The much-criticized Michigan Business Tax generates inconsistent revenue year to year and is less reliable than the widely loathed tax it replaced less than two years ago, a new research brief from the University of Michigan concludes.

U-M’s Center for Local, State, and Urban Policy analyzed the state’s main business tax in a 15-page report and concludes the measure doesn’t meet the criteria of a good tax system.

“According to many economists, a good tax system should exhibit three characteristics: reliability, equity, and efficiency,” the report says. “Ideally, a tax system should be simple and transparent and not limit economic growth.”

It goes on to conclude that the MBT “does not appear to score well on these three principles, and therefore seems likely to face continuing calls for reform or elimination.”

The report comes as state lawmakers and various interest groups debate whether to enact drastic reforms to the business tax or eliminate it entirely.

The MBT went into effect Jan. 1, 2008, replacing the 32-year-old Single Business Tax. The tax consists of three main components: a business income tax, a gross receipts tax and a 21.99-percent surcharge tacked on at the last minute as a replacement for an unpopular sales tax proposal for services.

The report notes the new tax creates inconsistent liabilities for businesses with similar incomes and is complicated, which raises costs for administration and compliance.

A recent Michigan Chamber of Commerce survey of 700 members found that 80 percent believed their companies were worse off under the MBT than the Single Business Tax. More than 30 percent of respondents replied that their tax burdens were at least 100 percent higher under the MBT.

A recent survey by the Grand Rapids Area Chamber of Commerce found similar results.

The U-M report argues the MBT “has shifted burdens among different kinds of firms,” benefiting manufacturers and small businesses via a variety of tax credits but hurting commercial real estate brokerages and service-based companies by recalculating their tax liability.

The Detroit Regional Chamber currently is surveying members to gauge support for various alternatives, including lowering the MBT rate by enacting a broad-based sales tax on services and by tying tax reform efforts to prison and other reforms.

But the U-M report leaves open the question of the influence business taxes on companies’ decisions to locate, saying the matter is “an unresolved question.”

It also examines efforts other states have made to reform business taxes, such as combined reporting and gross receipts taxation, and finds each has advantages and disadvantages.

Read the full report here.

Sven Gustafson is a reporter for Michigan Business Review.