Just before midnight on September 30, 2007, Michigan Legislators passed H.B. 5198, which amended the state Use Tax Act to adopt an excise tax on the use or consumption of certain services in the state.

The expansion of Michigan's 6% state sales tax to services is expected to raise $781 million per year (Note: Michigan levies only a state sales tax; there are no local levied sales taxes). The tax is effective December 1, 2007.

Services are taxed in the same manner as if they were tangible personal property and sourced on a destination or use basis.

Certain services are identified by the description of such services as provided by their NAICS (North American Industry Classification Standard) industry code. Providers of such services must register with the Department of Treasury. Registration is not required for those holding a seller's license or those who are registered under the streamlined sales and use tax agreement.

Issues for the Business Community
There are two issues of immediate interest to the business community. First, the bill does not provide a business-to-business (B2B) exemption for the specified services, and much of the anticipated revenue is expected to be borne by the business community.

Second, language in the bill emphasizes that a specified service is subject to tax based on the description of that service in the applicable NAICS code, and not the classification of the establishment providing that service. Thus, many service businesses that may file under a non-taxed NAICS code may find that the services they perform are described under a NAICS code that is specifically taxed.

Which services are taxable?
Among the services that would most likely affect businesses: Consulting, office administration, business service center, travel and reservations, investment advice, and more. Samuel J. McKim III, Joanne B. Faycurry, or Jackie J. Cook.