LANSING – Michigan’s business tax structure changed radically on January 1, 2008. The new tax created a business income tax of 4.95 percent, a modified gross receipts tax of 0.8 percent, and tax credits for payroll, property, research and development, and other factors.

It was intended to increase revenue, while decreasing the tax burden on Michigan-based businesses. The new tax shifts the tax burden from companies with a large physical presence (property and payroll) in Michigan to companies who merely sell to customers in the state.

The Legislature passed, and the Governor signed into a law, a surcharge, calculated at 22 percent of the business income tax, added to the final tax.

Reality has been that the MBT may not be an improvement over the previous Single Business Tax (SBT) �?? some surveys indicate that 70 percent of respondents described the new MBT as onerous. Michigan companies, including bioscience R&D and service companies have found their tax charges increase dramatically, as have those out-of-state companies like Pfizer. It seems that the current Michigan business tax structure has gone beyond that goal of equitable tax collection and is actually causing businesses that Michigan sorely needs to consider leaving our state. That’s not good for anyone in Michigan.

The Michigan Chamber of Commerce and others have been working on Michigan Business Tax reforms, such as supporting Senate Bill 1242 (Senator Mark Janssen – R -Grand Rapids), which would eliminate the MBT surcharge over 3 three years, and Senate Bill 1038 (Senator Nancy Cassis – R- Novi), which would provide for important technical reforms. Look for legislative activity to ramp significantly around the MBT early in the new session.

FDA Drug Immunity Preemption (Tort Reform Repeal). State House lawmakers have been trying consistently to repeal the 1996 Michigan law which provides immunity against product liability that target FDA-approved drugs unless drug companies committed fraud during the drug approval process. The rationale of the FDA Drug Immunity Preemption Law is that all drugs carry some risk and most drugs are approved with a list of known adverse reactions up to and including death. Drug companies must comply with standards set by the FDA, their products are reviewed rigorously, the drug risks are compared to benefits, and approved by the agency. Michigan’s current law insures that frivolous lawsuits around purported risks are limited in the face of the intense scrutiny provided by the FDA during the approval process.

It’s the position of MichBio, BIO and PhRMA, and other groups, that exposing drug companies to lawsuits in the face of FDA-approved risks would have a chilling effect on research. Michigan’s innovative drug shield law turns out to be ahead of the curve. This is particularly true as the U.S. Supreme Court has signed on to the concept in a decision handed out earlier this year that limited the liability of medical device companies that comply federal regulations. A similar case dealing with pharmaceuticals, Wyeth v. Levine, was recently argued in front of the Supreme Court and a decision is pending. Any repeal of our state’s liability laws would deal a devastating blow to the future of the bioscience industry in Michigan.

H.B.s were passed in early 2007 in the State House, but are pending in the State Senate Judiciary Committee. The legislation is not expected to be taken up until early 2009 when it will be reintroduced in the House for action.

Drug Marketing & Gift Disclosure. In 2008, legislation (H.B.s ) was introduced that would create new requirements for pharmaceutical companies when providing items of value to health care professionals. PhRMA and MichBio led the effort to successfully defeat the bills in the House of Representatives since they were more onerous then the PhRMA Code guidelines at the time.

A motion to discharge the legislation from the House Committee on Health Policy (chaired by Rep. K. Angerer) was not approved, and thus the matter is still pending with that body. Proponents of the bills couldn’t prove a need for the bills, nor could they alleviate concerns about unintended consequences, such as reduced availability of support for community health fairs, continuing medical education, etc. Legislation is expected to be reintroduced in early 2009, and there is a slight possibility that legislation could be taken up during the post-election session.

Easing of Restrictions on Embryonic Stem Cell Research. Proposition 2, a ballot initiative to amend the Michigan constitution and allow the easing of restrictions on the use of embryonic stem cells in research, along with other related elements, was approved by Michigan voters. Michigan joins two other states that have passed constitutional amendments specifically permitting embryonic stem cell research (California and Missouri).

The state amendment will allow the expanded use of human embryos for any research permitted under federal law subject to the fact that only embryos less than 14 days old, left over from fertility treatments, otherwise meant to be discarded, and with written consent of the donor. The constitutional amendment now means that Michigan will be viewed as being progressive and welcoming to potential bioscience ventures. A defeat would have had a chilling effect on company and talent recruiting. It is unclear if opponents and their elected friends will push to develop any legislative measures to counter the approved amendment (as was attempted in both Missouri and California).

This MichBio update was prepared by Stephen Rapundalo, Ph.D., President & CEO, MichBio

a>>