As seen on ISSA.com.

The Michigan State Legislature and Governor Jennifer Grandholm have repealed a controversial six percent services sales tax, which applied specifically to cleaning and janitorial services. The sales tax on services was replaced with a new surcharge on general taxes paid under the Michigan Business Tax (MBT).

Facing a severe statewide budget crisis, the Michigan government originally adopted the six percent sales tax on services and scheduled the tax to take effect on December 1, 2007. The new tax met with strong opposition for many reasons, however, not the least of which was its disproportionate overall impact resulting from the fact that the tax applied to some, but not all, services throughout the state. Overall, the new services sales tax was expected to generate $613 million in revenue for the state in fiscal year 2008.

The new services tax actually took effect for almost twenty hours on December 1, before state Republicans, Democrats and Governor Grandholm were able to negotiate a compromise resulting in the official repeal of the tax. The compromise, adopted as House Bill 5408 and issued as Public Act 145 of 2007, included a new 21.99 percent surcharge on the taxes businesses pay under the MBT.

The new surcharge officially took effect on January 1 and includes a cap of $6 million on any one company’s potential liability. The bill also included a sunset date of January 1, 2017 with economic triggers that will reduce or eliminate the tax before the sunset date should circumstances warrant.

Although the repeal of the services tax has been met with great relief, many view the new general business tax surcharge as just as troubling. Under either scenario, cleaning companies doing business in Michigan are likely to face expanded economic pressures in FY 2008.

The Michigan Legislature also adopted Senate Bill 845, promising a full refund for any company that may have paid the services tax while it was in effect for twenty hours or so on December 1.