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MIRS Weekly Report

Michigan News And Capitol Report, Week Ending Fri., March 17, 2023

Site Selector: RTW Repeal 'Narrows' But Doesn't Close The Funnel For Incentives

Michigan has made "great strides in the last decade" in improving its attractiveness to companies looking to expand their operations, a professional site developer out of Virginia told MIRS Thursday.

As to whether repealing the state's Right to Work law will slow that momentum, Chris Lloyd, director of Infrastructure & Economic Development for McGuire Woods, said it would for some executives, but won't matter as much for others.

Lloyd has spent his last 25 years with McGuire Wood, where he's been hired by companies to do site locations, negotiate tax incentives and nail down expansion projects. He was involved in nailing down Cassapolis for the new Hydro Aluminum Recycling Plant, for example.

Years ago, Michigan "wasn't even on the radar" for companies, but a bipartisan commitment to improving education and training opportunities for its workers has changed that, he said.

Companies looking to invest in a new project aren't starting "with a blank slate." They have an idea of what they want, and every project is different. Some want to be close to a logistics chair. Some want to be close to a supplier. Some want to be close a customer base. Some want to fill a gap in their service area. Some are looking for a strong partnership with a community college or university.

Likewise, what they need from an area differs, Lloyd said.

"Sometimes, there's a rush to incentives. A company will come in and a community will say, 'We can give you a $5 million tax credit.' That's nice, but a $5 million tax credit may not be what they need," Lloyd said.

In some cases, it's a change in a zoning ordinance for more signage. It's a service line. It's a road. It's a turn lane. It's renewable energy. It's a pipeline to trained workers.

He said he's never going to knock a good tax and regulatory climate. That said, companies looking to make a long-term investment in a community need a little extra. Again, it's not necessarily a bag of cash, but something.

"Even in places with a good tax and regulatory climate, incentives still play a role," Lloyd said.

Presuming the governor signs the Right to Work repeal, is that a deal killer for Michigan?

"We have some clients who say if you're not a Right to Work state, they won't consider it. For other clients, it's not a material issue. It's not an eliminating factor for them," Lloyd said.

Asked if he's had a client who preferred going to a state without a Right to Work law, Lloyd said none have ever said that explicitly. The company may put a heavy premium on a skilled workforce, which unions can be good at providing. They may need a certain number of workers with a certain certificate, which, again, a union can provide.

That said, "If you're not Right to Work, you have narrowed the funnel. But I can't say it's going to eliminate you from every deal because that wouldn't be the truth."

The legislature is sending to Gov. Gretchen Whitmer a bill that repeals the state's 10-year-old Right to Work law, which allows workers the ability to not join the union at their place of employment regardless of what contract agreement may be in place. She is expected to sign it.



Committee Moves Sales & Use Tax Exemption Bills

Two bill packages exempting sales and use tax, one on delivery and installation charges and the other for industrial processing machinery and equipment, were reported out of the House Tax Policy Committee on Wednesday with support from the business community. 

Though both packages passed with bipartisan support. They were opposed in full by Rep. Natalie Price (D-Berkley). Rep. Julie Brixie (D-Okemos) also opposed the first package, but abstained on the second. 

The first three-bill package, which was spearheaded by Rep. Pat Outman (R-Six Lakes), was a response to a “mess for the business community” that stemmed from delivery and installation being classified as a service, making it confusing for business owners who don’t know how to tax it. 

Rep. Kevin Coleman (D-Westland) said if you go into an appliance or furniture store and ring up your purchases together, delivery and installation are taxed, but if you were to buy it, walk out and “walk right back, saying I want to get this delivered and installed, there’s no tax on that.

“So there's a lot of confusion for the businesses and the consumers that are dealing with this issue,” he said. 

Outman said the bills, which were reintroductions from legislation last term, would provide clarity through statute. His HB 4039 exempts delivery and installation charges from sales tax if they’re separately stated on the invoice and maintained through seller records. 

Coleman’s HB 4253 would establish the same exemption for the use tax, while Rep. Greg VanWoerkom (R-Norton Shores)’s  HB 4137 updates a 1979 PA requiring the administration report how much revenue the state is losing by offering this sales tax cut.

The package also requires the Department of Treasury to cancel any outstanding balances on assessments that would be exempted under the bills. 

The package was supported by the Michigan Chamber of Commerce. Director of Legislative Affairs Leah Robinson said the legislation was “incredibly important to our members because they want to make sure they're following the law and accurately reporting information, which is why this clarification is necessary.” 

