Michigan Association of REALTORS®

The REALTORS® Political Action Committee (RPAC) is the best way a REALTOR® can protect his or her business. RPAC is the only grassroots and issues mobilizing force that exists to protect and promote the tradition of home ownership and real estate investment in Michigan.

To help REALTORS® better understand the value of their RPAC investment, MAR has created a video entitled “How RPAC Works For You”.

As you know, the Agency Responsibility Act was recently signed into law. The passage of the legislation, now Public Act 90 and 91 of 2008, is a huge accomplishment for the MAR, and its success has been years in the making.

Effective July 1st, everyone will need to start using the new Agency Disclosure form. The new form contains a check box on limited services. If the box is checked, there will need to be an additional new limited service agreement form provided. Both new forms will be available for purchase within the next week, and we will notify you as soon as they are available.

Appraisal Fraud Legislation moves out of House Committee; Testimony taken on Copper Theft Regulation

Key MAR-supported legislation is on the move in Lansing. First, the House Banking and Financial Services committee reported four pieces of legislation to combat the growing problem of appraisal fraud in Michigan. Given the recent statistics that Michigan ranks 5th in the nation in mortgage fraud, this legislation is aimed at addressing Michigan’s rising problem and increase penalties on those who are engaged in the activity. This package of bills, HB 4054, HB 6148, SB 343, and SB 356, would amend various acts to prohibit a mortgage broker or lender from coercing an appraiser in order to receive a predetermined appraisal, prohibit an appraiser from developing and communicating an appraisal that was the result of conditions set by a client in order to receive a predetermined appraisal value, and revises the criminal penalties and civil fines for violating the Mortgage Brokers, Lenders and Services Act or the Secondary Mortgage Loan Act. In addition, it establishes penalties under Article 26 (Real Estate Appraisers) of the Occupational Code.

Second, the House Commerce committee took testimony dealing with the regulation of second-hand and junk dealers. Copper theft has been on the rise at an alarming pace in recent years. Given the value copper fetches, buildings and homes have been ravaged, costing owners and landlords thousands of dollars. Copper theft has been devastating on the real estate community, especially in this time of rising foreclosures. Copper pipes and wire are being stripped from vacant homes and buildings on the market, leaving behind extensive damage and costly repairs. House bills 5694, 6003, and 6181 provide provisions and requirements of secondhand and junk dealers. Among the legislative provisions:

The bills are currently in House Commerce committee. Please visit our Advocacy page for further updates on these issues as well as other pertinent legislation affecting the real estate industry.

Recently, the Senate Finance Committee formed a subcommittee to examine the effects of the new Michigan Business Tax (MBT) on businesses around the state. The Senate MBT Impact Assessment Subcommittee formed to analyze input from taxpayers, along with seeking suggestions for improvement of the MBT in order to bring recommendations for revision to the Senate Finance Committee in June. Comprised of Senator Mark Jansen (R-Gaines Twp) serving as Chair, along with Senator Jud Gilbert (R-Algonac) and Senator Mike Prusi (D-Ishpeming), the subcommittee aims to ensure that businesses are not suffering from any unintended consequences of the MBT. The subcommittee will work to make the new tax more fair and equitable.

The MBT Impact Assessment Subcommittee has already begun to hold hearings. In a recent hearing in Grand Rapids, local REALTORS® testified about the impact of the MBT on their businesses, especially in the commercial real estate sector. While Michigan attempts to recruit new business ventures, the treatment of commercial real estate under the MBT poses a significant disincentive to invest in our state. The negative effects of this tax on Michigan will ultimately lead to declining economic growth and less tax revenue.

If you would like to attend any of the upcoming subcommittee hearings, please contact the MAR office at 1-800-454-7842 for additional details. For more information on the MBT and its effect on the commercial industry, please click here.

The Agency Responsibility Act was signed into law. The passage of the legislation, now Public Act 90 and 91 of 2008, is a huge accomplishment for the MAR, and its success has been years in the making.

The ARA legislation is a product of a MAR Public Policy Task Force assigned with the task to provide a framework for consumer protection to all individuals entering into an exclusive agency relationship. As a regulated industry, there is an expectation from consumers that laws have been established to protect them from brokers that would take advantage of them. The ARA model clearly defines those basic duties and services owed under an exclusive agency agreement and provides for a uniform state wide disclosure form when the consumer and broker choose to waive any of those services. The implementation date for a revised agency disclosure form as well as the check-off waiver is July of this year. The MAR has already started the process to update the forms.

Representative Tonya Schuitmaker (R-Lawton) and Representative Barb Farrah (D-Southgate) introduced the two-bill bipartisan package on behalf of the real estate community. The MAR Public Policy team met with legislative leaders on both sides of the aisle to stress the importance of passing the bills in order to promote homeownership while keeping industry standards high.

A white paper detailing the use of the new form and the changes in the disclosure of agency relationship form will made available to membership soon.

As a follow up to last week’s e-news alert regarding the Passage of Public Act 96 (see article) which enables home sellers to retain 2 principal resident exemptions for property still on the market after the seller has moved elsewhere in the state, the “Conditional Rescission of Principal Residence Exemption Form #4640 form from the Department of Treasury is now available.

Public Act 96 enables a person who has established a new principal residence to retain a Principal Residence Exemption (PRE) on property previously exempt as the owner’s principal residence that is not occupied and for sale by submitting a Conditional Rescission of Principal Residence Exemption Form #4640. The conditional rescission allows an owner to receive a PRE on his or her new property and on previously exempted property simultaneously if certain criteria are met:

*The opportunity to apply and qualify for a conditional rescission begins for the 2008 tax year and is not retroactive to previous tax years.

To qualify for the conditional rescission in 2008, Form #4640 must be submitted to the assessor of the local unit of government where the property is located on or before May 1, 2008. The Board of Review has no authority with regard to a conditional rescission and cannot institute a conditional rescission on behalf of an owner if a deadline is missed or for previous tax years. An owner must annually submit Form #4640 on or before December 31 to verify to the assessor that the property for which the PRE is retained is not occupied, is for sale, is not leased, and is not used for any business or commercial purpose.

The Department of Treasury is in the process of developing a Frequently Asked Question sheet to address various issues related to the new conditional rescission. They hope to have those questions posted on the web some time next week. Form #4640, which includes an instruction page, can also be found at www.michigan.gov/taxes.

If you have any questions regarding conditional rescissions, please feel free to contact the PRE Unit at (517) 373-1950 or email Patrick Huber, Manager of the Property Tax Exemption Section, at huberp@michigan.gov.

Michigan Business Tax: Pushing Businesses Out of Michigan, Putting Michigan Out of Business

In current form, the new Michigan Business Tax (MBT) devastates the commercial real estate industry in Michigan. Many businesses have been unaware of the negative impact the MBT has on their business only to come to terms with it on their first quarterly tax filing, due this month.

While some industries benefit from the MBT, many, including the commercial industry, see dramatic tax increases. The MBT's 22% “surcharge” makes a difficult situation untenable and commercial real estate values will be hurt. Without prompt action, there is grave concern that our commercial real estate values will drop at a time when the real estate market as a whole is particularly vulnerable.

