The Senate Finance Committee voted 4-1 along partisan lines to advance S.B. 935, S.B. 936 and S.B. 937 out to the full chamber, with Sen. Stephanie Chang, D-Detroit, dissenting from Republicans on the panel. For businesses that have been hurt by the pandemic, the bills would defer payments of certain sales, use and income withholding taxes to Dec. 31 before any penalties or interest would accrue on the unpaid balances.
Under the bills, the Dec. 31 date would apply to sales and use taxes due in March through August and to withholding tax payments accrued on or after March 31 and before Dec. 31, according to analysis of the legislation. If the bills pass the Senate, they would next head to the House of Representatives.
Michigan has already extended the payment dates for some sales, use and withholding taxes to June 22, and the Department of Treasury will allow taxpayers to pay them off in six-month installments. But Dan Papineau, director of tax policy and regulatory affairs for the Michigan Chamber of Commerce, told the panel that the bills would go one step further and offer additional relief to businesses that are struggling to stay financially solvent.
"Cash flow will be a big problem for businesses as they begin to reopen, and extending the repayment of [the] taxes will be one mechanism to alleviate this," Papineau said.
Like many states, Michigan ordered most businesses to close or not permit in-store service to curb the spread of COVID-19, the respiratory illness caused by the virus. Restaurants and bars, which have been barred from offering dine-in service for several months, will be permitted to reopen at 50% capacity starting Monday, although other businesses like gyms and movie theaters will remain shuttered for now.
The bills' Dec. 31 payment date would also apply to larger companies that file returns on an accelerated basis, which were carved out from the June 22 extension that the state offered. Companies with sales or use tax liabilities of at least $720,000 or withholding liabilities of $480,000 or more in the preceding calendar year are required to file accelerated returns, according to an analysis of the bills.
If the bills are enacted, they are estimated to shift more than $5.7 billion in tax payments out of fiscal year 2019-20 and into fiscal year 2020-21, which begins Oct. 1, according to the analysis.
Chang asked Papineau if he had any concerns about altering the state's revenue flow for the current fiscal year. In response, he noted that the Dec. 31 due date would be similar to the department's payment plans because some of the final installments of those tax payments are due near the end of the year.
After the hearing, Papineau told Law360 that he believes the bills should be amended to ensure that large businesses that file accelerated tax returns wouldn't be granted the extension if the pandemic didn't hurt their operations. Attaching "some guardrails" to the measures would balance the fiscal challenges that the state and businesses are experiencing, he said.
"The state has cash flow issues, and we recognize that," he said.
Chang, who is also the minority floor leader, voted against the bills but did not express any specific objections to them. A representative at her office said Chang was not available for comment.
The office of committee member Sen. Curt VanderWall, R-Ludington, who is a sponsor of the three bills, did not respond to a request for comment.
Committee Chair Aric Nesbitt, R-Lawton, who is also the Senate president pro tempore, could not be reached for comment.
--Editing by Vincent Sherry.
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