Michigan Backs Down on Service Tax -- Increases Income Tax Instead

According to CCH, the surcharge is to be based on a percentage of the taxpayer's liability before credits. For all taxpayers, other than financial institutions, the surcharge would be:

-- 32.9% for tax years ending after 2007 and before 2009; and
-- 27.3% for tax years ending after 2008.

For financial institutions taxpayers, subject to the franchise tax, the surcharge would be:
-- 27.7% for tax years ending after 2007 and before 2009; and
-- 23.4% for tax years ending after 2008.The surcharge would be capped at $2 million per year and would not apply to insurance companies subject to the gross direct premiums tax. The bill also would allow financial institutions to claim the compensation and investment tax credits.
Finally, the bill would revise the provisions that authorize a tax refund if the state collects taxes above certain threshold amounts. Half of the excess taxes would no longer be deposited into the countercyclical budget and economic stabilization fund and taxpayers would be eligible for pro rata refunds based on the amount of the surcharge.

The bill would be effective January 1, 2008, and would apply to all business activity occurring after December 31, 2007. The bill would repeal the new use tax on selected services.