Michigan business sweat tax changes in road, budget deal

Michigan business groups are pushing back on a recent vote to “decouple” state and federal business taxes, calling it a tax increase
House lawmakers late Thursday voted to unlink the two tax codes in an effort to avoid a $540 million budget hit next year
Lawmakers want to put that money back toward road repairs as part of a larger agreement to avoid a state government shutdown Oct. 1

LANSING — Michigan business leaders say they’re concerned a tentative budget deal in Lansing will wipe out a state tax cut they were expecting because of President Donald Trump’s “big, beautiful” law.

In a bipartisan vote, Michigan’s Republican-led House on Thursday voted to “decouple” state and federal taxes to avoid a potential $540 million in lost revenue next year because of the new federal law.

The Michigan Department of Treasury estimates the state would otherwise lose a total of $2 billion in tax revenue through 2030.

It’s part of a broader deal to boost road funding and finalize the state budget before a potential government shutdown next week.

The bill would prevent the state from matching new or expanded federal deductions for research and experimental expenses, increased business interest and depreciation of some property and equipment.

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Decoupling the taxes will help in “decelerating what the federal government gave an acceleration to,” Rep. Mark Tisdel, R-Rochester Hills, told reporters ahead of the vote.

“The credits will still be there. The advantages will still be there” but the legislation will help Michigan avoid an “upfront crunch when we’re trying to come up with billions” of additional money for road repairs, Tisdel said.

But Michigan’s business leaders are pushing back, saying the bill will force them to pay more for needed equipment or property.

“Unfortunately, the tax savings small businesses experience on their federal taxes will be wiped out when filing their state taxes, as well as making state taxes more confusing,” Amanda Fisher, state director of the National Federation of Independent Businesses, said in a statement.

Fisher said she’s particularly concerned about blocking a state dedication for the full cost of certain equipment or property in the year it’s purchased, rather than depreciating it over time.

The federal government raised that deduction cap for small and mid-sized businesses from $1.25 million to $2.5 million earlier this year.

Ahead of Thursday’s vote, a coalition of business organizations — including the Michigan Chamber of Commerce, Small Business Association of Michigan and The Michigan Manufacturers Association — cautioned officials against the decoupling approach in a letter.

“We ask policymakers to recognize that decoupling from federal tax cuts will result in tax increases for Michigan businesses, including small businesses and employers,” the letter said, adding that it would “dramatically increase the complexity of filing taxes for Michigan businesses.”

Michigan lawmakers are looking at the tax “decoupling” — as well as a 24% wholesale tax on marijuana, which would generate an estimated $420 million a year for roads — as ways to help raise between $1.5 billion and $1.8 billion annually for infrastructure fixes throughout the state.

House Speaker Matt Hall, R-Richland Township, said the legislation is consistent with earlier GOP proposals to dedicate Corporate Income Tax revenue to roads.

“You’re going to continue to see, over time, more corporate income tax going to roads,” he said Thursday evening, “and that’s been what we’ve been trying to achieve this whole time.”

Lawmakers have until Oct. 1 under the Michigan Constitution to pass a state budget. Failure to do so could potentially force mass state worker layoffs and halt nonessential services, which occurred during Michigan’s last government shutdown in 2009.

Whitmer, Hall and Senate Majority Leader Winnie Brinks, D-Grand Rapids, announced late Thursday that they have a tentative deal to avoid a state government shutdown this time around.

While they haven’t announced full details, the agreement “puts us on a path to lower costs, fix the damn roads, and pass a balanced, bipartisan budget by October 1,” Whitmer said.