IARFC Labels Michigan Tax on Financial Advice “A Horrible Idea for State Residents”

(Middletown, OH) Members of the International Association of Registered Financial Consultants (IARFC) are concerned with the lack of equality and logic portrayed in the recent move by the State of Michigan to place a 6% tax on investment advice and financial planning. On October 1 the Governor of Michigan, Jennifer Granholm, aided by her party associates, acted late at night to revise tax bill No. 5198 to impose a 6% sales and use tax on many services previously untaxed. According to Ed Morrow, CEO of the IARFC, “Michigan missed some great opportunities when adding investment advice and planning to the list of taxable services. However, this new rapacious revenue greed by Michigan politicians was not extended to several noteworthy occupations.” Morrow listed the following as “lost taxing opportunities.”

Attorneys (the Governor and her husband are both attorneys)
Accountants (hopefully the Governor pays her taxes)
Hair Dressers (the Governor is nice coiffed in her publicity photos)
Medical advice (the Governor and her husband may have regular exams)
Hospitals (after all, they dispense lots of advice, services and medicine)
Dental services (the Governor wants to keep her nice collection of teeth)
Counseling services (student tutoring and psychological assistance)
Vocational and Academic Education (important career planning advice)

However, a major revenue option was included, transit services. “This will give Governor Granholm and the State of Michigan an opportunity to levy a final tax on businesses and citizens as they leave the state,” noted Morrow.

The new piece of legislation was revised in a very late night session to expand the category of those who are now decreed to become revenue collectors for the State of Michigan. This presumably includes clients who have moved to Michigan. Both fees for assets under management and for financial planning fall under North American Industry Classification System (NAICS) category 52393.

What About Employee Benefit Plans? If investment advice is rendered to a retirement plan that covers employees or retirees in Michigan, it is not clear whether advisors are required to assess and collect the 6% fee – collectible December 1. Unfortunately there is no practical way to pass this “haircut” on to those group clients. Morrow added, “Please don’t be concerned, because Governor Granholm will not be paying 6% on her personal haircut.”

Morrow explained, “However, the Governor will have to pay if she uses an escort service, an astrologer, a fortune teller, a coin-operated blood pressure machine or sends her (tax exempt husband) a birthday balloon-o-gram. It is not clear if political consultants or pollsters will be covered, but based on the Governor’s exemption of her pre-political legal profession, it is not likely.”

Do out-of-state businesses collect use tax? Michigan, like other states, can require a business to collect and remit use tax only if the business has a physical presence in this state. Examples of a presence in a state would be a store, warehouse, or employees or other representatives of the business. Presumably this would include any broker/dealer that has a representative who is a resident of Michigan.

Some Really Bad News. What if this tax is upheld and becomes popular elsewhere? Imagine the nightmare for advisors who want to continue services to a mobile clientele, by capturing the tax for all the different jurisdictions and then forwarding the correct amount on to the various state treasurers. And you can count on it – if Michigan collects lots of tax this way, other states will be soon to follow.

The IARFC is a non-profit professional association that provides education, training and practice management support to over 8,000 financial advisors. Morrow concluded, “This is revenue desperation that will harm the citizens of Michigan, most of whom need financial help, advice and service, and all of whom will sooner or later use professional services of a financial advisor, attorney, accountant, tutor, counselor or other fiduciary. This horrible idea is not a tax on planners, but just another tax on Michigan citizens. The long-term implications are serious, because soon Michigan will want to start adding a similar tax to commissions such as those on real estate, securities and insurance. All of these services are already subject to tax in the income tax returns of the providers. This represents a double-taxation!”


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International Association of Registered Financial consultants
The Financial Planning Building
2507 North Verity Parkway
Middletown, OH 45042
800 532 9060
www.IARFC.org

For additional information, contact: Wendy Kennedy