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Report: Michigan businesses paid $14B in taxes in 2014

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Michigan businesses are contributing major revenue to the government’s coffers despite projections showing the state will lose money under its main corporate tax this year, according to a new report sponsored by influential business groups.

Anderson Economic Group of East Lansing found that Michigan businesses paid a collective $14.1 billion in state and local taxes in 2014, including property taxes, sales taxes and income taxes that go beyond traditional business taxes.

“It really is the case that employers are now, and have been, and are going to be paying a significant share of the cost of schools, of fire and police and government at all levels,” said AEG founder and CEO Patrick Anderson.

Michigan scrapped its complicated and controversial Michigan Business Tax as part of a Republican-led tax code rewrite in 2012. The replacement Corporate Income Tax no longer applies to gross receipts and exempts most small businesses and other “pass through” entities whose owners pay income tax on profits.

Businesses paid $1.2 billion less in corporate income and gross receipts taxes in 2014 than they did in 2011, according to the report, but they paid a combined $6.85 billion in property taxes, $2.35 billion in general sales taxes and $1.8 billion in unemployment taxes.

The owners of small businesses and other “pass through” entities exempt from the new corporate tax paid $702 million in income taxes on their profits, according to an AEG analysis of Internal Revenue Service data, up from $464 million in 2011.

“The MBT and CIT are the frontman of the band on business taxes, but they’re less than 6, 7, 8 percent of all business taxes paid in most states,” said AEG senior consultant Alex L. Rosaen.

State revenue struggles

State officials this month slashed current and upcoming fiscal year revenue projections a combined $333 million, partially due to sluggish corporate income tax collections, which were down 20 percent through April.

The state continues to pay out huge refunds to Detroit automakers and other businesses that received tax credits under the old Michigan Business Tax, mostly issued under former Democratic Gov. Jennifer Granholm in an attempt to keep jobs in the state during the Great Recession.

As The Detroit News reported this month, Michigan’s principal business taxes are projected to generate a net loss of $99 million in fiscal year 2016 as refunds issued under the old Michigan Business Tax exceed profits from the new Corporate Income Tax.

Mitch Bean, former head of the House Fiscal Agency, said he predicted in 2011 the state could have a negative business tax revenue year under the new set-up. Corporate income taxes are traditionally volatile, he said, and a significant drop in any given year could exacerbate the strain caused by the old credits.

“Everybody who actually looked at this critically knew this was going to happen because that’s just the way this tax works,” Bean said.

Michigan lost a combined $64.2 million because of that tax dynamic in April, according to a new report by the Senate Fiscal Agency. The state paid out a net $168.9 million under the MBT last month and generated $104.7 million from the corporate income tax, with collections down 20 percent compared with the same point in 2015.

Bean called the 2011 tax code rewrite signed by Republican Gov. Rick Snyder an “irresponsible” piece of public policy.

“Part of it is whether you think you should actually fund government or not,” he said. “You’ve got some people who just hate government and don’t want to fund it at all, and this is what you get.”

But Charlie Owens, state director of the National Federation of Independent Businesses, called the new tax code a boon for economic development and blamed the ongoing revenue struggles on Granholm.

“It’s like a snake swallowing a rat,” he said. “Until these credits wash through, and because of their unpredictable nature, we’re going to continue to have this kind of uncertainty. We’re paying for the bad tax policy of a previous era.”

Better business climate

The AEG report addresses “what’s been a glaring omission from the public debate,” Anderson said, because it highlights all forms of taxes paid by the business community.

In particular, the report includes IRS-based income tax revenue paid by small business owners, figures that are not available from the state Treasury but which increased significantly between 2011 and 2014.

“You see corporate income taxes are down, and folks point to that and say businesses aren’t paying their fair share,” Owens said. “The reality is, when you break out those income tax numbers, small business is paying most of the business tax, if you want to be technical.”

Michigan businesses paid fewer taxes in 2014 than they did in 2011, according to AEG, which publishes an annual ranking of business tax burdens. Michigan finished No. 20 among states for the smallest burden in 2014, up from No. 32 in 2011. The state could improve again as it phases out most personal property taxes in coming years.

“We weren’t the worst, but we were clearly below average. Now, we’re above average and we’re getting better,” Anderson said. “There’s been a clear effort on the part of policy makers to improve the business climate in Michigan.”

The report’s sponsors are the Michigan Chamber of Commerce, Business Leaders for Michigan, the Small Business Association of Michigan, the National Federation of Independent Businesses, Michigan Retailers Association and Michigan Realtors.