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Payroll tax abatement could bring Michigan incentives on par with other states

BY Sunday, November 27, 2016 03:58pm

LANSING — The Michigan Economic Development Corp. could expand its toolbox of incentives under a proposed payroll tax abatement program. 

Senate Bills 1153, 1154 and 1155 would create the Michigan Business Withholding Abatement program under the purview of the Michigan Strategic Fund. If passed and signed into law, the bills would allow employers to avoid paying payroll taxes on new jobs created when they expand their companies in the state.  

For some economic developers, the legislation serves as an important step in bringing Michigan up to par with other states, many of which already have similar payroll tax incentives. 

“This is the kind of incentive employers want and the kind of competitive tool states are using to get ahead,” wrote Business Leaders for Michigan President and CEO Doug Rothwell in the organization’s monthly newsletter. “In fact, most states view these kinds of incentives as vital tools for creating net new jobs and revenue.”

Rothwell was unavailable for comment as this report went to press. However, other economic development industry professionals question the benefits of the program for the business community at large. 

In particular, Dean Whittaker, president of Holland-based economic development consulting firm Whittaker Associates Inc., notes the program would only serve Michigan’s largest corporations. 

Under the proposed legislation, companies with 500 or more workers would be eligible to receive the payroll tax abatement, but only if the new positions offered wages equal to the average paid in the county in which the facility was located.

Companies with 250 or more workers could also qualify for the program if they pledged to pay wages to the new employees equal to 125 percent of the average wages in the county. 

“It knocks out 80 percent of the companies in Michigan,” Whittaker said. “We’re only giving incentives to the big companies in Michigan, (but) it’s the little companies that are creating jobs.”

Only 1,338 Michigan companies meet the 250-employee qualification, including 484 businesses with 500 or more employees, according to data from New Jersey-based Dun and Bradstreet Inc. By contrast, 253,783 businesses in the state have 20 or fewer employees. 

Under the proposed program, companies would qualify for five years of payroll tax abatements. Employers could extend that benefit to 10 years if they paid  new hires 125 percent of the average wages in the county in which they’re based. 

The Michigan Strategic Fund would also be limited to offering 15 abatements per year. 

The program could cost the state approximately $250 million per year if it is fully utilized, according to an analysis conducted by the Senate Fiscal Agency. Of that cost, $190.5 million would be taken from the general fund, with the remaining $59.5 million being diverted from the School Aid Fund. 

Businesses using the program would be required to pay 5 percent of the amount of the abatement to cover administrative costs. 

The Michigan Manufacturers Association supports the proposed legislation, although the group hopes it can be amended to include organizations with fewer employees. 

“Our perspective is it ought to be much bigger and allow more incentives,” said Mike Johnston, vice president of government affairs at MMA, noting the 500- and 250-employee caps are too strict. 

The bills currently await a vote in the state Senate, but Johnston is optimistic that it will pass and help make Michigan more competitive with other states in attracting and retaining businesses. 

“We have a business tax system that looks like the rest of the nation, but the rest of the nation also has economic development incentives,” Johnston said. “We need (a policy) that can effectively compete with other states, and this is an attempt.”

State Sens. Jim Stamas (R-Midland), Wayne Schmidt (R-Traverse City) and Steven Bieda (D-Warren) co-sponsored the legislation. 

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