Business Tax Proposal Could Cripple Michigan Construction Companies
Wednesday, June 20, 2007
Posted by: Nancy Brown
Construction industry leaders are calling Michigan’s proposed new business tax a “construction killer” that could stall economic growth for decades unless the Legislature makes fixes to the proposal before it becomes law.
The Michigan Infrastructure and Transportation Association (MITA), which represents more than 700 companies involved in the road building, bridge and underground construction industries, estimates some construction companies could see tax increases as high as 400 percent if the plan as currently proposed goes into effect.
The most significant problem is that the proposed Michigan Business Tax (MBT) calls for a gross receipts tax calculated on sales minus tangible property. The majority of revenues received by general contractors are used to pay subcontractors performing work under the same contract and therefore not considered tangible property.
“The way the legislation is designed, family-owned Michigan-based construction companies will be big losers due to the cascade effect of this tax,” said Mike Nystrom, vice-president of government and public relations for MITA. “The result of this proposal is that it allows the government to tax the same pot of money over and over again.”
For example, under this plan, a prime contractor managing a $1 million project would pay the 0.8 percent gross receipts tax on the full contract amount and then each subcontractor performing work on the project would also pay the tax on their portion of the contract, thus creating a cascade effect.
Nystrom cautioned that without a subcontract deduction, the entire Michigan economy would suffer with dramatically increasing construction costs and job losses. In addition, Nystrom said the skyrocketing cost of new taxes on contractors involved in public works projects would be passed along to local and state government, thus stretching already limited resources.
“The proposed tax plan would cripple a currently struggling industry made up of family-owned businesses,” Nystrom said. “However, some much needed changes would help to minimize the disastrous impact of the current proposal.”