While Michigan attempts to recruit new business ventures, the treatment of commercial real estate under the MBT poses a significant disincentive to invest in our state. The negative effects of this tax on Michigan property will ultimately lead to declining economic growth and less tax revenue.

Please take the time to familiarize yourself with these issues, spread the word, and keep an eye out for upcoming MAR® Calls-to-Action to contact your Legislator. Also, please let the MAR® know of any commercial deals that have fallen through due to the burdensome tax at 1-800-454-7842.
Click here for more information.

Governor Signs Important REALTOR® Legislation:
Public Act 96 Provides Significant Tax Relief for Sellers;
Agency Responsibility Act now Public Act 90 and 91

Yesterday, Governor Granholm signed 3 significant pieces of REALTOR® supported legislation. First, legislation enabling home sellers to retain 2 principal resident exemptions for property still on the market after the seller has moved elsewhere in the state. The signing of this legislation is a huge step in aiding struggling sellers who have had homes on the market for over a year and have lost their principal residence status on that property.

House Bill 4215, now Public Act 96 of 2008 sponsored by Representative Ed Gaffney (R-Grosse Pointe Farms) enacts that the seller can retain an additional exemption for up to three years on property previously exempt as the owner’s principal residence if the following circumstances are met:

The Michigan Association of REALTORS® (MAR) was active in pointing out to lawmakers that the struggling economy in Michigan has forced several home sellers to relocate to other areas of the state, in some instances continuing to market a home that they have not lived in for over a year. As a result, the home was no longer treated as a principle residence and the homeowner lost the principal residence exemption. Retention of an existing homestead credit for an unoccupied home that is currently for sale would offer relief to sellers who have had to relocate for whatever reason. The MAR is grateful to Representative Gaffney for being receptive and following through on this very important piece of property tax relief.

Secondly, the Agency Responsibility Act was signed into law. The passage of the legislation, now Public Act 90 and 91 of 2008, is a huge accomplishment for the MAR, and its success has been years in the making.

These top industry priorities could not have been passed without your investment in RPAC. RPAC is the only grassroots and issues mobilizing force that exists to protect and promote the tradition of home ownership and real estate investment.

By investing in RPAC, you are able to support REALTOR®-friendly legislators who believe in our industry and believe in protecting private property rights, preserving the American dream of home ownership, fighting for tax reforms and reducing burdensome regulations on our business.

With RPAC, REALTORS® from across the state have the chance to come together and become active in the nation's most powerful and effective lobbying machine.

By becoming part of RPAC, you'll not only have the power to make a change in the way you do business, but you'll also become part of a statewide network—more than 27,000 members strong—that will link you with like-minded REALTORS® who share your concerns and issues. Thank you for your continued investment in RPAC!

Disclaimer: Contributions are not deductible for Federal income tax purposes. RPAC contributions are voluntary and used for political purposes. You may refuse to contribute without reprisal or otherwise affecting your membership rights. Seventy percent of your contribution goes to your State Association to support state and local political candidates. Thirty percent is sent to National RPAC to support Federal candidates against your limits under 2 U.S.C. 441a.

Attorney General Mike Cox issued an important opinion this week clarifying the proper application of an obscure exemption contained in the Michigan Transfer Tax Act. The opinion, arising out of a request from Representative Martin Griffin (D-Jackson), should afford certain home sellers immediate financial relief as Michigan’s real estate market continues its road to recovery.

Exemption “t”, as designated in the Michigan Transfer Tax Act, sets forth that a seller may seek an exemption from paying the state transfer tax if the following criteria are met:

With property values and corresponding SEV declining due to the struggling economy, home owners and real estate agents first took notice of the exemption’s possible applicability under the state transfer tax. However, absent an official interpretation, there was little awareness of its proper application.

The opinion from the Attorney General uses examples to show how the application would apply. One example illustrating application provides:

The Attorney General’s opinion provides immediate relief to home sellers already faced with the reality of declining value on their single greatest asset. The opinion also provides a uniform reading of the exemption that is necessary to provide consistent application among the various Registers of Deeds across the state as they are already receiving filings for the exemption.

Sellers should be cautioned that a request for the exemption that fails to meet all three criteria could bring a penalty equal to 20% of the tax assessed in addition to the tax due. Additionally, no similar exemption exists in the County Real Estate Transfer Tax Act.

Further questions should be directed to Brian Westrin, MAR Manager of Legal Affairs. He can be reached at 517.372.8890.

Today, the Michigan Senate took action in passing legislation to stimulate the housing industry in Michigan. The Senate Economic Stimulus Plan gives a boost to the housing industry by providing property tax relief, while putting more money back into the homeowner’s pocket. It does so by offering a window for homebuyers to avoid the pop-up tax now and for the duration of their homeownership.

The Senate package (SB 1065, 790, 791, HB 4215, ) alleviates the issue of homeowners who continue to lose equity in their homes, while allowing potential homebuyers to move forward with the dream of homeownership without financial penalties. Senator Jud Gilbert (R-Algonac) and Senator Roger Kahn (R-Saginaw Twp) spoke on the Senate floor today and stressed the importance of a "pop up" tax moratorium in order to boost Michigan’s housing market while spurring the economy.

791 (Kahn substitute) offers immediate substantial relief for Michigan taxpayers who purchase a home within the next 33 months.
SB 1065 (Cassis) – Increases the Homestead Property Tax Credit from $1200 to $1300 to those who qualify
790 (Pappageorge) – Increases the income thresholds of the Homestead Property Tax Credit by $10,000
4215 (Gaffney) Extends principal residence exemption to unsold homes

You may recall that a similar package was introduced in the House last year, which implemented an 18-month moratorium on the “pop up”. The Senate plan creates a 33-month window. It works by providing an income tax credit to reimburse homebuyers for any “pop up”. Those homeowners with no income tax liability would still receive a check from the state for that "pop up" amount. Jeff Young, 2008 President of the Michigan Association of REALTORS® said, “While the House and Senate plans differ in their mechanics, we are confident that both sides will come together and work to provide aid to homeowners and homebuyers. This will give Michigan’s economy a much needed shot in the arm. I’m extremely pleased that both House Speaker Dillon and Senate Majority Leader Bishop are working on much needed relief. It is obvious that both the House and Senate understand the important economic role the housing market plays. This is a historic time for homebuyers, and it’s a great time to buy.”

What is the "Pop Up" Tax?

The "pop-up" tax is the common name for the uncapping of property taxes that occurs upon the transfer of property. The uncapping is a result of the 1994 Michigan Constitution amendment known as Proposal A. In short it is the difference between the current owner's taxable value and the new taxable amount a buyer will pay on the state equalized value of the home.

Under Proposal A, a property's taxable value is capped at an increase of the rate of inflation or 5%, whichever is less, thus keeping a homes value artificially low for tax purposes. When the property is transferred, the cap comes off and the new owner begins paying property taxes on the state equalized value of the home, not the previous owner's taxable value. This uncapping has become known as the "pop-up tax."

Because Michigan property values outpaced the rate of inflation since 1994, the state equalized value of many homes is significantly higher than their taxable value (about 30-35% higher statewide). Over the years this significant increase in tax liability has become a detriment to a person's buying power. The "pop-up" has the effect of prohibiting seniors from downsizing, pricing younger families out of older markets, forcing development into rural areas, and has taken away an incentive to purchase new homes.

