siness
Tax Planis
Experts say Michigan voters
made correct choice.
R.J. KING SPECIAL TO THE JEWISH NEWS
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epending on the perspective,
last week's passage of Propos-
al A, the state's massive tax re-
form act, will put more money
in the pockets of homeowners,
burden retailers and the real
estate industry, and help the
disadvantaged and seniors, say
Jewish tax experts.
Under the new plan, proper-
ty taxes will be reduced from 35
to 6 mils on average, a drop de-
signed to ease housing costs so
homeowners will in theory have
more to spend on retail goods
from furniture to ceiling fans.
Those savings, however, will be
offset by an increase in the sales
tax from 4 to 6 percent.
"When all taxes are factored
in, including Proposal A, the av-
erage homeowner in Michigan
will save $300 annually. When
homeowners see a reduction in
monthly house payments, it of-
ten translates into more dis-
cretionary spending," said Walt
Hessell, a principal with
Follmer Rudzewicz & Co., a
mid- sized accounting firm with
offices in Southfield and Mount
Clemens.
"As for the increase in the
sales tax, it will have a moot im-
pact on seniors and the work-
ing poor. The sales tax doesn't
hit them that hard because food
and prescription drugs are ex-
empt. I've interviewed large re-
tailers in the state, many with
over $100 million in (annual)
sales, and they do not fear the
sales tax. They were much
more worried about the alter-
native plan."
If voters had failed to pass
Proposal A, a different round of
taxes would have come into
play, including an increase in
single business and income tax-
es. Such outlays would have
been more difficult for retailers
to pass onto consumers and
would have slowed the creation
of new jobs, said Mr. Hessell,
vice chairman of the govern-
mental affairs group for the
Central Macomb County
Chamber of Commerce.
With a 6 percent sales tax,
Michigan will be on par with
most other states on average.
Property taxes, meanwhile, will
now be 7 percent below the na-
tional average. In addition to
these levies, out-of-state phone
calls will be subject to a new 6
percent tax while the cigarette
tax will jump from 25 cents to
75 cents per pack.
"Michigan opted for the right
thing. With the increase in the
sales tax, people should realize
that tourists will help bear the
burden, which is always nice,"
said Stephen Epstein, a part-
ner and chairman of the retail
industry practice for Coopers &
Lybrand, a Big Six accounting
firm with offices in Detroit.
"As for the sin (cigarette) tax
(increase), hopefully that will
cut down on smoking, which
will cut down on health-care
costs and increase productivi-
ty. Out-of-state phone calls are
a rather easy way to increase
tax revenues without raising
too many objections. On the
whole, the plan is positive for
Michigan."
Mr. Epstein said the sales
tax increase may slow the sale
of costly commercial items such
as computers, appliances and
automobiles. On a $2,000 pur-
chase, a 4-percent tax works out
to $80 while a 6-percent tax
costs $120. Still, Mr. Epstein
cited that sales taxes tend to
burden people who can most af-
ford the outlay, as opposed to a
uniform income tax.
One other new tax of note is
a 0.75 percent levy on the sale
of all real estate. The so-called
real estate transfer tax will be
charged to the seller. Mr. Hes-
sell said most sellers will in-
clude the tax in the price of the
property, in effect passing the
cost onto buyers. For the sale of
a $100,000 home, the real es-
tate transfer tax will be $750.
"With the property tax re-
duction, people will buy more
and larger homes," said Mr.
Hessell. "In a study of a 4-per-
cent real estate transfer tax in
the Northeast, which by the
way included property tax re-
ductions, the outcome was pos-
itive. There were more homes
sold because people found
everything more affordable. The
net effect was less-expensive
prices which allowed more peo-
ple to enter or move up in the
market." 0
Income Tax
Personal Exemptions
Sales Tax
Single Business Tax
Cigarette Tax
Property Tax (Average)
*Homestead
*Business, 2nd Home
Property Assessment Cap
254 per pack
6%
2.35%
750 per pack
35 mils
35 mils
No tax
6 mils
24 mils
5% or inflation, if less.
Minor fee
No tax
0.75%
6%
Real Estate
Transfer Tax
Out-of-state Phone Calls