Senate Finance Unanimously Moves Software Tax Clarification

Legislation unanimously passed the Senate Finance Committee this Tuesday that clarifies the Michigan Sales Tax and Use Tax Acts relative to the definition of prewritten computer software installed on someone else’s server. Known as “cloud computing” or “software as a service” issue – the legislation serves to reverse a Department of Treasury interpretation of an ambiguous statute relative to the taxability of the sale or consumption of computer software that is not tangible personal property.

Senate Bills 82 and 83, introduced by Senators Pete MacGregor (R-Rockford) and John Proos (R-St. Joseph), mirror legislation that has been introduced for each of the last several legislative sessions and is identical to a package of bills (House Bill 4018 and 4019) the House Tax Policy Committee has already addressed and moved to the floor.

The Department of Treasury is opposed to the legislative fix, citing the revenue impact which the Department pegs at roughly $70 million for the 2015-2016 fiscal year as well as considerable foregone revenue in future years. Instead, the Department would rather allow the multiple cases currently being litigated to play out to determine the right course of action for the Administration and the Legislature. The Department’s position and rationale resulted in considerable questioning from members of the Senate panel.

This represents a large point of disagreement between the Department/Administration and the business community. Developing tax policy through litigation, especially retroactive changes in policy as was the Administration’s solution in the Department loss in the IBM case, is a strategy deplored by the business community. The Department has lost on this issue in multiple court cases already with the case involving Thompson Reuters currently before the Michigan Supreme Court.

posted by PAA Online , Friday, March 13, 2015 10:18 AM
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State Revenue and Unemployment Updates

The $1 billion in February revenue to the General Fund and School Aid Fund fell $30.5 million short of the Senate Fiscal Agency’s consensus estimates and were 0.5 percent below 2014 numbers. General Fund revenue was $35 million above expected February levels; however, School Aid Fund revenues fell $59.9 million short.

According to the report, the revenue shortfall can be largely attributed to poor sales tax contributions. February 2015 sales tax receipts were 5.3 percent below the prior year and $65.2 million below estimates. The report also referenced weak individual income tax withholding and higher than expected refunds under the Michigan Business Tax.

Meanwhile, the state’s unemployment rate continued to slide downward in January – decreasing another 0.1 percentage points to 6.3 percent. Total employment increased by 22,000 in January leading to the 6.3 percent rate, which is the lowest for Michigan since November of 2002.

The unemployment rate for the Detroit-Warren-Dearborn metropolitan area fell 0.3 points from 7.7 percent to 7.4 percent.

Most of the major industry sectors felt the gains, with construction and professional/business services both increasing by 6,000, manufacturing and leisure/hospitality services both increasing by 5,000, and transportation and utilities increasing by 4,000. The only major reduction was in government, with a loss of 4,000.

posted by PAA Online , 10:18 AM
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MEGA Credits Target of New Legislation

State Representatives Gary Glenn (R-Midland) and Lee Chatfield (R-Levering) introduced legislation this week that keeps the heat on the Michigan Economic Growth Authority (MEGA) tax credits that currently have an estimated $9.4 billion total liability in the state’s budget through 2031 when all credits have expired.

House Bills 4333 and 4334 propose to prohibit MEGA tax extensions as currently permitted under the Michigan Economic Growth Authority Act, and prohibit MEGA tax credit extensions as currently permitted under the Michigan Business Tax Act.

Both measures were co-sponsored by Representative Jeff Farrington (R-Utica), Chair of the House Tax Policy Committee to which the bills were referred. The credits have been a hot topic in Lansing since late last year when the credits were all but designated as the cause of projected budget deficits for the current 2014-2015 fiscal year and the upcoming 2015-2016 fiscal year.

In December, the Michigan Economic Development Corporation (MEDC) and the Department of Treasury estimated the total liability to be approximately $3 billion through 2031 when the credits would run out; however, those projections were based on an assumed 35 to 50 percent of the credits being awarded. When projecting based on 100 percent of the full value, the number rises to $9.38 billion.

