Michigan’s new sales tax: How does it affect you?
On Oct. 1, Gov. Jennifer Granholm and state lawmakers narrowly averted a government shutdown by expanding the Michigan sales tax to include select services beginning Dec. 1, 2007. Revenue estimates indicate that taxes imposed on consulting, office administration and janitorial services will account for over half of the $614.8 million expected to be raised during the state's fiscal year ending in 2008.
A wide assortment of services are subject to the tax, which is structured using a "rifle shot" approach to tax specifically named services, rather than taxing all services and providing exemptions for favored constituents. In general, the bill uses North America Industrial Classification System (NAICS) codes to identify those services subject to the tax. NAICS classifies various industries using numeric codes.
The NAICS codes can be viewed at www.census.gov/epcd/naics02/naicod02.htm.
under the bill are as follows:
(with NAICS industry code)
– Business service centers – 56143
– Consulting services – 5416
– Investment advice services – 52393
– Document prep services – 56141
– Office administration services –
– Specialized design services – 5414
– Packaging and labeling services
– Investigation, guard and armored
car services – 56161
– Security system services – 56162
– Personal care services, except hair
care services – 8121
– Skiing services – 71392
– Carpet and upholstery cleaning
services – 56174
– Janitorial services – 56172
– Landscaping services – 56173
– Couriers and messengers services –
– Transit and ground passenger
transport services – 4853
– Other travel and reservation
services – 56159
– Scenic transportation services –
– Tour operator services – 56152
– Mini-warehouse and self-storage
unit services – 53113
– Warehousing and storage services –
In addition, a number of services subject to the new sales tax are not specifically classified by the NAICS. These services include:
– Many repair, maintenance or
replacement service contracts on
tangible personal property
– Astrology services; Fortune telling
services; Numerology services
Palm reading services; Phrenology
services; Psychic services
– Baby shoe bronzing services
– Bail bonding services
– Balloon-o-gram services; Singing
– Bondsperson services
– Check room services; Concierge
services; Porter services
– Comfort station operation
– Consumer buying services;
Discount buying services;
Personal shopping services
– Dating services; Social
– Social escort services
– Genealogical investigation
– House sitting services
– Coin-operated rental locker
– Coin-operated photographic
– Coin-operated blood pressure
testing machine services
– Coin-operated personal service
– Pay telephone services
– Restroom operation services
– Shoeshine services
– Personal fitness trainer services
– Party planning services
– Wedding chapel services, but not
– Wedding planning services
It is important to note that taxability applies to each specific service transaction and is not based on the overall business activity of the organization. As a result, some services provided by a business may be taxable while other activities might not. Lumping a taxable service with a nontaxable service together on a single invoice could result in tainting the entire service. Additionally, with so many NAICS codes, businesses and consumers may find it difficult and somewhat subjective to determine whether a particular service is taxable.
After determining that a service is taxable, businesses are required to collect and remit tax to the state. Businesses having no prior experience with sales tax may have to change accounting and billing procedures to properly track the amounts collected, owed and paid. Many small service businesses do not have the resources required to maintain these administrative tasks and file the monthly tax returns. Assistance from an advisor may be needed to help determine whether a particular service is taxable, as well as develop accounting, billing and filing procedures.
Rumblings in Lansing and around the state have been heard, hinting at a move to repeal or revise the new tax. One option thrown into the fire is a ballot issue to raise the current sales tax rate from 6 percent to 7 percent on goods and services previously taxed. In the meantime, how will this new tax on services affect Michigan in attracting new businesses to the state and help us compete in the global economy? Stay tuned.
Advice in this article is not intended for the purpose of avoiding penalties or promoting, marketing or recommending to another party any matters addressed herein. This information is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate information, there is no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. Do not act on this information without appropriate professional advice.
Christopher Morse, CPA/PFS, MST, is a principal for The Rehmann Group's Traverse City office. He has 20 years experience providing accounting, tax, financial planning and business consulting services to family-owned and closely-held businesses, their shareholders and officers, as well as publicly-held companies.
Jeannine Habich, CPA, is a manager for The Rehmann Group. She has over 12 years experience in public accounting. She specializes in multi-state taxation and has experience in providing tax services to family-owned and closely-held businesses, their shareholders and officers. BN