A measure that's part of an effort to end the tax advantage customers enjoy when making purchases over the Internet has been introduced in Lansing. State Reps. Eileen Kowall, R-White Lake, and Jim Ananich, D-Flint, announced the legislation, which they call the “Michigan Main Street Fairness Act.”

According to the news release circulated about the measure, it would: “protect Michigan job makers” and close a “tax loophole.” In addition, it's being touted as legislation that would level the playing field between small businesses and out-of-state Internet retailers.

“For me this is really an issue of fairness,” said Michigan House Tax Policy Chair Jud Gilbert, R-Algonac. “This is not a new tax. It's about making sure people pay their fair share of the sales tax, which already exists.”

However, Rep. Dave Agema, R-Grandville, said he's not convinced that trying to find ways of collecting more taxes should be a high priority.

“Let me get this straight.” Rep. Agema said. “They're saying we need to find a way to get more taxes from people, so that government can spend more? Generally speaking, my instincts are to look first for more ways government could save money through efficiencies.”

The proposed legislation would:

 - Move Michigan's online-only retailers under the same sales tax collection laws that apply to Michigan brick-and-mortar businesses; and

 - Expand the definition of “nexus” or “physical presence” to include retailers who conduct business through affiliate businesses in Michigan or own subsidiary companies in an attempt to avoid paying the sales tax.

The new “physical presence” definition would be an attempt to get around a 1992 U.S. Supreme Court ruling that said a “physical presence” was required to compel retailers to collect a sales tax.

Although the legislation in Lansing would only apply to purchases where the seller was in Michigan, it's part of a larger national effort to collect all Internet sales taxes. So-called “big-box” stores are backing a coalition called the Alliance for Main Street Fairness, which is leading efforts to change state sales-tax laws.

Rep. Aric Nesbitt, R-Lawton, said his initial inclination would be to oppose the legislation, but he wants to study it more before finalizing his position. He said he just started researching the issue last weekend and he already has some reasons to be skeptical.

“Right off the top; I have four major concerns about this,” Rep. Nesbitt said. “First; do we really have the ability to do it? There was a U.S. Supreme Court ruling and regardless of how they talk about being able to enforce this; I'm not sure federal enabling legislation wouldn't be required.”

“There's also an issue of how we'd handle the various sales tax jurisdictions within Michigan,” Rep. Nesbitt continued. “Next, I'm concerned that if we did this, it would be counter-productive. We're supposed to be trying to encourage business in Michigan, but this could just send that business to other states. Also, studies I've seen haven't indicated that this would have the positive effects proponents of this legislation claim.”

About as soon as Internet commerce came into existence, states started searching for a way to collect their sales taxes on Internet transactions. Technically sales taxes do apply to Internet purchases. But whose sales tax?

Internet sales often involve people in two or more states. Under such circumstances, how is it to be determined which state's sales tax applies? This situation, coupled with the 1992 U.S. Supreme Court decision, has complicated efforts to find a way to collect these taxes.

Meanwhile, Internet customers have been shopping without fear of being hit with a sales tax on their purchases. In spite of the fact that these sales usually include additional costs for delivery and handling, Internet sales have continued to grow.

On Oct. 1, 2005, Michigan joined a compact of states that agreed to cooperate to eventually be able to collect sales tax on Internet purchases. This occurred after required legislation was passed by the state Legislature and signed by Gov. Jennifer Granholm. At the time, several other states chose not to join the compact; possibly because they had legislative majorities that either philosophically opposed the move as a de facto tax hike, or because they just didn't want to be labeled tax-hikers.

Another suggested reason some states decided not to join the compact was that they saw a potential competitive edge. If the overall market included a lot of states that taxed Internet sales, online retailers might flock to the states that did not.

At roughly the same time, an attempt to establish national rules on collecting Internet sales taxes failed in Congress, apparently for the same reasons that many states had balked at the idea.

“I supported it back then for the same reasons I support it now,” Rep. Gilbert said. “I know there are several issues we'll need to look at carefully, but I think this time it has a better chance of actually going into effect. We're talking about making changes within the state this time.”

In conjunction with the move at the state level, there is once again an effort to get Congress to set Internet sales tax collection rules. However, there is also federal legislation to make the current online tax advantage permanent.

Back in Lansing, the news release issued at this week's press conference explained the reason for the new legislation:

When consumers buy a product online, Michigan law says they must pay the same sales tax they would if they were to buy the product from a store in person.  Under Michigan’s current sales tax collection system, out-of-state, online-only retailers are exploiting the massive legal loophole, allowing them to forgo collecting sales tax at the point of sale. Online-only retailers use this loophole to attract shoppers away from brick-and-mortar businesses by using deceptively lower prices, since Michigan retailers must add — and collect — the 6-percent sales tax to the customer’s bill. As a result, Main Street businesses are put at a significant competitive disadvantage that puts Michigan’s business community at risk.

