A new and unpopular Michigan 6% service tax on business died on Saturday less than 17 hours after it had taken effect. The tax officially became law at 12:01 a..m. Saturday, but later in the day the Michigan legislature approved a bill repealing and replacing the tax which Governor Jennifer Granholm later signed that same day.

Here’s the back story, and how it relates to the financial world. This past October the Michigan legislature added a new 6% sales tax to financial advisory services and other occupations considered “non-essential" which included astrology reading, escort services and ski lift ticketing. This new tax along with an increase in the income tax rate to 4.35% from 3.9% was an effort to meet a projected $1.75 billion budget deficit.

The new tax quickly spawned the Coalition to Ax the Tax, a group of more than 70 business and taxpayer groups including the Small Business Association of Michigan. Public pressure from the Coalition and its members played a lead role in getting the Legislature to consider the tax’s repeal.

The service tax will be replaced by a 21.99% surcharge on the taxes businesses will already pay under the new Michigan Business Tax, which takes effect January 1, 2008. Yes, politics is the art of the compromise.

Photo credit: redgoldfly on Flickr.