18 February 2010

Granholm Proposes New Tax on Services; Businesses React

WZZM Grand Rapids
Thursday Governor Jennifer Granholm unveiled her final budget plan for Michigan and it includes tax increases to offset budget problems. Granholm unveiled her budget in front of a joint session of House and Senate Appropriations Committees.

The Governor's main proposal is to reduce the sales tax from 6% 5.5%. But the tax would be expanded to include services which is expected to bring in more than $500 million in additional revenue next year.
The proposed tax has Michigan business owners sitting up and taking notice.

"I just felt sad. Like I said, I think everybody talks about how our government has taken a wrong path and it's broken and to add more tax burden on the backs of Michigan residents I don't think is the right answer," said Larry Walt, the president and owner of Design 1 Spas in Grand Rapids.

Walt's spas offer a variety of services to clients ranging from hair cuts and manicures to facials and massages. Regardless of what they come in the door for, the would leave with a little less cash if the expansion goes through.

Walt thinks a service tax is unfair to Michigan residents and business owners alike.

Right now the sentiment is Michigan is a tough place to run a business and a tough place to live and there is more people leaving than staying," he said. "I think the government needs to take a look, whether you are Republican or Democrat, and say what is best for Michigan. If that means cutting drastically government expenses you need to do what it takes to make people want to be here. "

Gregory Lewis, a tattoo artist and body piercer at Mystery Ink in Grand Rapids worries if clients will scale back on the services they buy when faced with an added cost.

"Yeah because tattoos aren't necessarily a necessity. It may hurt business a little bit. We just won't know until it all happens," he said.

Granholm says the sale of services make up 66% of consumer spending in Michigan. She says expanding the sales tax, among other things, would solve school funding problems.

"It would significantly solve the structural problems of the school aid fund into the future," she said.

The Governor proposes that some services including health care, social assistance, education, real estate, new construction, insurance commissions and services directly connected to business operations be exempt from the service tax.

"If you are going to tax service then you tax all service," said Walt, who thinks it is unfair for the state to pick and choose what type of services are exempt. "Where do you draw the line. Is real estate more important than other services? Or health care? Obviously it is a big issue but if we just want to be fair to everybody, if we are going to tax service then tax service and it is fair to everybody because it is across the board."

Governor Granholm says even with the expansion Michigan would have one of the lowest sales tax rates in the country. Only 5 states will have lower sales tax.

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