A House Fiscal Agency analysis found with an expected combined sales and use tax of $12.8 billion in FY 2024, and delivery and installation making up about 0.5% of that number, the reduction of revenue would be close to $65 million. 

Coleman said the reduction wouldn’t affect the School Aid Fund due to a reallocation through the General Fund, and anyone excluding delivery or installation charges from the tax would be required to report the amount to the Department of Treasury. 

But Brixie opposed the package, saying routing around the School Aid Fund is an easier way to get tax cuts passed, but the dollars lost only “take it out on everybody else even more,” including struggling local governments. 

The second package brought up on Wednesday, including VanWoerkom’s HB 4054 and Rep. Jamie Thompson (R-Brownstown)’s HB 4055, would pull sales and use tax exemptions for industrial processing machinery and equipment from the School Aid Fund. 

Thompson said industrial processing equipment, which is used in the recycling and reuse of asphalt, includes loaders, feeders, crushers, screens, conveyors, control equipment and generators. Historically, equipment dealers were provided with a tax exemption certificate, but recent audit activity disputed the exemption’s successful application. 

The HFA analysis estimated the bills would reduce tax revenue by $1 million annually, though the first year would have a higher impact due to the requirement that Treasury cancel outstanding balances. 

The School Aid component of the package earned opposition from the Michigan Association of School Boards. Director of Government Relations Jennifer Smith said with the sales tax as the largest funder of schools, even a small amount greatly affects school funding. 

The package was opposed by the Michigan Association of Superintendents and Administrators, and supported by the Michigan Aggregates Association and the Michigan Chamber of Commerce. The Department of Treasury took a neutral position. The bills are moving at the request of Republicans, who are getting the bills in exchange for their votes on the Ford-Marshall plant supplemental spending bill.

After a substitute extending the start date for the Department of Treasury cancellation from 30 to 90 days, the bill was adopted with nine yay votes, one nay vote from Price and an abstention from Brixie.

The first package passed the House after the adoption of a substitute excluding the delivery or installation involving the sale of electricity, natural gas or artificial gas by a utility. 

HB 4039 and HB 4137 earned an 8-3 vote, with nays from Brixie, Price and Rep. Brenda Carter (D-Pontiac). HB 4253 received a 9-2 vote, with Carter voting yea. 

The bills were supported by the Grand Rapids Chamber of Commerce, Toyota Motor North America, the Small Business Association of Michigan, the National Federation of Independent Business, the Michigan Association of Certified Public Accountants and the Michigan Retailers Association. 

The Department of Treasury remained neutral. 

Both bill packages are now headed to the House floor, where they await further consideration. 

Senate Finance, Insurance And Consumer Protection Committee Holds Hearing On Installation, Delivery Tax Elimination Bills 

The Senate Finance, Insurance and Consumer Protection Committee additionally gave a hearing on legislation to eliminate delivery and installation charges from the list of items subjected to Michigan's use and sales taxes. 

The bills included SB 158, SB 159 and SB 160 by Sen. Sam Singh (D-East Lansing), which also updates a technical reference to an act requiring a governor to report specified tax information in an annual budget message to legislators. 

The bills were not voted out of committee Wednesday, but Sen. Mark Huizenga (R-Walker) did provide information on some substitutes he will be offering and the bills were on the Senate calendar for action Thursday where all three bills passed with Sen. Jeff Irwin (D-Ann Arbor) being the sole no vote. 

"Number one – it adds limited liability companies to the definition of a person for the purpose of the bills. Two – it states that the sales and use tax exemptions outlined in the bills do not apply (to) the sale of electricity, natural gas or artificial gas by a utility," Huizenga said. 

Moreover, the incoming substitutes described by Huizenga will cancel any outstanding audits being conducted by the state's Department of Treasury in relation to present-day delivery and installation taxes. 

Any balances owed by a business entity to the Treasury through the aforementioned taxes would be canceled as well, and clarifying language will be placed into the legislation to ensure the State Aid Fund "is held harmless from the fiscal impact of this change." 

Gabrielle Feighner – the vice president of business development for Feighner Boat Lifts and Docks – told the committee that when her business was informed by the department that it owed sales tax on all of its deliveries (the company normally published delivery costs at the bottom of every invoice), Treasury explained to them that because of existing laws "that had we put the delivery fee on a separate sheet of paper, we would not be taxed on it." 