Agency Responsibility Act Passes Legislature:
Heads to the Governor's desk for Signature

The Michigan legislature recently passed one of the MAR’s top industry priorities. The Agency Responsibility Act (ARA) passed through both the House and Senate chambers and is on it’s way to the Governor’s desk for her signature. The passage of the ARA bills is a huge accomplishment for the MAR, and its success has been years in the making.

The ARA legislation (House Bills 4416 and 4417 ) is a product of a MAR Public Policy Task Force assigned with the task to provide a framework for consumer protection to all individuals entering into an exclusive agency relationship. As a regulated industry, there is an expectation from consumers that laws have been established to protect them from brokers that would take advantage of them. The ARA model clearly define those basic duties and services owed under an exclusive agency agreement and provides for a uniform state wide disclosure form when the consumer and broker choose to waive any of those services. Once enacted into law, the implementation date for revised agency disclosure form as well as the check-off waiver is July of this year. The MAR has already started the process to update the forms.

Please visit our Advocacy page for further updates on these issues as well as other pertinent legislation affecting the real estate industry.

The Michigan legislature has moved two of our top 2008 MAR legislative priorities in recent weeks. Legislation that allows the Michigan State Housing Development Authority (MSHDA) to create a loan program to assist homeowners facing adjustments in their interest rate passed both chambers and is awaiting the Governor’s signature. The legislation would allow MSHDA to implement the “Save the Dream” refinancing program, which would be available through lenders and remain an option for individuals. The new program would aid those in danger of losing their homes by refinancing for more affordable payments. Every home spared from foreclosure not only helps the individual, but has a positive economic “domino effect” on communities, cities and the entire state. This legislation is truly a positive step in addressing the rising foreclosure rate in Michigan.

The Agency Responsibility Act has made its way through Senate committee, and is expected to be on track for a final floor vote this week. The bills would require real estate licensees entering into limited service relationships to provide a uniform statewide disclosure form. Once approved, the bills will be on their way to the Governor’s desk for signature. Once enacted into law, the implementation date for revised agency disclosure form as well as the check-off waiver is July of this year. The MAR has already started the process to update the forms.

The MAR Public Policy committee voted to fully support of both the ARA bills and MSHDA legislation, and the MAR Public Policy team has met with legislative leaders to stress the importance of passing these bills to promote homeownership while keeping industry standards high.

Please visit our Advocacy page for further updates on these issues as well as other pertinent legislation affecting the real estate industry.

Two top industry priorities for the Michigan Association of REALTORS® are making headway in the legislature. First, the Agency Responsibility Act (ARA) legislation passed the House last week, and makes its way over to the Senate Committee on Economic Development and Regulatory Reform. The legislation, House Bills 4416 and 4417 , are a product of a MAR Public Policy task force assigned to provide a framework for consumer protection to all individuals entering into an exclusive agency relationship. As a regulated industry, there is an expectation from consumers that laws have been established to protect them from brokers that would take advantage of them. The ARA model, introduced by Representative Tonya Schuitmaker (R-Lawton) and Representative Barb Farrah (D-Southgate), aims to clearly define those basic duties and services owed under an exclusive agency agreement and provide for a uniform statewide disclosure form when the consumer and broker choose to waive any of those services. A committee hearing on the ARA bills is expected in the near future.

Second, the Senate passed legislation to strengthen the regulation of the mortgage loan industry in Michigan. This bipartisan, bicameral legislative package (Senate Bills 826-833, House Bills 5287-5291) provides licensing and education requirements, along with mandatory background checks for mortgage loan officers in Michigan. It also allows the Office of Financial and Insurance Services (OFIS) to keep better track of individuals within the industry as they may move around. Given increased real estate fraud and foreclosures in this state, these bills are a big step forward in addressing the root of these problems. This legislative package represents a compromise from many facets of the real estate community, including banks, credit unions and mortgage brokers. The passage of the loan officer licensing legislation is a positive step in halting mortgage fraud, while keeping industry standards high. The bills now move on to the Governor’s desk for her signature.

The MAR will continue to closely monitor both the ARA legislation and the loan officer licensing legislation and meet with legislative leaders to stress the importance of enacting both packages of bills in order to protect both homebuyers and the real estate community.

Copper theft has been on the rise at an alarming pace in recent years. Given the value copper fetches, buildings and homes have been ravaged, costing owners and landlords thousands of dollars. Copper theft has been devastating on the real estate community, especially in this time of rising foreclosures. Copper pipes and wire are being stripped from vacant homes and buildings on the market, leaving behind extensive damage and costly repairs.

Recently, legislation has been introduced in the Senate taking aim at regulating and licensing second hand dealers who buy copper. Senate Bills 1113, 888, 720, and 1089 contain provisions and requirements of secondhand and junk dealers. Among the legislative provisions are:

Currently, these bills are in the Senate Economic Development and Regulatory Reform committee. The Senate sponsors would like our official support of these bills. The MAR Public Policy committee is scheduled to meet early next month to analyze the legislation.

Last week, the state House passed legislation to strengthen the regulation of the mortgage loan industry in Michigan. This bipartisan, bicameral legislative package provides licensing and education requirements, along with mandatory background checks for mortgage loan officers in Michigan. It also allows the Office of Financial and Insurance Services (OFIS) to keep better track of individuals within the industry as they may move around. Given increased real estate fraud and foreclosures in this state, the passage of these bills is a big step forward in addressing the root of these problems.

This legislative package represents a compromise from many facets of the real estate community, including banks, credit unions and mortgage brokers. There are a handful of remaining bills that now move on to the Senate, where it is expected that they will pass quickly. The MAR Public Policy staff continues to meet with Senate leadership in stressing the importance of the passage of these bills as a positive step in halting mortgage fraud, while keeping industry standards high.

The Agency Responsibility Act (ARA) has remained a top priority of the MAR. The legislation is a product of a MAR Public Policy task force assigned with the task to provide a framework for consumer protection to all individuals entering into an exclusive agency relationship. As a regulated industry, there is an expectation from consumers that laws have been established to protect them from brokers that would take advantage of them. The ARA model aims to clearly define those basic duties and services owed under an exclusive agency agreement and provide for a uniform state wide disclosure form when the consumer and broker choose to waive any of those services.

Representative Tonya Schuitmaker (R-Lawton) and Representative Barb Farrah (D-Southgate) introduced the two-bill ARA package, and the bipartisan effort and is making headway. House Bills 4416 and 4417 are expected to pass out of the House this week and be sent off to the Senate. The MAR will continue to closely monitor the bills and meet with legislators to stress the importance of the bills in order to protect both homebuyers and the real estate community.

The Michigan Association of REALTORS® Federal Political Coordinators (FPC’s) recently attended a training session held in Washington D.C. The MAR FPC's serve as liaisons between legislators on the federal level and REALTOR® members in Michigan. The focus of the FPC training is to provide tools to strengthen relationships with national leaders in order to push for REALTOR® friendly legislation. The training gives FPC’s from around the nation a chance to meet one on one with federal elected officials to discuss policies and other concerns affecting REALTORS®. Top industry priorities on the national level include; access to affordable healthcare, protecting the mortgage interest deduction, and keeping banks out of the real estate arena. The FPC’s stress the importance of crafting sound legislation to keep the REALTOR® agenda moving forward.

