sales tax.

Putting a sales tax increase on the ballot – the voters would have to approve the increase – has been one major proposal to find revenues to help improve the state’s roads. Getting it to the ballot would require a two-thirds majority of each legislative house, however, and the proposal has not gotten sufficient support at this time.

Snyder has also said repeatedly he would prefer a legislative solution to increasing financing for the state’s roads, as opposed to putting a proposal on the ballot.

In the letter, Hallan makes it clear the MRA believes steps need to be taken to fix the state’s roads.

But increasing the sales tax, he said, “would be devastating to Michigan’s retail industry.”

Already, online retailers located outside Michigan have a 6 percent price advantage over traditional stores, Hallan said.

A study published by economists at Stanford University, Hallan said, showed that every 1 percentage point increase in a state’s sales tax pushed even more people to shop online. Sales online increase by 2 percent while sales to traditional retailers decline, he said.

Hallan also said boosting the sales tax by 2 percentage points would give Michigan the highest state-based sales tax in the nation (Michigan does not allow for local sales taxes, but many states do, which pushes the total tax on a purchase much higher than 8 percent). Even a 1 percentage point increase to 7 percent would mean Michigan’s rate is higher than 88 percent of the states using a sales tax, he said.

Michigan last increased the sales tax in 1994, as part of the Proposal A school finance and tax reform. At the time, the Internet was just become widespread and Internet retailing was little known.

Increasing the sales tax would hurt Michigan’s competitiveness, Hallan said, and because the sales tax is considered regressive and would not affect all consumers equally.

Hallan said raising revenues for transportation should be focused on “user-based taxes.”

The organization also said it could support a transportation funding program similar to that which passed the House in May.

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