By Brian Calley
Governor Whitmer’s proposed Small Business Tax represents a return to Michigan’s troubled past. It singles out and hurts our most prolific job providers, needlessly complicates the tax code and increases the tax bill of small businesses by 41%.
What’s even more insulting is that it has been billed as a “parity” tax increase with the claim that small businesses do not pay enough as compared to big businesses. This notion is absurd. Small businesses provide 63% of all jobs in Michigan. When was the last time you read a headline about a small business being rewarded for creating jobs? Michigan’s small businesses are the heroes of our economy and they already pay more than their fair share.
Here are the facts:
1. Most employment in Michigan is provided by small businesses. We should send them a thank you note, not a larger tax bill.
Percentage of Michigan Employment by Business Size:
500 Employees or more 18%
100-499 Employees 19%
1-99 employees 63%
In 2017, 63% of total Michigan employment is provided by companies with fewer than 100 employees.
(Source: Institute for Business and Entrepreneurship)
2. This new proposed tax applies to “pass-through” companies who already pay the personal income tax rate on ALL business income. Taxing that exact same income again on a corporate tax return equates to double taxation.
3. Tax reforms passed in 2011 made Michigan’s tax system more competitive. According to the Tax Foundation, Michigan’s Corporate Tax Ranking (for C Corporations) is 11th best in the nation. Prior to the 2011 reforms, we were consistently ranked 48th or 49th.
Our individual income tax ranking (that pass-through entities pay) is 12th best in the nation. Both are competitive and already at parity with each other when compared to other states.
4. When Michigan eliminated the Michigan Business Tax in 2011, not only was the tax liability made more competitive with other states, our business tax system was dramatically simplified. The Governor’s small business tax proposal takes us back to a much more complicated system. It doubles the amount of tax forms small businesses have to file and then institutes a complicated credit system to reconcile the new tax on top of the old tax. Preparing tax returns would become more expensive and time consuming.
5. There is a false narrative circulating that most small businesses will be able write off the state tax increase on their federal taxes. While some large pass-through businesses will be able to do so (while still having to deal with a more complicated and cumbersome tax return), small businesses will be stuck with a more complicated tax system AND a 41% higher tax bill.
Stopping this unfair and ill-advised small business tax increase is our top priority at SBAM. What’s good for small businesses is good for Michigan as a whole. In the coming weeks we will likely reach out to you and ask you to engage with the Governor and the legislature. Please take this opportunity to signup to be a part of our grassroots advocacy team here.