The Michigan Department of Treasury has announced an updated Web site dedicated to the new Michigan Business Tax (MBT). A new version of the Michigan Business Tax (MBT) Estimator is now available that takes into account the new surcharge that was signed into law in exchange for the elimination of the service tax. This program allows you to estimate your tax liability under the new MBT, which replaced the previous tax plan, the Single Business Tax (SBT). The Estimator is intended to give an approximation and comparison of your tax liability. The new Web site also contains an overview of the new MBT, along with details on various elements such as Nexus, Unitary Filing, and Apportionment. Recent MBT presentations, including two Webinars, can be downloaded from the site as well.

The link to the website is below:

www.michigan.gov/mbt

Please keep us informed on any unforeseen consequences that the new MBT may impose on your business by utilizing the estimator. If you have any questions, comments or concerns, please contact us at 800.454.7842 or mar@mirealtors.com.

Now that 2008 has rolled in, many legislative issues affecting the REALTOR® community still linger from the end of the 2007 legislative year. Budget negotiations throughout much of the latter part of 2007 held industry-specific legislation in various committees and workgroups. However, MAR continues to meet with leadership on both sides of the aisle to address the concerns and priorities of the real estate industry. The MAR top legislative priorities for 2008 include:

A new year also brings changes within our association. Along with local boards and associations installing new presidents, officers and committee members, MAR will have new faces in leadership in 2008. MAR is fortunate to have a great group of individuals leading the charge. Jeff Young will serve as 2008 MAR President. Jeff is a member of the West Michigan Lakeshore Association of REALTORS®, and has served on numerous committees on the local, state and national levels. Nanci J. Rands, a member of the Metropolitan Consolidated Association of REALTORS® (MCAR), will take the helm as the new 2008 MAR RPAC Trustee Committee Chair. Teri Spiro, also a member of MCAR, will lead the 2008 MAR Public Policy Committee. Lastly, Matt Davis, a member of the Battle Creek Area Association of REALTORS®, is the REALTOR® Political Involvement Coordinator (RPIC). He will oversee the Federal Political Coordinators (FPC’s), who serve as liaisons between the state association and those who hold a federal office in Washington D.C. The new MAR leadership aims to promote good public policy and industry standards across Michigan, and will be looked to for guidance on many concerns at the forefront of today’s real estate industry. To view the new 2008 MAR Officers and Board of Directors list, please visit www.mirealtors.com/leadership.html.

(12.01.07)LANSING – Just before 5pm on Saturday, December 1st, the Michigan House of Representatives struck the final blow to the 6% service tax. Negotiations between the legislature and the Governor stretched on into the early morning hours of December 1st on House Bill 5408, the repeal of the job-killing service tax and the replacement of the revenue through a surcharge to the new Michigan Business Tax (MBT).

The Michigan Association of REALTORS® again kept vigil through the night in an effort to ensure any outcome spread the replacement revenue more fairly over a wide range of businesses. The first incarnation of the surcharge heavily favored manufacturers over Michigan’s real estate brokerages and other small businesses. Although there was progress made during the late night negotiations toward a more equitable distribution, Bill Martin, C.E.O. of MAR summed up the final bill as “A bad tax that replaces another bad tax.”

The MAR will continue to work with leadership in both chambers of the legislature on clean-up and clarification legislation to ensure that the MBT does not unduly burden real estate brokerages in this already troubled market.

(11.20.07)LANSING – The Coalition to Ax the Tax, a group of nearly 70 business and taxpayer organizations committed to repealing the new six percent state sales tax on services, today issued the following statement on the Michigan Senate’s vote to repeal the tax.

“The Senate’s vote moves Michigan one step closer to repealing the unfair and unpopular service tax before it does anymore damage to our state’s already struggling economy. Still, the tax isn’t gone yet, the clock is still ticking toward Dec. 1, job providers keep paying, and the coalition’s effort to repeal aren’t stopping.”

“If the Legislature does not act or the governor does not sign a bill repealing the tax, the coalition is ready, willing and able to continue the petition drive to repeal the services tax.”

In the last session day before a two-week break, the state Senate showed their support of the business community by voting through legislation repealing the service tax. The Senate chamber ushered the repeal without replacement revenue to the floor for a vote and the measures passed. On the other side of the Capitol, the House passed repeal legislation along with identifying a new revenue source to replace the job-killing service tax. While the repeal is a major victory for businesses in Michigan, there is still much work to be done in regard as to whether or not to replace the revenue. As passed, the House legislation will affect those businesses that will pay the new Michigan Business Tax (MBT).

Prior to floor passage of the repeal legislation, testimony was heard in the House Tax Policy committee on how to replace the projected revenue. Plans range from hiking the state sales tax, adding a surcharge to the new Michigan Business tax, as well as additional cuts and reforms. Various business groups testified in support of an immediate service tax repeal combined with an MBT surcharge, which favors large businesses. The MAR supported a timely repeal of the tax, but urged a more broad based and equitable solution should the revenue be replaced. Governor Granholm has stated that she will not allow the repeal without replacement measures.

Despite the MAR opposition, the House Tax Policy committee voted out House Bill 5408, legislation to add a surcharge to the MBT, at a rate of 32.9% through 2008, prior to tax credits. The legislation also includes a $2 million cap, limiting the amount larger corporations would pay. This drastically increases the tax burden of Michigan smaller and mid-range businesses. House Bill 5408 is now on its way over to the Senate. The Senate Republican Majority continues to look at alternative sources for revenue, and all options are on the table. There is a tentative Senate session day scheduled for Tuesday, November 13th.

The MAR Advocacy team is working diligently to meet with legislative leaders on addressing any concerns our industry has with the various plans being circulated to make sure any tax increase on business is as equally distributed as possible. While we are opposed to the current structure of House Bill 5408, we are pleased with the positive relationship the MAR has forged with both House and Senate leaders, and will continue to work for a mutually acceptable position.

On November 6th, Senate Bill 838, legislation repealing the service tax effective December 1st, was passed out of the Senate Finance committee. The bill was moved without any replacement of the $750 million a year in revenue the service tax would generate. An amendment was added to the bill to preserve the MESSA reforms that were agreed to earlier in the budget-balancing process. The passage of this bill is a critical step in an all out repeal of the service tax from the legislature.

In addition to Senate Bill 838, there are several pieces of legislation in both the House and Senate that deal with the service tax repeal and how to replace the revenue that would be generated if the tax was put into effect. Talks on how to replace the lost revenue range from hiking the state sales tax, adding a surcharge to the new Michigan Business tax, and looking for additional cuts and reforms. The MAR is working diligently and meeting with legislative leadership to address any concerns our industry has with the various plans being circulated. Please watch your inboxes and visit the MAR Web site for further updates.

