LANSING (AP) – Michigan’s fragile state budget agreement was reached in the middle of the night after months of sometimes painful give-and-take between lawmakers and Gov. Jennifer Granholm.

Shortly after the sun came up yesterday, it was clear the negotiations and the pain aren’t over.

Lawmakers already have introduced bills that would kill off the expanded 6 percent sales tax on services set to take effect Dec. 1. Many businesses consider the tax confusing and unfair, with some warning it will cause them to lose business to out-of-state competitors or have to leave the state themselves.

Businesses would pay about three-fourths of the new tax, which would bring in about $725 million a year, raising concerns that it could discourage growth in the service sector that Michigan desperately needs.

The Legislature could have its hands full dealing with the issue before a scheduled two-week break in mid-November. That doesn’t leave much time to act.

Granholm said yesterday she could support repealing the services tax law before it takes effect, but she wants lawmakers to come up with other ways to raise the $614 million the new tax is expected to bring in this fiscal year so payments for schools and other state programs aren’t affected.

“I am and have been in discussions with the business community about what that could look like. My criteria for the replacement are that it is revenue-neutral and bipartisan, and is not temporary,” the Democratic governor told reporters. “Any changes have to be made in the very, very near future.”

Sen. Mike Bishop, the Legislature’s top Republican, is among the lawmakers who support looking at a repeal before the new tax takes effect.

If the Legislature doesn’t act by Dec. 1, businesses joined in The Coalition to Ax the Tax says they’re prepared to collect enough signatures to let voters decide in November 2008 if the tax should be repealed. The group plans to hold a Capitol news conference today.

Some business groups already have offered to temporarily hike the rates in the new Michigan Business Tax set to take effect Jan. 1 to offset the hundreds of millions lost through repealing the broader sales tax on services.

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