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Michigan Repeals Tax Affecting Investment Advice Services
Washington, DC, December 7, 2007 - Michigan’s legislature has repealed retroactively the state’s six percent service tax on the consumption of investment advice and other services. The six-percent tax had become effective on December 1.
Michigan House Bill No. 5198, approved by the state’s Governor on October 1, 2007, included Subsection 3d.(1)(e), which imposed a service tax on “investment advice services, as described in the North American Industry Classification System (NAICS) industry code 52393” effective December 1, 2007.
On December 1, the Michigan Department of Treasury issued a release clarifying that businesses will be held harmless if they failed to collect the service tax. The Treasury’s release also includes instructions for businesses that did collect the tax. The Act repealing the services tax generally imposes a 21.99 percent surcharge on the Michigan Business Tax (MBT). A 27.7 percent surcharge is imposed on financial institutions (subject to the MBT based on net capital) for tax years ending after December 31, 2007 and before January 1, 2009. This surcharge is reduced to 23.4 percent for tax years beginning on or after January 1, 2009, and is scheduled to expire in 2017 if personal income growth in Michigan increases during any one of the three calendar years prior to the scheduled expiration. Otherwise, the higher business tax rate, including the surcharge, will remain in effect. The surcharge generally is capped at $6 million per taxpayer per tax year. Insurance companies that pay a premiums tax are exempt from the surcharge.
In a letter to two Michigan officials, ICI stated that the imposition of this service tax would harm Michigan residents by discouraging them “from seeking financial advice to ensure their retirement security.” The Institute also strongly urged that the sales tax not be extended to tax any services offered by the investment company industry.