The Saline Reporter
A Heritage Newspaper
Weekly Publication
Area Realtors oppose tax on services
Proposal would have helped alleviate stateís budget shortfall
By Terry Jacoby, Heritage Newspapers
PUBLISHED: March 29, 2007
Realtors throughout Michigan have been concerned about a proposed 2 percent service tax, but are apparently being heard in Lansing.
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Gov. Jennifer Granholm's proposed 2 percent sales tax on services has been "killed for good," Senate Majority Leader Mike Bishop said after the Republican-led Senate rejected the proposal March 22.
The sales tax on services was proposed by Granholm in an effort to help the state find a way out of a $940 million budget shortfall.
But State Rep. Pam Byrnes, D-52nd District, isn't certain the bill is dead.
"I haven't heard that," she said. "I believe it's still in the House Committee. Some people like the governor's idea and some don't. Realtors have expressed to me that they are concerned. I have heard from two veterinarians, one was for it and the other was against it."
State Sen. Liz Brater, D-District 18, sponsored the bill.
"Our state is in a financial crisis," she said. "The two-penny tax is part of a multi-faceted plan proposed by the governor to fix our outdated system. Political maneuvering on the part of the Republican majority last week in the Senate separated this bill from the rest of the package and led to its defeat."
Brater said the state needs a comprehensive plan to restructure taxes.
"And that means cuts, reforms and new revenues that match the shape of the 21st century economy," she said. "We must be able to invest in the resources and the people of the state of Michigan to ensure that our businesses will thrive and that we will have a skilled workforce that attracts investment."
Byrnes said she hosted a town-hall meeting in Saline and "99 percent were in favor of some kind of revenue enhancement." She believes the state's budget problems will be solved with a combination of cuts and revenue enhancements.
Tammy Lehman, a longtime Realtor and the top producer with Edward Surovell Realtors office in Chelsea, hopes the revenue enhancements don't include the 2 percent tax on services.
Lehman, like many in her profession, is doing the best she can in a slow economy that has greatly affected the real estate market in Southeastern Michigan. While she understands it's not the government's role to help her business thrive, she does understand that it's also not the government's role to make matters worse. And she believes Granholm is about to do exactly that.
"I am self-employed and Governor Granholm's House Bill 4368 would greatly impact my ability to continue to do business as a Realtor in Michigan," Lehman said. "This tax will not only hurt every Realtor in Michigan, but also every service provider -- your lawn service company, accountant, barber, etc."
Lehman recently wrote a letter to Byrnes urging her to oppose House Bill 4368.
"As one of the 32,000 Realtors in Michigan, I can confidently say that additional taxes, without real government reform, in an already-struggling state economy will further depress the real estate market," Lehman said.
"Governor Granholm has billed her 2 percent tax on services as a solution to Michigan's recurring structural deficit. In reality, it's nothing more than a way to pay for her 17 new governmental programs at an estimated cost of an additional $1 billion."
Lehman believes "structural budget problems are solved through real reform, not one-time fixes such as choosing when to pay retirement benefits."
"Governor Granholm's 2 percent service tax is a total reversal from her statement during the 2006 gubernatorial campaign, when she stated that she would not support raising the sales tax on Michigan citizens," Lehman said.
"Property ownership is part of the American dream and it should be possible for everyone. Realtors provide vital professional guidance and assistance through this complex transaction that most cannot undertake themselves. Our service is not a luxury, but a way for people to protect their families, homes and businesses. When combined with other core services, such as appraisals, insurance and title work, the increased cost of purchasing property will force many buyers out of the market."
Lehman said someone trying to survive in an extremely competitive industry will have little choice but to absorb the 2 percent tax on services to remain viable.
"In effect, this proposal would raise my income tax by 50 percent without accounting for compliance costs," she said. "This tax will be one more harmful step toward Michigan's economic downfall."
Laura Kennedy of Real Estate One in Dexter couldn't agree more with Lehman.
"Every business, especially independent contractors, has no choice but to alter their operations to take into account income reduction," she said. "However, I am not hearing that the state government is doing the same thing. I have to admit, I'd rather hear from our elected officials that they are taking a pay cut first, before they ask me to do so."
Kennedy also says she is frustrated over the threat that school, police and fire protection funding will be cut.
"These benefits to the people are supposed to be provided to us, over all else, and the government is supposed to be held accountable to providing these benefits by our elected officials," she said. "Instead, I see those very elected officials holding us, the people, emotionally hostage by using threats to cut budgets for these two basic needs. This is abhorrent."
There is little doubt that taxing services will further affect home sellers in today's already weak economy.
"Consumers are already realizing a loss of equity in their home due to market conditions," Kennedy said. "Now add to that additional cost for selling their homes. I don't think less people will use Realtors, since it is harder to sell a home today than it has been in a long time.
"Homeowners need real estate agents more than they ever did to get their homes exposed to potential buyers. That exposure costs a great deal of money, most of which are fixed monthly expenses for agents, regardless of the number of listings we hold. These marketing dollars are also expended up front, before being paid, since we are not paid unless a home sells."
Kennedy says agents are already realizing a pay cut because home values have come down and commissions are based on sale price.
"What most people may not realize is that we are subcontractors to a brokerage," Kennedy said. "As subcontractors, we do not get Social Security benefits paid in for us, nor do we get other standard employee benefits such as health care and retirement funds. Our budget must include line items to cover these expenses."
According to research released this week by the Mackinac Center for Public Policy, Granholm's proposed 2 percent excise tax on most services could result in the loss of up to 19,000 Michigan jobs in its first 16 months.
Authored by economists at the Beacon Hill Institute in Massachusetts at the request of the Mackinac Center, the study shows that official revenue estimates fail to include the dynamic impact of increased taxes on Michigan residents and job providers.
To measure the impact of the governor's primary tax proposal, the Mackinac Center asked the Beacon Hill Institute to measure the impact that its most prominent component — a 2 percent excise tax on services — would have on the Michigan economy, all other things being equal.
"One of the fundamental tenets of economics is that when prices go up, quantity demanded goes down," said Michael LaFaive, director of fiscal policy for the center. "Raising the price of anything — business services, for instance — means less of that service will be sold. Since this tax will raise the cost of everything from legal services to bowling, the impact will ripple through the economy, causing job losses and lower-than-expected revenue to the treasury."
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