Luxury or Necessity?

From a tourism perspective, few things have upset me more than our legislators' potential decision to levy a "luxury", "discretionary" or "leisure" tax to raise $335 million to help balance the State's budget and replace the Governor's failed service tax proposal.

At first blush the words "luxury tax" conjure up visions of alcohol, tobacco, mega yachts, expensive jewelry and fur coats or things that most of us can do without. But upon closer investigation you will discover that the proposed list of so-called "non-essential" services to be taxed (at 6%) reaches deep into the pockets of the average Michigan resident and the tourists who drive our economy and the State's second largest industry.

Currently the tourism industry provides $1 billion per year in tax revenues to the State of Michigan. Our ability to sustain that momentum has been challenged by aggressive regional and international competitors who outspend Travel Michigan with much larger promotional budgets. In 2006 Michigan's financial crisis ranked it 49th out of 50 states economically and 50th out of all 50 states in lodging occupancy. Tourism was down as much as 50% in some areas of the state. According to the Michigan Association of Convention and Visitors Bureaus, tourism is Michigan's second largest industry. For every dollar invested in tourism there is a return of $3.47 to the state's economy. Why risk weakening this important industry further, making us less competitive in the Midwest region by taxing the attractions and activities that lure clientele to our state and our area? This would serve as an added cost keeping visitors from those activities.

The current list of services to be taxed includes the following - see how these would impact you and your business: performing arts companies, sports teams and clubs, racetracks, other spectator sports, movie tickets, cable TV, amusement parks and arcades, golf courses/country clubs, skiing, marinas, bowling centers, repair and maintenance, personal care services, dry cleaning and laundry, other personal services, exterminating and pest control, janitorial services, waste collection, waste treatment and disposal, landscaping services, carpet and upholstery cleaning, scenic transportation, tour operators, other travel and reservation, other amusement and recreation, mini warehouse and self-storage, investigation, security systems services, veterinary services, fitness and sports, broadcast and telecommunications, telephone call centers, couriers and messengers, warehousing and storage, office administration services, document prep services, business service centers, guard and armored car, packaging and labeling, convention/trade show organizers, all other support services, consulting, investment advice, all personal services.

I find it interesting that you can go to jail for failing to provide medical care for your pets or farm animals but this bill would define veterinary care as a "luxury" or non-essential service. Add to that waste collection, dry-cleaning, janitorial services, fitness and office administration. Imagine the ramifications if we all decided that these were non-affordable luxuries!

According to Senator Birkholz's office, there are no bills or official proposals including a luxury tax at this time. It is being discussed as a possible part of the fall budget but there is nothing concrete yet on the table. Nothing so far is carved in stone and legislators took off on their reduced one-week summer break before this issue came to the forefront.

One of the strongest opponents to the Democrat's luxury tax proposal is Representative Fulton Sheen who feels that what some arbitrarily define as a luxury would impose a tax on activities such as seeing a movie or attending a sports game for both high income and low income individuals. According to Sheen "a luxury tax will impose costs on a large portion of Michigan's tourism industry at a time when our customers can least afford them. Increasing the tax burden on Michigan citizens and businesses is not the answer to the state bureaucracies' spending preferences. If the luxury tax is enacted, I believe more citizens will be out of work, exacerbating Michigan's economic problems."

According to industry officials most political observers agree that Michigan has a $1.8 billion budget deficit - but it is hard for most people to grasp the magnitude of that amount of debt. They have put the problem in context with this analogy - "a tightly-packed stack of new $1000 bills totaling $1 billion would be 63 miles high." Jet planes fly at an altitude of 5.7 to 7.7 miles. They emphasize that the State Constitution mandates a balanced budget and that the deficit will be closed through a combination of tax increases, budget cuts and governmental reforms. They oppose the imposition of a 6% sales tax on luxury and discretionary services but add if it must be included to resolve the budget deficit, it must be broad-based and inclusive of as many service industries as possible. Many agree however that the better solution would be to support an increase in Michigan's personal income tax as the fairest, most broad-based approach to generating the necessary tax revenues for state government.

Meanwhile, there is much "politicking" taking place. Businesses are busily lobbying to get their "luxury" or "discretionary" services removed from the list of those that might become taxable. According to the Michigan Association of Convention and Visitors Bureaus, this list remains "extremely fluid". Already realtors, attorneys, accountants, architects, insurers and builders have gotten themselves excused. Shouldn't we do the same? Contact your local representative and express your viewpoint.

For further information contact Felicia Fairchild, Executive Director
Saugatuck-Douglas Convention & Visitors Bureau at (269) 857-1701 or (269) 857-5895