She described how an out-of-state company could bid delivery service as being tax-free on the same price-tag as the goods, and "then ultimately be cheaper for the customer to purchase the services from them versus from us or other small businesses." 

"Hopefully, if this goes through, it'll just re-level that playing field so that as we're bidding things out, we can be competitive and, obviously, that does fluctuate with the price of fuel and insurance and things like that…but overall, we do provide a pretty adorable service that our customers are happy with and I want to continue to do that," Feighner said. 

Singh said while friends in Treasury will describe the tax – occurring when goods and delivery or installation costs are placed on the same invoice – as a constant policy, small business accountants will "oftentimes say they weren't even aware that they were supposed to be paying sales tax on these types of transactions."     


Whitmer Signs LGBTQ Expansion Of Elliott-Larsen Civil Rights Act

Gov. Gretchen Whitmer signed SB 4 into law Thursday which expands the Elliott-Larson Civil Rights Act (ELCRA) to include LGBTQ individuals.

Whitmer was joined at Urban Beat in Old Town Lansing by many LGBTQ members of the government, including Sen. Jeremy Moss (D-Southfield), who sponsored the bill; Rep. Jason Hoskins (D-Southfield), who helped the bill through the House; Erin Knott, the head of Equality Michigan; and Attorney General Dana Nessel.

“This is a momentous occasion that deserves, that requires, a great celebration.  So, what a great coincidence we are already in a bar,” Nessel said.

Mel Larsen, the Republican part of the Elliott-Larsen namesake, was also present on the dais with the group and regaled the packed venue with his story about how he and Daisy Elliott were able to pass the Elliott-Larsen Civil Rights Act.  He said it wasn’t easy and took nearly 10 years.

“The best thing I can say to you, is you are on this Earth to move the pendulum a little bit in your lifetime,” Larsen said.

The ELCRA was originally passed in 1976 to prohibit discriminatory practices and policies based on religion, race, color, national origin, age, sex, height, weight, marital status or family. The signing adds sexual orientation, gender identity and gender expression to the language of the act in Michigan.

“To quote one of our own from Detroit, Lizzo, ‘It’s about damn time,” Whitmer said.

All the speakers mentioned the historic occasion of the signing and Whitmer used the signing to tout bringing businesses to the state with a saying she rolled out during the 2023 State of the State address.

“Bigotry is bad for business,” she said.

The signing was hailed by several regional chambers of commerce as a tool to attract talent and employers that desire more inclusivity, saying it would be good for business.

The bill was lifted by many organizations who wanted to talk about how the law would help people in the LGBTQ community and “build a stronger Michigan.” 

Whitmer also talked about her daughter, who is part of the LGBTQ community, and posed with her for a picture holding the bill.

“My family and my team are freer today. They are happier today than they were yesterday,” she said.



MSHDA, Treasury Say No Problems In Michigan With Bank Collapses

The Michigan State Housing Development Authority (MSHDA) and the Department of Treasury are double-checking to make sure the collapse of Silicon Valley Bank and Signature Bank didn't impact their portfolios, but at first blush officials don't believe it did.

“Everything looks healthy at this point, so I think that we’re in pretty good shape,” said MSHDA Chief Financial Officer Jeffery Sykes.

Sykes said the worry is that people could be scared into pulling deposits out of smaller banks and putting them into larger banks, because the authority uses community banks to put out single-family mortgages.

He said the authority falls into a group of deposits of $250,000 and over that are backed by the federal government. He said MSHDA is also making sure that collateral is provided against MSHDA deposits to ensure the investments are on solid footing.

Sykes said he isn’t sure what the long-term effects of the collapse would be, but any consolidation of small banks in Michigan could impact the single-family mortgages offered by MSHDA.

“Hopefully some of the steps that the [Federal Reserve] has put in place, making sure that they’re guaranteeing deposits over that $250,000, will prevent a run on banks,” he said.

The other area Sykes said was being looked at was the MSHDA bonds, because disruptions in the market could move people away from those bonds into treasuries because of worry of financial collapse, but he doesn’t believe it would get to that point.

He said MSHDA doesn’t have any exposure to Credit Suisse, which is also on shaky ground.

“The failure of any bank causes disruptions within the banking community, and that roils through everything,” Sykes said.

Michigan Treasurer Rachel Eubanks said the investment exposure of Michigan is also extremely minimal and that only a possible 0.005% of the state's portfolio could be impacted.

“There isn’t anything to worry about with that,” Eubanks said.