The first press conference for Ax the Tax, which the coalition held on November 1st, was truly a success in getting the attention of the Michigan Senate. Following the press conference, the Senate voted and passed SB845 to delay the implementation date of the tax on services from the initial date of December 1 to December 20. It is also expected that the Senate tie-barred SB845 to SB838 that would repeal the tax on services. The Senate Finance Committee has a hearing regarding SB838 scheduled for next Tuesday, November 6.

MAR worked diligently to ensure real estate services were not covered in the new tax, and opposed any tax on services. Though real estate services in general were not included, several items were that would impact our members’ cost of conducting business in Michigan. “We are extremely happy with the action the Senate has taken in listening to the concerns of Michigan business owners and its citizens,” said Bill Martin, MAR CEO. “There is still a lot of work to be done and there will be much debate about how to replace this revenue stream, but this is the first step in a better direction.”

MAR is part of Ax the Tax, a coalition that is made up of individual job providers, trade associations and chambers of commerce from across Michigan. Members of the group are committed to working with the Legislature to repeal the sales tax on services. More information can be found at the coalitions Web site, http://www.axthetax.com. MAR is committed to keeping its members updated as new information becomes available.

House Speaker Andy Dillon (D-Redford) vowed to “stay until the job is done” when he called the House into session on Friday. The “job” is to solve Michigan’s $1.75 billion deficit in the 2008 budget. As Friday night turned into Saturday morning, and Saturday night into Sunday morning, the Speaker still did not have a deal on the table to implement reforms and pass a proposed $1.1 billion hike in the state income tax. The proposal, in the form of House Bill 5194, remained on the board for the entire weekend but doesn’t have the necessary votes. If passed, it would raise Michigan’s income tax rate from 3.9 to 4.6%. With no Republican support and numerous Democrats withholding their vote, the bill remains at a standstill. Note that many of the Democratic holdouts include “vulnerables” who narrowly won their seats in the last election cycle and are keenly aware of their districts’ sentiments when it comes to increasing taxes

The MAR staff has been active throughout the marathon session and continues to meet with legislative leaders to help play a constructive role in identifying government reforms that might solve the problem. The MAR strongly opposes any form of tax increase without them. The burden of government living beyond their means is felt by all Michigan citizens, and the MAR members want real reforms and cuts before any additional money comes out of the pockets of Michigan residents.

The Michigan Business Tax (MBT) Estimator is now available. This program allows you to estimate your tax liability under the new MBT, which replaced the previous tax plan, the Single Business Tax (SBT). This calculator is intended to give an approximation and comparison of your tax liability. However, it does not calculate unique circumstances or narrow exemptions and credits, such as research and development, brownfield redevelopment, MEGA, Renaissance Zone, ME-2, ITC recapture, loss carry forward or carry back, or historic preservation credits.

The MBT Calculator will apportion your tax base by multiplying it by a fraction where the numerator is gross receipts, or sales, in Michigan and the denominator is the total sales. If you leave the “Michigan only Gross Receipts” data cell blank, the Estimator will assume a zero amount and your tax liability will be zero. If your total sales and Michigan sales are the same, enter the same amount in both cells. Also note:

Please keep us informed on any unforeseen consequences that the new MBT may impose on your business by utilizing the estimator. If you have any questions, comments or concerns, please contact us at 800.454.7842 or mar@mirealtors.com.

Weeks of intense negotiation came to fruition last week as the Michigan legislature passed Senate Bill 94 to create the Michigan Business Tax (MBT) and replace the old Single Business Tax (SBT) that was scheduled for repeal on December 31st. The new business tax, like the existing SBT, will be imposed on businesses with annual gross receipts in excess of $350,000. The new structure is composed of a modified gross receipts tax (at a rate of 0.8%) and a business income tax (at a rate of 4.95%). The Department of Treasury estimates that the new tax will replace all $1.9 billion currently brought in by the SBT.

The Michigan Association of REALTORS® struck several victories in the creation of this new tax structure to keep taxation on real estate brokerages low. The Governor’s earliest proposals brought a 900% tax increase on our industry. But, successful negotiations brought key amendments so that, at worst, we are brought back in line with the rest of the business community. These important policy points included:

The new MBT passed both the Senate and the House with large majorities in each chamber. Bill drafters are currently working on a few necessary technical and stylistic corrections within the legislation and there will likely be future bills to address unforeseen impacts. However, the new MBT should soon be on its way to the Governor for her signature to become law. Given the quarterly reporting requirements of many Michigan businesses at the end of June, it will most likely be signed during the month of July.

The Michigan Association of REALTORS® appreciates the hard work of all of the Senators and Representatives that made up the bi-partisan workgroup to draft this “MBT.” Additional thanks go out to the many members that utilized the “tax calculator” to give staff the best indications of how the MBT may impact our industry. As with any complex law, we will be monitoring the law’s impact and ask that you do the same. As the law is established, we will provide a new calculator on the website one last time and ask that you put it to use to keep us best informed on any major unforeseen consequences that the tax may impose on your businesses. Please stay tuned to the MAR Web site (www.mirealtors.com) and MAR publications for more details and the latest information on this new form of business tax.

(6.29.07) Weeks of intense negotiation came to fruition last night as the Michigan legislature passed Senate Bill 94 to create the Michigan Business Tax (MBT) and replace the old Single Business Tax (SBT) that was scheduled for repeal on December 31st. The new business tax, like the existing SBT, will be imposed on businesses with annual gross receipts in excess of $350,000. The new structure is composed of a modified gross receipts tax (at a rate of 0.8%) and a business income tax (at a rate of 4.95%). The Department of Treasury estimates that the new tax will replace all $1.9 billion currently brought in by the SBT.

changing the tax base to eliminate taxation on “net worth”
subtracting agent and cooperating brokerage commissions from the gross receipts base calculation
providing “compensation credit” to a broker for all agents’ commission payments at a rate of .37%
(note that this is limited to 65% of that business’ total tax liability)
eliminating double taxation of profits for those brokerages organized as Limited Liability Corporations.

The new MBT passed both the Senate and the House with large majorities in each chamber. The bill is on its way to the Governor for her signature and to become law. Given the quarterly reporting requirements of many Michigan businesses at the end of June, it will most likely be signed after July 1st.

The Michigan Association of REALTORS® appreciates the hard work of all of the Senators and Representatives that made up the bi-partisan workgroup to draft this “MBT.” Please stay tuned to the MAR Web site (www.mirealtors.com) and MAR publications for more details and the latest information on this new form of business tax.

At 5 pm today, the House, Senate and Governor are expected to announce they have reached a deal on a replacement for the Single Business Tax (SBT) that includes a tax base of gross receipts and business income with many credits for locating businesses in Michigan, while providing extensive personal property tax relief. This deal comes as a result of weeks of workgroup negotiations between both the Legislative and Executive branches.

The MAR worked closely with key members of the negotiations team on both sides of the aisle to address previous concerns that a replacement tax containing a tax on net worth would have resulted in significant tax increases to many of our members. While not ready to declare all out victory, we are confident that the current deal takes care of many of our previous objections and places our members in a better position than previous replacement plans.

Minor details are still to be hashed out. As always, we will keep you informed as things move forward.

