Plan to close tax loopholes, aid state would boost prices
Undated - Watercoolers, vending machines, prison inmates and insurance companies are part of Gov. Jennifer Granholm's solution to Michigan's financial crisis.
All enjoy tax breaks that Granholm would end as part of her three-pronged plan to erase a nearly $900-million deficit this year and a projected $3-billion hole in the 2007-08 budget if the Single Business Tax isn't replaced. Imposing a tax on the stuff inmates buy in prison stores might not affect many people, but anyone who pays insurance premiums, buys pop or candy from vending machines or leases a watercooler or water softener should take notice.
Closing the 10 so-called loopholes would bring the state $25.9 million in revenue this year and $84.2 million in the 2007-08 fiscal year, which begins Oct. 1.
"We look at many of these as loopholes put in to law just to benefit a special interest," Greg Bird, spokesman for the state Department of Management and Budget, said this week. "This will help us generate the revenue we need to invest in economic programs."
Insurance industry would be hit
Insurance companies have a deal the state says other industries don't. If they buy property - computers, furniture or file cabinets, for example - outside Michigan and bring it into offices in the state, they don't pay the state's 6% use tax.
Granholm wants to end that break, which could result in $1.2 million in revenue this year and $3.7 million next year.
The insurance industry has been one of Granholm's frequent targets. She has proposed rolling back insurance rates 20%, ending the industry's use of credit scores in determining premiums and putting a bigger share of the business tax on the industry.
"Unfortunately, it's easy to demagogue this industry," said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan. "We do pay a pretty substantial portion of the business tax in the state."
Ending the industry's break, along with an increase that would come with Granholm's proposed replacement of the Single Business Tax, would put the insurance industry at a competitive disadvantage with other states, said Kuhnmuench.
Vending machine companies mad
If you buy an ice cream bar from a vending machine and take it back to your desk and eat it, Michigan's 6% sales tax is figured into your price.
But if you buy a can of soda, a candy bar or a bag of chips and take it back to your desk and eat it, it's sales-tax free.
Why? Because current tax law presumes ice cream and food that comes out of a vending machine hot are for immediate consumption while food that could be set aside and eaten later isn't.
Granholm wants to tax it all, to add $8.8 million to the state's coffers this year and $27.2 million next year.
It doesn't take a math major to figure out the impact.
"That means that would boost the price," said John Smith, a 20-year-old student from Southfield who was buying a bag of Doritos at Oakland Community College's Farmington Hills campus. "I'll probably start bringing that stuff from home. I can get it cheaper at Sam's Club."
Cynthia Elliott, a 40-year-old Auburn Hills resident and nursing student at OCC, said a price increase won't change her routine of buying a Pepsi and chips between classes.
The vending machine industry is furious at the proposal. The tax, the industry says, would put it at a competitive disadvantage with convenience and grocery stores, where such items aren't taxed.
"It's tough enough in this economy. I don't know why she wants to target our industry," said Fred Tiggleman, president of Canteen Services in Belmont in western Michigan. The company services several thousand vending machines in the state.
"People are getting laid off," he said. "We serve people at work, and if they're not working, we're not feeding them."
Watercooler costs to go up
Companies that lease watercoolers and water softeners don't pay personal property taxes on the items they lease to individuals and companies, but that would change under Granholm's proposal, in hopes of generating $300,000 in revenue in 2007-08.
The industry said it would have to pass that added cost on to consumers, many of whom can ill afford a hit to their wallets.
"We'll have to charge $2 to $3 a month more for the product," said Jim Reynolds, who owns Reynolds Water Conditioning Co. in Farmington Hills. "It's usually the poorest who can't afford to buy the equipment and have to rent."
Higher prices in prison no worry
So far, the inmates aren't revolting over Granholm's proposal to tax items they buy in prison stores. The revenue would be relatively minimal - the most expensive items in prison stores are a $95 television and a $279 typewriter, but most everything else sells for less than $5.
Barbara Levine, executive director of the Citizens Alliance for Prisons and Public Spending, which advocates for Michigan inmates, said she doesn't really have a problem with the tax.
"We have much bigger concerns, frankly," she said, like the cost of collect calls for prisoners. "But the sales tax, we're not too worried about."
Contact KATHLEEN GRAY at 313-223-4407 or gray@freepress.com.
BY KATHLEEN GRAY, DET. FREE PRESS STAFF WRITERIn your voice
