Employers could buy pandemic-related personal protection equipment without having to pay state sales or use taxes under proposed statewide legislation.
The state House Tax Policy Committee began reviewing two bills this week that would exempt from sales and use taxes the purchase of PPE and supplies such as disinfectants and sanitizers, plus equipment like plexiglass for barriers to prevent exposure to COVID-19. The legislation — HB 6033 and 6034 — would make the tax exemption on PPE purchases retroactive to March 10 and be effective through Dec. 31, 2021.
Offering tax exemptions for PPE purchases “would provide important relief to employers dealing with increased costs of operating in the COVID-19 economy,” said state Rep. Michael Webber, R-Rochester Hills, and sponsor of HB 6033.
“We all know the challenges small businesses continue to face during the COVID-19 crisis. The added expense of enhanced workplace cleaning and providing PPE to their employees is an unforeseen expense that many employers didn’t account for when planning their budgets for 2020 and beyond,” Webber said. “It’s an important thing for our businesses as they’re re-opening and trying to stay open.”
Introduced in July, the bills originated from bipartisan conversations Webber had last spring with legislative colleagues and members of the Detroit Regional Chamber, he said. Similar tax breaks are already used in manufacturing, Webber added.
The bills are tailored to cover a 21-month period for when the pandemic is at a peak, Webber said.
“Obviously, we don’t know for sure how long we’re going to be dealing with this pandemic, but we’re really trying to kind of narrow the timeframe knowing that, hopefully, in the future these companies will need less PPE and less of this stuff going forward,” he said.
The exemption would cost the state an estimated $4 million to $5 million in tax revenue for the present fiscal year that runs through September, and $8 million to $10 million in the next fiscal year that starts Oct. 1, according to an analysis by the House Fiscal Agency. The exemption would trim tax revenues by another $3 million to $4 million in the 2021-22 fiscal year.
The tax exemption would cover PPE “that is not suitable for general use and is designed to be worn and to protect the wearer against injury or disease, or to protect against damaging or injuring other persons or property, such as breathing masks, face shields, respirators, protective gloves, or safety glasses and goggles,” according to the House Fiscal Agency analysis.
To qualify for the exemption, an employer would have to adopt and maintain a COVID-19 safety protocol plan to protect workers and that meets state law and executive orders and “is consistent with best practices for infection prevention and industrial hygiene,” the analysis said.
The safety plan as well has to promote remote work “to the fullest extent possible, including increasing the number of telework-eligible employees,” enhanced cleaning, screening, testing, and contact tracing procedures, “and any additional infection-control measures that are reasonable in light of the work performed at the worksite and the rate of infection in the surrounding community,” according to the House Fiscal Agency analysis.
A third bill — HB 6035 sponsored by state Rep. Joe Tate, D-Detroit — would allow eligible employers to claim a refundable credit against the state’s corporate income tax for what companies paid for PPE, provided they meet certain job retention or growth targets.
The tax credits would “add on to the tools of support” for employers to protect workers and purchase needed PPE, Tate said.
As written, Tate’s bill would allow employers to claim a 100 percent tax credit for PPE purchases if it increased its number of employees after Feb. 1 by at least 10 percent during the tax year and paid wages that exceeded the regional average. Employers that maintained employment levels since Feb. 1 could claim a 50 percent tax credit on PPE purchases.
If enacted, the tax credits would reduce corporate income tax revenue for the state by an estimated $35 million to $40 million over a full year.
Both Tate and Webber said they expect to adjust the bills before they’re ready for action.
At Tuesday’s House Tax Policy Committee meeting, Rep Jack O’Malley, R-Lake Ann, called the tax exemptions and credits a “great idea” as employers recover from and operate through the pandemic.
“I’m with you in concept,” O’Malley said. “I do believe our businesses need some help on this because it was an unexpected expense at a time when they might not have been open and making a profit.”
Gov. Gretchen Whitmer’s administration opposes the legislation as originally drafted, although “we are continuing to have very constructive conversations with stakeholders regarding a number of issues that we have with the legislation,” said Rachel Richards, director of legislative affairs at the Michigan Department of Treasury.
One of those issues is a potential “significant revenue impact” on the state budget that lawmakers would have to address in ongoing budget talks with the governor or through corresponding spending cuts, Richards said.
The Department of Treasury also has issues with language in the bills that defines business activity and how it correlates with language in the law for the corporate income tax, as well as how making the tax credits retroactive would work, she said.
“We are continuing to have conversations with stakeholders and willing to work on some of these technical issues that we have,” Richards said.
Business organizations supporting the bills include the Detroit Regional Chamber, the Grand Rapids Area Chamber of Commerce, the Michigan Restaurant and Lodging Association, the Lansing Regional Chamber of Commerce, the Small Business Association of Michigan, and the Michigan Manufacturers Association. The Michigan Chamber of Commerce and Michigan Retailers Association indicated support for the bill in concept.