As you know, the Michigan House and Senate passed competing Single Business Tax replacement bills. Your MAR staff has been working to clarify how the newest plan, House Bill 4367 (known as the Michigan Business Tax or MBT) will affect your businesses. Per your direction, we continue to support the Senate BEST plan but oppose the House MBT plan due to its high rate of taxation on business income (6.95%) and the new tax on “net worth” (assets minus liabilities) that includes the value of real estate.

Current SBT taxpayers, please ask your brokers and accountants to perform the following calculations or perform them yourselves if you have over $350,000 in gross receipts. Then compare this theoretical tax liability with your actual SBT liability over the last couple of years. Please email Brad Ward at bward@mirealtors.com with the results, as well as questions you might have. This input will be very important to our Taxation Task Force, Public Policy Committee and MAR Board of Directors as we move forward.

"Taxpayer" means a person or a unitary business group liable for a tax, interest, or penalty under this act.

"Unitary business group" means a group of United States persons, 1 of which owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights of the other United States persons, that has business activities or operations which result in a flow of value between persons included in the unitary business group or multiple persons or in a flow of value within a single legal entity regardless of whether each entity is a sole proprietorship, corporation, partnership, limited liability company, trust, or other person under this act. For purposes of this subsection, flow of value is determined by reviewing the totality of facts and circumstances of business activities and operations as follows:

persons include, but are not limited to, assisting in the acquisition of equipment, assisting with filling personnel needs, lending funds or guaranteeing loans, interplay in the area of business expansion, providing technical assistance, supervising, providing general operational guidance, providing overall operational strategic advice, or common use of trade names and patents. Flow of value must be more than the flow of funds arising out of passive investment and consists of more than occasional financial oversight.

(b) Transactions separately accounted for may evidence a flow of value. The fact that a business uses or can use a separate accounting system, including, but not limited to, separate accounting between divisions of a single legal entity, between multiple persons under common ownership, on an arm's length basis, on a geographical basis, or by business function, does not determine whether a group is a unitary business group.

As you start plugging in figures into the Michigan Tax Calculator (see link below), please be aware that certain affiliated businesses may require unitary filing. Unitary filing may cause some brokerages to pay a substantial amount of the new MBT.

The legislature met during an unusual Friday session, to reach a deal resolving the 2007 budget. The agreement between the Senate, House, and Governor contained cuts, but no tax increases to fill the $803 million hole. While it is good news that the 2007 fiscal year is solved, 2008 still looms large.

While there was a budget solution once proposed by the Governor containing a 2% tax on real estate services, the agreed budget comes without any tax burdens. In balancing the 2007 budget, many items thought to be cut, such as the layoff of 20 State Police Troopers, slashing school per pupil funding, and revenue sharing to local governments, were spared. The legislature utilized the securitization of $400 million more in tobacco settlement money, and $100 million from the Higher Education Loan Authority to fill the gap. The payment of $165 million to public universities and community colleges was delayed until 2008. However, these and other one time fixes to mend this year’s budget only pile on to 2008 starting October 1st.

While the 2007 budget agreement is a victory, other items still remain unresolved. The Single Business Tax replacement has yet to come to a conclusion, although both sides of the aisle are working toward a solution. The question still remains on whether or not additional revenue for the state and the rumored threat of a temporary income tax hike is more likely to be introduced for the 2008 fiscal budget.

Although the 2007 budget agreement contains no tax increase, we must continue to be vigilant and fight against any tax on real estate services as the legislature prepares to work on the 2008 budget crisis. The MAR staff continues to meet with top legislative officials expressing the negative consequences a tax would have on the industry. As always, we will keep you posted on any news or progress.

As you know, the Michigan House and Senate passed competing Single Business Tax replacement bills last week. This represents the first step of intense negotiations between the House and Senate. Your MAR staff has been working to clarify how the newest plan, House Bill 4367 (known as the Michigan Business Tax or MBT) will affect your businesses. Per your direction, we continue to support the Senate BEST plan but oppose the House MBT plan due to its high rate of taxation on business income (6.95%) and the new tax on “net worth” (assets minus liabilities) that includes the value of real estate.

Accordingly, we need your help as we prepare to testify on this legislation in the Senate Finance Committee this Thursday, May 10th. Please ask your brokers to perform the following calculations or perform them yourselves if you have over $350,000 in gross receipts. Then compare this theoretical tax liability with your actual SBT liability over the last couple of years. Please email Tony Daunt with the results, as well as questions you might have. This input will be very important to our Taxation Task Force, Public Policy Committee and MAR Board of Directors as we move forward.

The Michigan Association of REALTORS® (MAR) is working closely with legislative leadership on both sides of the aisle regarding Michigan’s fiscal deficit. MAR’s top priority remains protecting the industry from harmful measures such as the Governor’s previous proposal of a 2% tax on services. The next 48 hours will be crucial regarding the state budget woes, as developing ideas and proposals may take the form of legislation in the days to come. With the rhetoric of “we have cut to the bone” and “we need more taxes”, it is perplexing that the Governor would allow continued salary increases for state workers while threatening to cut schools and shut down state government. This behavior remains out of touch with public perception of the state’s current fiscal crisis.

Workgroups have been formed in response to various proposals on the budget, more specifically, replacement of the Single Business Tax (SBT). As you may have heard, there has been a lot of quick action here in Lansing regarding release of the House Democratic SBT replacement plan. The House Democratic plan is a combination of a business income tax and a net worth tax. MAR remains concerned about the net worth tax rate and the compensation credit portion of this plan. Staff continues to work with House leadership and sponsors of this legislation to reach some sort of resolution. Watch your inboxes for possible Call to Actions, legislative news, and up to date information on the budget situation and how it may affect the real estate industry.

The Michigan Association of REALTORS®, along with RPAC Trustee Chair Matt Davis hosted the first Capitol Avenue Update via webcast. The inaugural webcast was a huge success! The update featured news regarding Michigan’s budget challenges, the Single Business Tax replacement proposals and property tax issues. Participants were able to watch the update live on the web, as well as interact with MAR lobbyists Rob Campau and Brad Ward in a question and answer session.

Stay tuned for more information on upcoming webcasts. The webcasts are open to all Sterling, Crystal, or Golden R RPAC contributors. If you would like to contribute and take part in this exclusive benefit, please click here.

RPAC Chair Matt Davis and RPAC Vice Chair Nanci Rands invite all major RPAC contributors to participate in the MAR Capitol Avenue Update! Those participating will receive up to the minute information on REALTOR® issues moving through the state legislature.

Today, the Senate Finance Committee met to take testimony on House Bill 4440, legislation that would temporarily halt the “pop-up” of taxable property values upon sale.

For the first time, the Michigan Department of Treasury testified that the cost to the state budget would approach $90 million dollars over the next four years. Given recent policy concerns about the lack of state revenue, this was not welcome news.

Although no vote was taken, we are predicting with some certainty that the bill is dead. Do not plan on seeing this change to Michigan’s property tax structure.

“Of course, I can’t ever remember a crazier time in our State Capitol,” Michigan Association of REALTORS® CEO Bill Martin said. “The Governor has not yet accepted that Senate Majority Leader Mike Bishop (R-Rochester) and his caucus have killed her tax increase on services and voted to balance the 2007 budget through cuts alone. Details on the House plan are not yet fully public, but appear to be going in an entirely different direction from the Governor. So, what’s dead may not be dead and what’s ‘alive’ may not even exist. That’s how wacky this place is.” Nonetheless, there are no revenue sources that have been identified and the budget-conscious legislature is not in a position to pass the bill in the middle of this fiscal shortfall.

