Lansing impasse on taxes irks firms

Businesses must begin collecting sales levy Saturday if legislative stalemate continues.

Gary Heinlein, Mark Hornbeck and Brian O'Connor / The Detroit News

Michigan business leaders watched with growing horror Thursday as the hoped-for repeal of a new tax on services skidded toward tonight's midnight deadline with no final legislative action in sight.

Although back-channel negotiations were continuing, no House session or formal talks were scheduled or being held late Thursday, continuing an impasse that threatens to put in place the 6 percent sales tax on a bizarre array of services starting Saturday.

While they're nervously waiting for the Legislature to repeal the service tax, business officials have little choice but to prepare to pay it. Many said Thursday they're in limbo. Others said they're expecting a train wreck.

"We're not set up to do this," said Liz Blondy, owner of Canine to Five, a dog day care, boarding and grooming shop in downtown Detroit. "Up until reading the paper this morning, I thought they were going to repeal it. Apparently, I need to start charging an addition 6 percent starting Saturday.

"We don't have the forms in place to do this," she added. "This needs to be repealed. This tax will not work for small service providers in the state of Michigan. My customers all are doing the best they can to support my business in downtown Detroit, and this tax places an unfair burden on my customers and on small-business owners."

John Evans of Evans Distributing stands to get socked with an additional $1 million tax bill.

"I have a shift starting in 36 hours that I have to bill for the 6 percent and I don't know how to do that," said Evans, whose company has warehouses in Detroit, Howell and Melvindale.

Lawmakers and Gov. Jennifer Granholm are trying to replace the service levy with a surcharge on the Michigan Business Tax. Many businesses are less than thrilled about the surcharge, but they're willing to accept it as a substitute for the service tax that politicians and businesses agree is a mistake.

Democrats and Republicans, however, are at odds over the formula for the new surcharge.

Amy Frankmann, executive director of the Michigan Nursery and Landscape Association, said queries to the state from landscapers about the tax have been deflected.

"We've called (the state Department of) Treasury and been told to call our legislator," she said.

Businesses confused

George Lowe, a Northville consultant who specializes in communication strategies, said he's confused about whether to charge the tax to his out-of-state customers, or whether it applies to work finished earlier in the year that won't be billed until January.

"I've asked my CPA to track this, but until it actually happens I won't have the full picture," Lowe said. "My worry is that I won't be able to pass along the tax to the customers. It will either be too inconvenient to collect from them or too much of a bother to keep track of it, and as a result I'm going to owe the state something where I can't recover my costs."

The tax and other problems in the Michigan business climate have him thinking about moving his business. About two-thirds of the new tax would fall on businesses and one-third on consumers.

"It's just one more thing here in Michigan that is causing me to think about going elsewhere," Lowe said. "It's not a good time to be in business here, based on the economy, and now there's this."

'No one wants to pay this tax'

At the Tantra Spa in Ferndale, owner Yvette Tremaine made a point of selling gift certificates to beat the Saturday deadline for the new tax.

"We had a holiday open house Wednesday night, and we sold $2,000 in gift certificates, so that saved people $180 in taxes," Tremaine said. "No one wants to pay this tax."

Tremaine said she's afraid the tax will eat into the tips her staff of four receives as the tab for spa treatments goes up. She already pays sales tax on some items she sells, but thinks other service suppliers who don't already deal with the state tax system will be confused.

"I haven't even received a letter or a packet of information -- nothing," she said. "I'm appalled by it. If you're going to do this, don't you think you should let people know? We still don't know if it's going to happen. I guess we'll just check the state Web site on Saturday and see. It's really kind of ridiculous."

Dillon, Bishop point fingers

While business owners stewed, the partisan bickering continued among legislative leaders.

On Detroit talk radio, House Speaker Andy Dillon, D-Redford Township, and Senate Majority Leader Mike Bishop, R-Rochester, pointed fingers at each other for the negotiations breakdown Wednesday over the service tax. The House passed its own plan and then adjourned until Tuesday.

Bishop called "garbage" a House-passed bill that the Senate rejected Wednesday night and chided: "We don't want to let the facts get in the way of the speaker."

Dillon shot back that the so-called "garbage" is backed by a large share of the business community.

Bishop exhorted Dillon to name House members to a House/Senate conference committee to hammer out a compromise plan. He also sent a formal letter to Dillon calling for an emergency Friday session.

Dillon countered that he won't call the House back into session until there's a compromise plan to consider. He accused the Republicans of not conducting reasonable negotiations and continually offering proposals they knew the governor would not support.

Gov backs House bill

Liz Boyd, spokeswoman for Granholm, said the governor backs the House bill, but Boyd said she didn't know whether Granholm endorsed the Democratic House's move to adjourn until next week.

"The House did their work, and the governor thinks the Senate should approve (the House legislation)," Boyd said.

On Thursday, about half of the 52 House Republicans filed into the midst of a Senate session, led by House Minority Leader Craig DeRoche, R-Novi.

DeRoche pointedly said members of his party had been on duty in the House chamber despite the Democrat majority's decision not to hold a Thursday session.

"We're here to show support for the Senate ... that they're here and are doing their jobs," DeRoche said. "I believe we had more than 40 of our members here for most of the day."

Senate Democrats sought to have them removed from the chamber, but were overruled by the Republican majority.

It's Round 2 for Lansing

This is the latest issue to dissolve into crisis before the Legislature. Lawmakers' inability to reach agreement on a new budget forced state government to shut down for a few hours in October.

The bickering and gridlock have plunged the public's view of politicians to the deepest depths. Eighty-three percent give lawmakers a negative job rating and 64 percent give Granholm at negative job rating, according to a Nov. 7 poll by Lansing-based EPIC-MRA.

House Tax Policy Chairman Steve Bieda, D-Warren, said some of the negotiators had been talking informally and sending text messages to one another throughout the day, but the reality is the leaders are going to have to sit down and work things out.

"I guess we needed a day to reassess," Bieda said. "I can't really predict what either side is going to do or is willing to do."

You can reach Gary Heinlein at (313) 222-2470 or gheinlein@detnews.com.