Fight Michigan’s service tax on investment advice

I have to admit that I do enjoy a good fight — not a punch-in-the-face fight but a solid, take-no-prisoners verbal battle. That is why I am closely watching the fight in Michigan over the new 6% service tax on investment advice, which was also imposed on about 20 other unrelated services.

I have to admit that I do enjoy a good fight — not a punch-in-the-face fight but a solid, take-no-prisoners verbal battle. That is why I am closely watching the fight in Michigan over the new 6% service tax on investment advice, which was also imposed on about 20 other unrelated services.

Representatives from business and consumer groups in Michigan are looking to repeal the state tax and have formed the Coalition to Ax the Tax.

I love the name, and I truly support the cause. I hope every financial adviser and planner in Michigan is a part of this movement. If they aren’t, it is time for them to jump into the fray.

This tax obviously places the burden of financing the state’s deficit squarely on the shoulders of small businesses. These business owners have decided not to accept the tax.

Instead, they have united and alerted the state government that it is in for a fight.

It is a call to action, and one has to be inspired by this effort to repeal the service tax. This isn’t a fight for advisory services just in Michigan. Over the past several years, similar attempts in Florida, Minnesota and New Jersey to tax investment advice have failed or have been overturned.

As for the fight at hand, members of the Ax the Tax group have proposed replacing this much-contested sales tax with a tax on campaign advertising.

The coalition, represented by 60 business and consumer organizations, including the Michigan Chamber of Commerce and the Small Business Association of Michigan, both in Lansing, must collect 300,000 signatures for a ballot initiative that would force the state Legislature either to adopt the proposal or put it on the ballot for a statewide vote next year.

The tax itself was passed in the middle of the night during a budget session Oct. 1, without public hearings, in an effort to prevent a state shutdown. It has appropriately faced widespread opposition both inside and outside the state since its passage.

Clearly, there was a rush job to pass this bill in order to keep the state running. However, Gov. Jennifer Granholm and state legislators need to have the courage to fix this convoluted tax and apply a revised, fair tax without regard to the industries with lobbying power.

To that point, when the information was first made public, Kenneth Horn, a Republican member of the Michigan House, told InvestmentNews senior editor Jeff Benjamin that the list of services that will be subject to the tax was pared down through negotiations that often involved lobbyists.

The tax, which goes into effect Dec. 1, lumps investment advice together with “non-essential” services such as astrology reading, fortunetelling, palm reading, dating services, baby-shoe bronzing, escort services, ski lift ticketing and coat checking, to name a few. Meanwhile, legal, accounting and architectural services remain exempt, which makes this service tax unfair.

The Investment Company Institute of Washington has jumped into the fight, announcing that it is urging the state of Michigan to repeal part of the legislation that imposes a sales tax on “investment advice” services.

In a letter to State Sen. Nancy Cassis and Rep. Steve Bieda, chairman of the Michigan House Tax Policy Committee, the ICI accurately stated that imposing the tax would harm Michigan residents by discouraging them “from seeking financial advice to ensure their retirement security.”

The ICI also said that it “strongly urges” that the sales tax not be extended to tax any services offered by the investment industry.

Since I am a betting man, I am placing my money on the Ax the Tax Coalition. I am looking for a knockout.

Jim Pavia is the editor of InvestmentNews.