The state will spend between $500 and $600 million per year until 2030, according to the MEDC, ending with $129 million in 2030 and $133 million in 2031. No new credits are being awarded under the Michigan Corporate Income Tax, which took effect in 2012.

posted by PAA Online , 10:17 AM
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Speculation on Potential Replacements for Retiring U.S. Representative Candice Miller

With the announcement last week that United States Congresswoman Candice Miller (R-Harrison Township) will not be seeking re-election in 2016, names of potential candidates for her replacement continue to be discussed in pundit circles.

Republicans:

The opening promises to result in a crowded Republican Primary where the geographic location of the candidates could become a significant factor, for example: If several candidates from Macomb County join the field, and split the vote – a candidate from another portion of the district could claim victory.

Former State Representative Pete Lund is among the names most expected to get in the mix come campaign time. He is well connected in Macomb County Republican politics; however, he may have a fundraising disadvantage as he is not currently in office.

State Senator Jack Brandenburg has acknowledged that running for Congress has always been something on his mind; however, like every other potential candidate, Senator Brandenburg has declined to comment thus far. The current Senate Finance Committee Chair has won tough races in the past, including a tough Primary, and has some personal wealth to add to his fundraising prowess.

State Representative Andrea LaFontaine is also getting considerable attention for the open seat, partially because of her youth relative to the other candidates and her recognition as a tireless campaigner.

State Senator Phil Pavlov may be the candidate that takes advantage of a crowded Macomb County field. One analysis showed that 45 percent of the Republican vote in the last 10^th Congressional District run came from Senator Pavlov’s current Senate district.

Other names creating speculation are current Representative Anthony Forlini, Senator Tory Rocca, Senator Mike Green, and Representative Todd Courser – the latter two who also fall into the category of potentially taking advantage of a crowded Macomb County field.

Democrats:

While Congresswoman Miller’s victory numbers in seven runs ranged from 63 to 72 percent, Democrats certainly smell the potential for an upset if they are able to avoid a Primary and if the Republican Primary winner is a polarizing figure.

Former Representative Fred Miller, currently a member of the Macomb County Board of Commissioners, is exploring a run and Macomb County Executive Mark Hackel is a name many would like mentioned among potential candidates.

posted by PAA Online , 10:16 AM
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PAAdvisory Briefs

Levin Joins Honigman

Retired United States Senator Carl Levin will be joining the law firm of Honigman Miller Schwartz and Cohn, LLP in the government relations and regulatory affairs practice, although he will not be lobbying. According to reports, he will also be teaching part time.

Another Hertel to Run

Kevin Hertel, the brother of current State Senator Curtis Hertel, Jr. (D-East Lansing), has announced his intentions to run for the House of Representatives in 2016. Hertel will be running in the 18^th House District held by Representative Sarah Roberts (D-St. Clair Shores). Mr. Hertel is employed by Blue Cross Blue Shield of Michigan.

Finalists Narrowed for State Superintendent

The State Board of Education has again narrowed down their search for Michigan’s new state superintendent of public instruction to what appears to be the final three candidates. These finalists are: Scott Menzel, Superintendent of the Washtenaw Intermediate School District; Vickie Markavitch, Superintendent of the Oakland Intermediate School District; and Brian Whiston, Superintendent of the Dearborn Public Schools. The individuals no longer in consideration for the position are: Randy Davis, Superintendent of the Marshall Public Schools; Alan Ingram, Deputy Commissioner of the Massachusetts Department of Elementary and Secondary Education; and Randy Liepa, Superintendent of Livonia Public Schools. Meetings will reportedly continue next week.

Governor Clarifies Film Incentive Position

While the House of Representatives was acting on legislation to immediately eliminate the state’s film incentive program, Governor Snyder clarified this week that he would not support such a measure. The $50 million current fiscal year incentive program was reduced by $12 million to $38 million through the negative supplementals used to balance the budget – and the executive recommendations for the 2015-2016 budget include funding the incentive at the $50 million level again. The Governor is joined by Senate Majority Leader Arlan Meekhof (R-West Olive) who has also indicated that immediately eliminating the incentive is short-sighted.

posted by PAA Online , 10:15 AM
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