There is something rotten in the state of Michigan. Gov. Jennifer Granholm and state lawmakers emerged from a recent late-night budget session with a new 6% sales-and-use tax that affects investment advice services, among about 20 other previously untaxed services.
There is something rotten in the state of Michigan. Gov. Jennifer Granholm and state lawmakers emerged from a recent late-night budget session with a new 6% sales-and-use tax that affects investment advice services, among about 20 other previously untaxed services.
The tax's projected revenue will help avert a government shutdown. But the tax has left Michigan lawmakers facing a variety of questions from the service pro-viders affected by it. To date, the lawmakers haven't had many answers.
Coalitions are being formed to interpret the law, and a number of efforts to repeal the tax are afoot. The Denver-based Financial Planning Association and the National Association of Personal Financial Advisors in Arlington Heights, Ill., have indicated that they would support overturning it.
But where were the FPA and NAPFA when Michigan lawmakers were grappling with the budget crisis, and new taxes were a real possibility?
Duane Thompson, managing director of the FPA's Washington office, said sudden legislation "happens from time to time, and it's impossible to predict what can happen from legislators behind closed doors." He said that the FPA has alerted members to the possibility of state tax legislation but noted that the national organization employs just one contract lobbyist in a state capital, in Springfield, Ill.
Some groups were prepared. As Republican Rep. Kenneth Horn told InvestmentNews senior editor Jeff Benjamin in a story last week, the list of services that will be subject to the tax was pared down through negotiations that often involved lobbyists. Mr. Horn, who voted against both the service tax and an income tax hike, said, "Apparently if you complained loud enough, you got off the list."
Advisers in Michigan must call on the FPA and NAPFA to demand action. Mr. Thompson said his group "is definitely going to do something about the legislation," and is already taking several steps.
Ridiculously, the tax, which goes into effect Dec. 1, lumps investment advice together with "non-essential" services such as astrology reading, fortunetelling, palm reading, dating services, baby-shoe bronzing and coat checking, to name but a few.
"The final list was part of the negotiations in the budget process that includes high-end discretionary-type services the governor felt folks could opt not to use," Terry Stanton, a spokesman for the Michigan Department of Treasury, explained in last week's story.
Is Ms. Granholm of the belief that the average investor could opt not to use a financial planner or adviser and go it alone without professional guidance?
Ironically, as more and more first-time investors turn to the markets to help pay for homes, send their children to college and look to secure their own retirement, it's never been more important for people to turn to a professional for investment advice.
No matter how things shake out, the consumer will pick up the tab once the tax goes into effect. Financial advisers will have to add it to their client's bill and then collect it for the government.
Because even lawmakers who sat in on the budget negotiations aren't clear about exactly which services will be affected, Michigan's Treasury Department is working to define precisely what services are and are not taxable.
One thing is for sure: It is up to the industry and its member organizations to keep the heat on Michigan lawmakers and find ways to overturn this tax.
