After weeks of intense wrangling with state policymakers on a proposed Michigan Business Tax (MBT), the Legislature adopted a new plan last night that included critical contractor deductions fought for by MITA.
Two weeks ago, the House, Senate and Governor announced the framework for a business tax agreement that would have been devastating to the heavy construction industry. According to analyses done by a number of MITA members, contractors would have seen their taxes increase by up to 400 percent due to a 0.8 percent tax on gross receipts, double taxation of S-Corporations and LLCs, the cascading effect of taxing subcontracting work and no deduction for project materials.
For a week, legislators had been claiming they had “fixed the contractor problem”, but left road builders, underground contractors and smaller specialty contractors out of the planned relief. MITA went public with the concerns of the construction industry, putting pressure on policymakers to fully address the problem. MITA members also answered the urgent call for assistance, contacting key legislators and enlisting their support.
Late yesterday, the Legislature unveiled their proposed “fix” once again. The conference committee report, which was quickly passed last night by the House and Senate, included major MITA-led concessions.
A few highlights:
*SIC codes 16 and 17 were included in the bill (codes for road builders, underground and specialty contractors).
*Companies were given a 100% deduction for subcontracting costs.
*The legislation includes a tangible purchases credit that will allow contractors to deduct their cost of goods.
*LLCs and S-Corps will be able to deduct the cost of salaries paid to co-owners, thus avoiding a double taxation scenario.
Other provisions of interest to MITA members includes allowing businesses with receipts under $20 million to pay an alternative tax of 1.8 percent. The plan would also provide a 35 percent personal property tax credit for the construction industry.
One MITA amendment not included in the legislation was a grandfather clause for contracts already bid. MITA will pursue this change in trailer bills in the months ahead if it is determined that this change is necessary. Legislators essentially didn’t understand why a grandfather clause could still need necessary if they provided all the subcontractor deductions.
At 161 pages, the final legislation is quite complex and will take some time to fully evaluate. Click here to download a copy of the new Michigan Business Tax. MITA encourages members to continue to offer your feedback as you complete your analysis.
MITA wants to extend a special thanks to many in the industry who offered their staff time to evaluate the numerous plans. A number of members also answered MITA’s urgent calls to contact their legislators. These things, combined with your continued strong support of the MITA PAC, were all critical in the industry’s success this week.
If you have any questions, please contact Mike Nystrom, Vice President of Government & Public Relations at mikenystrom@mi-ita.com or Keith Ledbetter, Director of Legislative Affairs at keithledbetter@mi-ita.com, or call the MITA office at (517) 347-8336.
