LANSING, Mich. (AP) -- Businessman David Rhoa offers a blunt assessment of the confusion surrounding Michigan's expanded tax on business services.
"The Legislature and governor pulled a pin on a grenade and handed it to small businesses and said, 'Hold onto this for a second,"' says Rhoa, 39, whose family owned firm in Kalamazoo, Lake Michigan Mailers, employs 56 workers. "Now we're left to deal with it."
An outraged business community -- which will pay three-fourths of the new tax -- is trying to repeal the 6 percent tax on services before it takes effect Dec. 1. But even under opponents' most optimistic scenario, they'll probably have to deal with the tax at least until next year -- and possibly much longer.
Democratic Gov. Jennifer Granholm says she will consider a repeal only if other new tax revenue is found to avoid cuts to education, public safety and health care. The sales tax was added to more services as part of a deal to fill a $1.75 billion shortfall in the state budget, and supporters say the state needs the money the tax will bring.
But the fast-approaching Dec. 1 deadline has the state Department of Treasury and thousands of businesses, along with their accountants and lawyers, scrambling to get ready. Uncertainty over what businesses the tax applies to seems to be growing, despite treasury officials' efforts to sort out the new law.
Marketing generally would be subject to the sales tax, but it's unclear if the tax affects public relations firms that develop marketing strategies.
Business consulting would be taxed and generate nearly one-third of the $614 million in revenue the tax is expected to pull in over the 10 months remaining in the fiscal year. But it's not clear if the tax applies to consulting in areas such as information technology and Web site development.
About 16,000 of the 300,000 businesses in the state would have to collect the tax. But many businesses could find themselves paying the tax for services ranging from deliveries to copying. Services provided by accountants, lawyers and lobbyists are exempt from the tax, but gray areas exist even there.
Some of the confusion stems from the way the law is written. It lists 23 new business categories subject to the sales tax. But it also defines the services by referring to classification codes used by the federal government to compare economic activity.
Many companies can't tell if their services match the codes.
Businesses that offer an array of services have little guidance about how to tax some of what they do but not the rest. Advertising agencies, for example, aren't on the tax list. But taxes are supposed to be collected on a major component of their business: graphic design.
"There's a lot of head scratching," says Rhoa, the second generation to run his family's mail and direct marketing business. He wants his company to be in compliance, even as he frets that he might be misinterpreting the new law.
"I'll take a stab at this and hope to hell I'm right," he says.
Businesses also wonder how to collect the tax from customers or pay it to other businesses when using newly taxed services such as packaging and labeling, or couriers and messengers.
"The state seems overwhelmed trying to figure it out," says Jase Bolger, 36, president of Summit Credit Services in Kalamazoo, which helps banks update phone records of customers and track down people who owe them money.
He has hired an accountant and attorney to review the service tax and its implications on his business of 20 employees.
"The state already is costing me money before I even know whether I'm going to have to pay the tax or not," Bolger says.
Questions and anxiety from the business community are normal and understandable with implementation of any new tax, says Treasury spokesman Terry Stanton. The department plans to release more information soon clarifying what services are subject to the tax and explaining how the tax will be collected and paid.
"We know time is of the essence," Stanton says. "Before we put something out, we want to make sure it's correct."
Stanton acknowledges that two months isn't a lot of time to prepare. Treasury officials were given six months to put in place the new Michigan Business Tax that takes effect Jan. 1.
But it took until Oct. 1 for lawmakers and Granholm to expand the sales tax to more services in a deal struck in the early hours of a partial government shutdown.
Some of the angst isn't surprising. Nobody enjoys paying higher taxes, especially during Michigan's economic downturn. But businesses also hate uncertainty and crave simplicity.
The first three times Rhoa visited a state Web site to register a side consulting company for a sales tax license, he says, the system crashed. When he got through, he had trouble matching his type of business with a menu of options and eventually called the Treasury Department, which said it would fix the problem when he sent in the application.
Companies also don't like being caught off guard.
When Granholm's proposed 2 percent tax on services was rejected earlier in the year, many businesses figured the issue was dead. Those who knew it could be reincarnated say it was billed as a tax on high-end discretionary or luxury services -- sporting tickets, golf, skiing.
"When I clean millions of square feet of building spaces a night, that's an essential service -- not a luxury," says Bob Corwin, 60, president of Lansing-based Clean Team USA, which now will collect the tax on janitorial services. The 180-employee company works in buildings in an area stretching from Jackson and Lansing to the Detroit suburbs.
Legislation has been introduced to reverse the service tax expansion, which was passed in the middle of the night with no public hearings held on the specifics. A business coalition may collect signatures to put the matter before voters next year if legislators don't act.
It's not clear if voters would agree to raise the income or sales tax rates to replace the expanded tax on services, or what would be cut if the tax is repealed without a replacement.
In the meantime, businesses and some lawmakers worry the Treasury Department has been given too much latitude to interpret what's taxable.
"If there is any gray area or question, Treasury is probably going to land on the side of what brings in more money for government," says Ari Adler, director of public affairs for John Bailey & Associates, a PR firm in Troy and Lansing that's still figuring out which of its services could be taxed.