The SBT is a consumption-based value-added tax. While most business and individual tax systems in North America tax income, the SBT taxes the added value given to products by business organizations. The SBT is technically referred to as a consumption-based VAT because its tax base includes all consumed resources. Investments are deducted from the tax base when made, but the value-added from those investments are included when consumed by the business enterprise.

The use of a consumption tax base does not eliminate the taxation of investments. Instead, it matches taxation to the time period in which the value of the investment is consumed. The SBT includes the entire value of an investment in the tax base, but spreads it out over the life of the investment.[3]

Before returning to a corporate income tax in 1967, Michigan relied on the VAT concept with the 'Michigan Business Activity Tax, from 1953 through 1967. Thus Michigan businesses have faced a VAT for most of the latter half of the 1900's.