Death to Tax

In an age when many companies no longer sponsor defined benefit plans, and individuals must save and invest in defined contribution plans if they want to be able to retire, what do most investors need? Advice, of course. “It does not make sense for Michigan to penalize investors who have taken the responsible step of planning for their financial future. Receiving professional advice to assist in the planning for a comfortable retirement, or a child’s education, or the care of aging parents, can hardly be considered an optional or a luxury service,” Bellaire adds. Lumping advisory fees in with fortune telling and escort services does seem really odd. “Those other services were thrown in as kind of a red herring,” to get the tax passed in the first place.

How would the services provided by other professionals–CPAs, attorneys, doctors–have been taxed under the plan? “There was this broad provision dealing with consulting services and it would have covered a lot of other activities,” Bellaire notes, including some of Michigan’s “industrial complex” which includes the big, but troubled, auto makers who “outsource a lot of business activities,” which would have been heavily taxed under the Use Tax. “It’s hard to make a blanket statement about who would have been covered, but certainly some of the activities of CPAs, their business consulting services, would have been covered. But we were really focused on the investment advice provision and its potential impact of a disincentive to do the responsible thing and plan for one’s financial future.”

FSI was part of a coalition called “Ax the Tax” which worked closely with many other associations and the car company lobbyists to bring attention to the Use Tax, and provided a Web site for the latest news on the intense campaign to repeal the tax, and ways to take action. FSI also provided tools on its Web site, asking members to write to lawmakers and Michigan newspapers, call talk-radio shows, and get colleagues to join in the fight. The success of the campaign says volumes about the effectiveness of FSI’s leadership and efforts in getting lawmakers to listen and to understand how what they do affects not only the financial community, but also the investing public as well.

The Michigan law would have taxed not only investment advisors based in Michigan, but also advisors outside of Michigan who advise Michigan residents. Getting this tax repealed is critically important to independent broker/dealers across the nation because so many of those have adopted the dual B/D and investment advisory model, and as Bellaire puts it: “We were concerned that if Michigan was successful in adopting the tax and using it to cover a budget shortfall, that we might see the same thing in other states.”

E-mail Senior Editor Kathleen M. McBride at [email protected].