On a more optimistic note, our efforts to establish long-term reforms beyond this fiscal year, such as a reduction in new taxable values based on community averages, are looking promising. “Our discussion of the ‘pop-up’ issue has spurred interest in positively influencing Michigan’s real estate markets through tax policy,” Martin said. “While legislative gears grind slowly, we expect to see several proposals considered throughout this coming year.” Expect to see more on this subject soon.

Last week Senate Bill 307, Governor Granholm’s 2% tax on services, was soundly defeated in the Michigan Senate. This major victory was made possible by REALTOR® members who contribute to RPAC and responded to our Call to Action. But our efforts are far from over.

House Bill 4368 still looms in the House. Recent rhetoric out of the House suggests that revenue enhancements are still on the table for the 2007 and 2008 budgets. House Bill 4368 mirrors Senate Bill 307 in setting up the 2% tax on the service industry. While the bill hasn’t been up for a vote yet, this is the sole broad-based revenue enhancement bill that has been introduced. We must continue to be vigilant and let our State Representatives know how a 2% tax on services could devastate the real estate industry in Michigan.

If you haven’t done so already, please contact your State Representative using the Call to Action link below:

Please make a note that you will need your NRDS# to contribute online.
Find your NRDS# here

Last night the Michigan Senate Republicans, under the leadership of Majority Leader Mike Bishop (R- Rochester) voted down Governor Granholm’s 2% tax on services, sending a clear message that tax increases to balance the 2007 budget are off the table. The vote went down along party lines with all Republican Senators voting against the Governor’s tax proposal joined by one Democrat, Senator Glenn Anderson (D- Westland), a REALTOR® member. In speaking with reporters following the vote Sen. Bishop declared Governor Granholm’s 2% tax on services “killed for good.”

Following the vote to defeat the tax, the Senate worked into the night to pass the remaining budget cuts totaling almost $600 million. The remaining votes went down party lines as the budget was passed.

This legislative victory was made possible by those that contribute to RPAC and the members who responded to the MAR Call to Action. During the floor debates regarding Governor Granholm’s 2% tax on services, many Senators remarked about the volumes of emails and phone calls they received regarding the negative consequences of this tax on Michigan families and businesses. Our membership’s over 4,900 emails to their State Senators aided in forming their decision on this vote.

While this is a tremendous victory for the real estate community, there is still a long way to go. While he recognized the tax proposal would be defeated yesterday, Senator Michael Switalski (D-Roseville) stated that, “The issue of revenue will not go away. I’m confident we will return to revenue before this is over.”

MAR RPAC Trustee Chair Matt Davis said, “Taxes are punitive to the real estate industry. There is no better time than now to contribute to RPAC.” We must continue to remain vigilant in the fight against taxing real estate services.

Allen (R - Traverse City) • Anderson (D - Westland) • Birkholz (R - Saugatuck) • Bishop (R - Rochester) • Brown (R - Sturgis) • Cassis (R - Novi) • Cropsey (R - DeWitt) • Garcia (R - Howell) • George (R - Kalamazoo) • Gilbert (R - Algonac) • Hardiman (R - Kentwood) • Jansen (R - Grand Rapids) • Jelinek (R - Three Oaks) • Kahn (R - Saginaw) • Kuipers (R - Holland) • McManus (R - Leelanau) • Pappageorge (R - Troy) • Patterson (R - Canton) • Richardville (R - Monroe) • Sanborn (R - Richmond) • Stamas (R - Midland) • Van Woerkom (R - Muskegon)

Barcia (D - Bay City) • Basham (D - Taylor) • Brater (D - Ann Arbor) • Cherry (D - Burton) • Clark-Coleman (D - Detroit) • Clarke (D - Detroit) • Gleason (D - Flushing) • Hunter (D - Detroit) • Jacobs (D - Huntington Woods) • Olshove (D - Warren) • Prusi (D - Ishpeming) • Schauer (D - Battle Creek) • Scott (D - Highland Park) • Switalski (D - Roseville) • Thomas (D - Detroit) • Whitmer (D - East Lansing)

Governor Granholm’s 2% tax increase plan has been introduced in the State Senate and State House. Senate Bill 307 and House Bill 4368 includes taxing your real estate commissions and other industry-related services! If the 2% tax on services were to pass, Michigan would be the only state to have an income tax, transfer tax and service tax.

Now, MAR has launched a 2nd Call to Action regarding Governor Granholm's 2% tax on services. This time, contact your State Representative. Tell them to Oppose House Bill 4368.

There is no doubt that the lackluster Michigan economy has had a negative effect on home values in our area But what about the Pop-up Tax, how has that impacted house prices?

Homes, like cars, are now purchased based upon monthly payment, not total price. When a buyer meets with a mortgage lender, they determine what the buyer can spend per month on housing expenses (that is principle, interest, taxes and insurance.) The total loan amount, and hence the purchase price that they can pay, is merely a by-product of the interest rate and the monthly payment that they can afford. Since real estate taxes are a component of that monthly payment, any increase in taxes reduces the amount available to pay interest and principle. This reduction in the amount available for the mortgage payment means a smaller loan amount, which in turn reduces the amount that a buyer can pay for a home. A $300 monthly tax increase reduces a buyer’s purchasing power by $50,000! That means buyers get less house for the money and sellers get less for their homes.

Governor Granholm’s 2% tax increase plan has been introduced in the State Senate. Senate Bill 307 includes taxing your real estate commissions and other industry-related services!

If the 2% tax on services were to pass, Michigan would be the only state to have an income tax, transfer tax and service tax.

Earlier today, MAR CEO Bill Martin sent out a special email to all Association Executives confirming that a sales tax on real estate commissions is included in Governor Granholm's tax plan, released last Thursday during the presentation of the state's budget. The complete list includes a number of other real estate fees as well and also includes most services one would use in either building a new home or improving the existing home. While figures may be "tweaked" in the coming weeks/months as debate on the proposal begins, MAR leadership is concerned. "Clearly, there is a very negative implication for the real estate market and for our members in particular," states Martin.

The Michigan Association of REALTORS® remains strongly opposed to any sales tax on services and its devastating consequences on our industry. The MAR Board of Directors will discuss our immediate response at its regularly scheduled meeting on Thursday. Currently, there is no legislation introduced, so while it is imperative we craft a clear, unified message immediately, a specific call to action strategy is not being pursued at this time. In the meantime, we will look to you, as state and local leaders, to join us in continuing to communicate with legislative officials about our opposition to including real estate fees in any proposed solution for the state's fiscal woes. We will keep you posted of any further updates as they arise.