"I introduced the Main Street Fairness Act to level the playing field between local businesses and Internet retailers," Rep. Kowall said. "Closing this loophole will eliminate the competitive disadvantage that is holding back local businesses. State government is no longer picking winners and losers. Every business in Michigan should have the same opportunity to grow and create jobs."

Supporters of the proposed legislation point to a study released Sept. 15 by Lansing-based Public Sector Consultants to support their side of the issue. However, this study was paid for by the Michigan Retailers Association, the group that's spearheading the effort to the get the law changed.

According to the study, the “sales tax loophole” has a significant negative impact on job makers and the state’s economy. The study claims that “closing the loophole” would directly lead to the creation of as many as 1,600 new jobs, would increase investment in Michigan’s economy in the form of sales at brick-and-mortar retail outlets by as much as $126 million per year and would save the state as much as $141.5 million in otherwise lost sales tax revenue from electronic remote sales in 2012 alone.

The impending closure of the Michigan Quality Community Care Council (MQC3) should free some 55,000 home care workers (as well as registered nurses, nursing home aides and hospital support staff) from government union membership. But these workers may not be able to toss out their membership cards just yet.

Formed through an interlocal agreement between the Michigan Department of Community Health and the Tri-County Aging Consortium, the MQC3 is the so-called government “employer” for members of SEIU Healthcare Michigan and with whom the union has had a collective bargaining agreement since 2006. The SEIU takes union dues from the Medicaid subsidies paid to the home care providers. The dues have steadily risen to nearly $6 million a year during the union’s five-year existence.

MQC3 itself was funded by the state and operated through the Michigan Department of Community Health (MDCH) on a $1 million annual budget. Last May, however, state lawmakers zeroed out MQC3 funding from the MDCH budget for fiscal year 2012.

The MQC3 confirmed this budget cut in recent letters sent to its ‘clients.’ A Sept. 6, 2011, letter to one such recipient reads:

“We are very sorry to have to tell you that the Michigan Quality Community Care Council (QC3) may no longer be able to assist you in finding Home Help Providers. This program will end on September 30^th unless the State of Michigan is able to find a way to continue funding this program. While we hope to be able to continue providing this service, we wanted you to be aware that, at this time, we have no information regarding further funding.”

Susan Steinke, executive director of the MQC3, has indicated that the agency “is allowed to raise private funding.” When asked last week if the agency is pursuing public or private funding to continue operation beyond Sept. 30, she confirmed that the agency is looking at all options, but preparing to close its doors.

SEIU “Remains in Force”

It appears that regardless of the MQC3’s existence, SEIU Healthcare Michigan will remain in operation. Steinke told the Mackinac Center that the collective bargaining agreement “remains in force between us (MQC3) and the union.” But when asked how this is possible if the MQC3 will not stay open beyond Sept. 30, Steinke deferred to the SEIU Healthcare Michigan, saying only that the CBA has “machinations”  that allow the CBA to remain “in force.”

Mackinac Center Legal Foundation Director Patrick Wright says any scenario that would allow SEIU Healthcare Michigan to continue to operate is suspect. “If there is no public employer, then the home health providers cannot be public employees and there is no justification for mandatory collective bargaining. The state of Michigan should cease collecting so-called ‘dues’ immediately.”

As for these dues, it is unclear how the MQC3’s closing would affect the way they are handled. The agency had been acting as the  ‘pass-through’ for the dues, first collecting them from the Michigan Department of Community Health, then distributing a portion of the providers’ Medicaid subsidies to the union.

When asked about union dues after Sept. 30, an MDCH spokesperson told the Mackinac Center in an email, “Once we receive word from MQC3 regarding what they plan to do, we will do a legal review to determine that.”

SEIU Healthcare Michigan has yet to return calls for comment.

In the meantime, Wright said the SEIU targeted the private home care providers just as AFSCME and the UAW targeted home day care owners and providers because the unions saw the providers’ government subsidy checks as dues-paying wells. The unions and some high placed government officials then worked around the legislature to give these providers government employee status using ‘interlocal agreements’ to set up so-called ‘employers”. (Note: the day care union scheme ended following a Mackinac Center Legal Foundation lawsuit.)

Legislature can end stealth unionization scheme, “once and for all”

Wright says right now, the Legislature is poised to end the entire scheme, once and for all.

He points to HB 4003, which would ensure that independent contractors such as home health and day care providers who are paid with government subsidies are not considered government employees. Therefore they could not be forced into a government employee union. The state house has already passed the measure. HB 4003 currently sits before the Senate Reforms, Restructuring and Reinventing Committee. The committee has not touched the bill since it passed the House in June.

“Both this unionization and the day care unionization were accomplished in an underhanded manner meant to circumvent the Legislature,” Wright said. “One way that body can right this wrong and reassert its Constitutional authority by passing HB 4003, which would explicitly ban them now and prevent such dubious unionizations in the future.”