My business model and the competition is such, that I must each year spend a few more dollars to make the same amount personally. Essentially increase my gross revenues, and make the same.
Imagine my concern (quite gut wrenching) when I found I was about to be hit with the most unsettling tax anyone could imagine. The new Michigan Business Tax “has a couple components to it” as explained by my accountant. “The first is the business profits,” (I am paraphrasing) “the second,” he continued, “is the 0.8% gross receipts tax, which will now be closer to a full 1% with the new surcharge.. sorry to be the bearer of bad news.”
What my financial guru was telling me, was that the MBT was far worse for my particular business model than the SBT could EVER HAVE BEEN. That if I have to lower my margins to compete, I must RAISE my overall sales numbers, to make the same amount. By doing so, I would then incur a higher MBT, and ultimately be unable to function period. The accountant used the calculator available on the state’s website to do the numbers, and came out with a figure which represented about 16% of my personal income.
16%…. I couldn’t imagine a 16% state tax levied on anyone.. add to that the 4.35% std state tax, 28% top marginal rate, and 15% self employment, and that means 63% is gone in taxes before I draw anything. Anything I have left is taxed with a 6% sales tax, excise, and other costs; Insurance, property taxes etc.. That 16%… of my income is essentially what my wife and I live on. Now it appears in jeopardy.
I was sick. I went home and sat for about a half hour shaking..
Then I called my competitor. I then called another competitor. I made a few calls and started planning my exit from being in business. I started thinking of how to move out of the state I love because some thieves in Lansing haven’t the faintest concept of economics. One of my competitors wondered aloud how insane that kind of tax was. I agreed.
Then I did what people need to do more regularly.
I called my representative’s office. I spoke to an aide, explained my problem, and asked if our guy knew what the impact of this (MBT) tax was. He explained my call wasn’t the first on this topic. That apparently, I fall into another category which will limit my liability.
I make under $180K, My gross receipts are less than $20mil, and the business net revenue is less than $1.3mil. This puts me in a “small business” category. He insisted this is the case, as he had JUST confirmed with the State tax policy analyst.
Any ONE of those three items can mess up your world however. And though for the moment, this news was a bit therapeutic for me, it still doesn’t help some of those who are just a little TOO HIGH in any of the three categories, because they are trying to remain competitive in the national or international markets.
As an aside, it should be noted, my accountants are skeptical of the news from my rep’s offices. The uncertainty in the accounting circles is troubling so close to the time when we need to plan for such a drastic change. My ability to keep a viable business in Michigan is unsure. It is a whole new motivation to write, when the harshest possible reality is staring you down, and not just an abstract (albeit true) ideology.