As you might guess, things are very fluid here in the Capitol City. Proposals are flying around like bats on Mackinaw Island on a hot summer night. Unfortunately, details are few and difficult to find. We continue to work with legislators and administration officials as best we can. I’m sure you are having the same frustrations as we are when you open the paper and the sales tax on services example is that haircuts will be taxed. Clearly, no one will get upset with the additional .20 added to the service, except maybe the person responsible for collecting and remitting the tax. I’m pasting an article from the MIRS News Service that is the best examination of the current proposal I can find. Just as an FYI, I had a conversation this morning with an administration official regarding the “net” that is being cast on the sales tax on services. I was not encouraged with their comments, but in the end, I think I was able to make sure they understand the difficulty of proposing this tax onto ANY real estate service and in particular, commissions. Just to reiterate, these figures are purely speculation, and we do not have enough details to come to a concrete conclusion. The only thing that has been confirmed is the Governor’s stance on her proposal of a 2% sales tax on services. If you have any questions, please feel free to contact me.

Gov's '07 Budget Plan: 50% Taxes, 10% Cuts, 40% One-Timers
Gov. Jennifer GRANHOLM released today a budget-balancing plan for the current fiscal year that relies on more than $500 million in higher taxes, around $375 million in one-time fixes and $114 million in hard budget cuts, according to the budget office's analysis.

The cuts account for about one-tenth of the roughly $1 billion hole in the Fiscal Year (FY) 2007 budget the Governor is filling. But she, her administration and legislative Democrats pointed out today that if Republicans want to make deeper cuts to state services they can come back with their own plan B.

For its part, the Granholm administration is putting an end to the days of cutting — cutting spending to balance the state's annual budget "crisis" and cutting taxes as an alleged catalyst to stimulate the economy. The message now is investment.

The investment will start this year. The administration is filling about half of its budget with a 2 percent tax on services and other assorted cuts. The rest is being filled with a pair of one-time budget fixes and the raiding of some other pots of money within state government.

Many Republicans were not impressed.

"For the past five years, every proposed budget has focused on one-time fixes and gimmicks," said the ranking Republican on the House Appropriations Committee, Rep. Dan ACCIAVATTI (R-Chesterfield Twp.). "These do not address the fundamental issues. Michigan families should not have to continue to bear the burden for Michigan's budget problems. How can we ask them to pay more in taxes when there are still more areas in government where we can reduce spending?"

The Governor would need her tax package — the new Michigan Business Tax (MBT), the service "excise tax," the estate tax, 5-cent cigarette tax and alcohol mark-up — passed by the time the Legislature goes on its Spring Break. Otherwise, serious mid-year cuts to education, among other services would be on tap.

Sen. Mickey SWITALSKI (D-Roseville), the ranking Democrat on the Senate Appropriations Committee, was asked if the lack of cuts bothered him. He said if you want cuts, there will be $200 million in School Aid cuts and $80 million in cuts to universities and local government if nothing is done.

"If that's not enough, that's what is going to happen, and those would be extremely painful to people," he said.

In addressing the one-time fixes, state Budget Director Bob EMERSON said the state is too deep into the fiscal year to realistically think it could cut its way out of the current hole. Yes, one-time fixes are being put in play, but it's better than the alternative, which is substantive, mid-year cuts to K-12 education, universities and other services.

The big one-time fix, as laid out Wednesday in MIRS deal with the changes in how the state makes payments to the pension contributions made to state employees, community colleges and the K-12 education system.

Typically, the state uses a five-year rolling average of the stock market's health to make its payments, but with stock prices high, Michigan will dust off a maneuver used by the former Gov. John ENGLER administration in which the pension payments depended on how the market looks during an individual year.

Since Wall Street looks good in 2007, its estimated government can save $185 million in the School Aid Fund and $93 million in the General Fund for a combined savings of $278 million by using the snapshot method this year as opposed to the five-year rolling average.

Another accounting maneuver is pushing the state's final payment to colleges and universities to FY 2008. By paying the money in October as opposed to June, the state would save an estimated $69 million.

Senate Appropriations Chairman Ron JELINEK (R-Three Oaks) said before he signs off on this budget maneuver, he wants to look at the impact on the universities.

The state is also digging into some restricted revenue to balance the budget, including $6 million of Merit Scholarship money, with the state not expected to make as many awards to college-bound students as previously thought.

As far as the "hard cuts," many are coming through slow downs in technology upgrades. Health plan services will get whacked $12.5 million, day care services will get cut $12.93 million, health information technology initiatives will get sliced $7.25 million and the family independence program will see $6.576 million in cuts.

The fire protection grants are slated for $1 million in cuts. State building authority rent payments for universities and the Department of Corrections is getting cut $15.669 million. Other cuts include: Foster care payments ($1.226 million), indigent burial ($738,700), the Attorney General's operations ($1 million) and a slice to the cooperative extension service ($2.655 million).

The department hit the hardest by the cuts in pure dollars was the Department of Human Services with programs for youth in transition, teenage parent counseling, the black child and family institute, state disability assistance and other programs all taking cuts. The total damage equaled $25 million.

Today, the Governor’s budget Director, Bob Emerson, and the State Treasurer, Bob Kleine, laid out the administration’s 2007-2008 state budget and tax plan. As previously reported, the tax plan includes a 2% sales tax on services, excluding education and health care.

The Governor’s overall tax plan includes a revised Michigan Business Tax, the 2 % tax on services, tobacco tax increase, liquor tax increase, estate tax de-coupling, and a revisit of tax "loopholes," including WPW. The tax proposal combined with the 17 new programs outlined in the Governor’s State of the State Address increases the 2007-2008 budget by approximately 2.2% over last year.

The MAR staff continues to meet with legislators and use contacts within the administration for a specific list of the 120 services subject to the new 2% tax. At this point in time there are no specifics as to the inclusion of real estate services. We will keep you up to date as the tax increase proposal becomes clearer.

For those of you who are interested the following link will provide you with an overview of the Governor’s budget and tax plan.

We look forward to working on your behalf to defeat any proposed sales tax on your REALTOR® services.

After announcing the need for cuts, reforms, and increased revenue (taxes) in her State of the State address last night, reports out of Lansing indicate that the Governor Jennifer Granholm will announce a new 2% sales tax on services.

The Governor, along with budget Director Bob Emerson and Treasurer Bob Kleine, will deliver the administration’s proposed budget before a joint House and Senate Appropriations Committee Meeting this Thursday. Among the projected revenue enhancements will be: 1) 2% sales tax on services, excluding health care and educational services, and 2) Closing of tax loopholes, including the WPW commercial property tax increase.

Early indications are that the new service sales tax will operate in conjunction with the current 6% sale tax on goods. The new 2% sales tax is expected to raise $2 billion within the next fiscal year.

Tomorrow’s presentation will hopefully provide more detail as to the specifics of the 2% sales tax on services. The MAR, through its staff and elected leadership, continues to fight vehemently against a sales tax on your services and will keep you posted as this proposal develops.

Tonight, Governor Jennifer Granholm delivered her annual State of the State address with a focus on investing in Michigan's people. She talked about the difficulties that Michigan continues to face economically, especially pertaining to the state budget. While not delving into specifics the Governor referred to several proposals with the potential to impact REALTORS®.

Among them, we applaud the Governor's bold proposal to provide incentives for the consolidation of local government and school district services.

Unfortunately she also made reference to (new) taxes not presently levied on Michigan businesses.

As many of you have heard through various media reports, a sales tax on services remains a very real possibility. The MAR, thought its elected leadership