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Michigan service tax repealed By Tom Andel, Editor In Chief -- Modern Materials Handling, 12/7/2007

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Presentation on theme: "Michigan service tax repealed By Tom Andel, Editor In Chief -- Modern Materials Handling, 12/7/2007"— Presentation transcript:

1 Michigan service tax repealed By Tom Andel, Editor In Chief -- Modern Materials Handling, 12/7/2007

2 Inventory Joel Anderson is a happy man. The Michigan “inventory tax” is dead. Modern reported last month that Anderson, CEO of the International Warehouse Logistics Association, was on a mission to kill a tax bill in Michigan that would effectively raise the cost of third-party logistics (3PL) services performed in the state.reported last monthInternational Warehouse Logistics Association Governor Jennifer Granholm signed a repeal of the 6% service tax just two months after it was enacted as part of an Oct. 1 deal to solve the state budget crisis. With the repeal comes an accommodation in the form of a 22% surcharge on the Michigan corporate business income tax, which is capped at $6 million. The language includes terms to eventually sunset this tax by 2017.

3 What is 3PL Hertz, and Alfredsson (2003) describe four categories of 3PL providers: –Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.pick and packwarehousing distribution (business) –Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross- docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.tracking and tracingcross- dockingeconomies of scale –The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.logistics –The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.

4 Case against service tax One of the legislators who helped make the case against the service tax was Senator Mark Jansen (R-Grand Rapids). Jansen told Modern it was the logistics contingent more than any other business group that really drove the point home.Senator Mark Jansen “I was brought into these facilities, and what struck me the most and what I used in my debating on the Senate floor was a recording one warehouse service provider played for me of an Indiana real estate broker who said ‘Come on down to Northern Indiana—I hear you have a service tax.’ The other piece is, according to the Michigan State study, there are 30,000 logistics jobs in Michigan, and 45% would be gone by the end of the year. The logistics people made this real.”

5 Argument isn’t over! Anderson says this argument isn’t over. He contends that the point that needs to be made every time there’s a change in legislature is, “Logistics is local.” “State legislators love to tax the foreigner,” Anderson says. “Hotel taxes, car rental taxes, all of that is about taxing the nonresident taxpayer. The reality of logistics is, while freight is interstate, business is local. Heavy manufacturing may have gone offshore, but assembly and distribution is taking place in our warehouses.”

6 Tax The Economics – Who Pays? 3PL is a factor of production. If taxed, you use less of it. W = factor price L = amount of factor Factor demand Factor supply Who pays? Depends on elasticity of demand and supply. W0W0 L0L0 Tax L1L1 W1W1


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