Until late Sunday morning, it was the best-kept secret in Lansing as lawmakers desperately sought to reach a deal to solve the state’s budget crisis and avoid a costly and embarrassing government shutdown.

But Monday, as details of a new law to extend the state’s 6% sales tax to many services became clear, businesses around the state, from the powerful auto companies to commercial landscapers to personal fitness trainers, expressed shock, confusion or both.

They said the new law, set to take effect Dec. 1, will make doing business more difficult in a state already struggling with the nation’s highest unemployment rate and continued loss of auto-related jobs. Some predicted companies would move or push more of their business to other states.

Some service businesses with lobbying clout in the Legislature escaped the new sales tax. Among them were golf courses, real estate and cable and satellite television companies. The cable industry, in particular, lobbied hard after word circulated that it would be taxed.

Among companies targeted for the new tax are janitorial services, landscapers, couriers, car services, consultants, investment advisers, private investigators and others.

More bad news for Detroit Three

Michigan’s automakers could be shouldering a hefty portion of the increase because they are huge spenders on consulting services. The Senate Fiscal Agency estimates that taxing consulting services would generate $188.2 million, or 31% of the $614 million expected to be raised from the expanded sales tax.

General Motors Corp., Ford Motor Co. and Chrysler LLC have relied on platoons of business and technical consultants in recent years as they struggled to turn around their businesses. While all three said they were still studying the final bill and declined to offer an estimate of its cost, each automaker could see its expenses rise by tens of millions of dollars, industry executives said.

The three Detroit automakers raised concerns about the consulting taxes and other parts of the tax bills with Granholm’s office Monday. Granholm spokeswoman Liz Boyd said the governor’s staff expected to meet with automakers later this week.

“We certainly are interested in hearing their concerns,” Boyd said. “We are very supportive of our manufacturers and the Big Three, and if they have concerns we will make certain we hear them and understand them.”

Passing the tax on to you

The tax could lead to higher prices for consumers as companies pass on the costs, business experts said. But it also could cut into the slim profit margins of many service providers who haven’t been able to raise prices in several years because of tough market conditions.

For some, 6% could be the difference between staying in business and closing. Others fear higher costs will give competitors in other states an advantage.

Sue Jarvis, owner of Aristocat Limousine in Warren, said she already has cut costs and hasn’t been able to recover from higher gas prices.

In addition, she has had to contend with higher airport parking fees.

“I don’t know what we’re going to do,” she said. “It just seems like there’s more and more taxes all the time. I think it’s wrong.”

Peter Psarouthakis, president of the Michigan Council of Private Investigators — whose members do work for state and local governments, law firms, corporations and others — said he had received several e-mails Tuesday from his group’s members, telling him it was time to pack up and move to another state.

“We are really concerned about it,” said Psarouthakis, who owns EWI & Associates Inc., a private investigative firm in Chelsea.

He and others were particularly incensed that not all services will be taxed. Lawyers, auto dealerships, sports teams, accountants and others were excluded.

Sharing the burden

State Treasurer Robert Kleine said the overall principle in choosing which services to tax “was to try to identify services that people did not have to purchase.” He acknowledged that for many businesses, purchasing certain services is mandatory.

Those who support the tax expansion say that it’s time for more of the state’s service companies to bear some of the burden as Michigan accelerates its shift to a service-oriented economy. Earlier this year, legislators in Lansing replaced the state’s Single Business Tax with a new tax that will provide some relief to the state’s struggling manufacturers.

“If you have to raise more taxes … it’s a good idea,” said Joel Slemrod, director of the University of Michigan’s Office of Tax Policy Research, noting that it spreads the burden more evenly.

Curtis Dubay, an economist at the Tax Foundation, a research group, said there’s nothing wrong with taxing service businesses, but the tax should have included all companies, not just those without strong lobbyists.

He also said the 6% rate should be lowered and that it should not affect business-to-business transactions. That was a major contention this spring when Gov. Jennifer Granholm first offered a proposal to include more services.

A pinch to small businesses

Business groups said Monday that the tax could hinder the state’s efforts to attract new companies. Anderson Economic Group found last year that business tax burdens in Michigan are slightly above the national average.

“Our elected officials gave lip service to how much they value small business, but at crunch time they couldn’t walk the walk and support us,” said Todd Anderson, vice president for government relations for the Small Business Association of Michigan.

“Small business owners, struggling to survive and create jobs in the nation’s most depressed economy, now have to dig deep into their own pockets to find a way to absorb the impact of a sales tax on services and a higher state income tax,” he added.

The latest Small Business Barometer quarterly survey, he said, found that just 11% of small businesses reported an increase in profits over the past quarter. That was the least in the survey’s 14-year history.

Patrick Anderson, chief executive of the Anderson Economic Group in East Lansing, said the tax could force his consulting firm to shift work to its offices in Dallas and Chicago.

“The state is never going to realize the revenue they expected from it,” he said, noting that many companies are likely to lose sales or move employees outside Michigan.

For now, many of the affected companies are waiting to see details of the change. Some confusion exists over who will be affected and how businesses will collect the taxes.

The state Department of Treasury plans to spend the next few months communicating with business owners about the tax, spokesman Terry Stanton said. He didn’t have estimates for how many businesses would be affected by the tax.

“There is still a lot to figure out with this story,” said Renato Jamett, vice president and branch manager for Raymond James & Associates in Dearborn.