When legislators in Michigan made an 11th-hour addition that included warehousing in a services tax, local warehouse operators, third party logistics companies, and their trade association rolled into action. Along with other businesses affected by the tax, they may be close to having the tax repealed.
The Michigan Senate Finance Committee voted to report a repeal bill to the state Senate following testimony from Michigan businesses and the International Warehouse Logistics Association (IWLA). According to James Cavanaugh, the lobbyist hired by the IWLA, the group initially sought a "carve out" to exclude commercial warehousing from the 6% tax. The repeal movement gained a lot of ground with legislators, and when it appeared they could have the law repealed, the Michigan warehousemen and IWLA joined that effort.
Lawmakers in Michigan were facing a constitutional deadline to balance the state budget when they extended a 6% services tax to warehousing. "Legislators said they literally had only 15 minutes to look at the list [of businesses included in the service tax]," said Bob Koerner, president and CEO of Total Logistic Control, one of the Michigan 3PLs affected by the tax. "It's harmful to companies like us," Koerner continued, "because in a service business, the main things we do can be moved somewhere else." Among the first reactions Koerner heard to the tax were customers saying they would have to move their business elsewhere if they faced a 6% tax in Michigan. At the same time, Koerner says, he was getting calls from Indiana realtors offering commercial space across the state line.
TLC's case is a microcosm of Michigan's problem. Koerner says TLC has about 250 people whose jobs could be affected by the tax. Many of the services they provide, like transportation management, require a telephone and computer, he explained, and they could easily be moved to another state. Beyond that, "ours is a very low margin business," he says and if he has to add 6% to someone's invoice, it could make them uncompetitive. "They'd have no choice but to move."
"This is not about TLC," Koerner points out, "everybody in our business would be negatively affected." As part of the effort to exclude commercial warehousing from the tax, the warehousemen explained to legislators that, not only would they not get the tax they were expecting, but with job losses and business moving to other states, other tax bases would be affected. The group quickly contracted with Michigan State University to conduct a study of Michigan-based independent warehouses to quantify the effect of the tax. A Web page was launched (www.nowarehousetax.com) including instructions for a letter writing campaign and a petition asking lawmakers to repeal, revise, or eliminate the warehouse services provision of the tax. In less than 24 hours, the site had generated 1,800 letters.
"We're not opposed to a tax, it's just wrong what they did," says Koerner. "It's bad for business, bad for people, and bad for families. There are other ways to accomplish what they wanted to do." Recognizing the need the state has to replace the revenues expected from this provision, Koerner and the industry group expressed a willingness to work with lawmakers to develop other alternatives. While lawmakers consider options, a bill from the Michigan House will move the effective date of the tax from December 1st to December 20th and would allow the Senate to repeal the tax totally, provided a revenue-neutral, non-partisan replacement could be found. The issue of replacing the revenues was behind the split in the Senate Finance Committee vote to bring a repeal bill before the Senate. Three Finance Committee members abstained because they felt it was "irresponsible" to repeal the tax without a replacement for the revenue.