Personal Property Tax Q&A
In December, Michigan passed major reforms in the tax that businesses pay on personal property like equipment, furniture and tools. Public Acts 397-404 and 406-408 of 2012 are expected to eventually reduce Michigan's $1.2 billion personal property tax, or PPT, by an estimated $577 million, according to the Michigan Department of Treasury.
Beginning in 2014, commercial and industrial businesses that have personal property of less than $40,000 in taxable value, per local government jurisdiction, will be exempt from PPT.
In 2016, new eligible manufacturing personal property purchased in 2013 and after becomes exempt, as does previously existing manufacturing property that is at least 10 years old. All eligible manufacturing personal property, as defined in the laws, will be exempt starting in 2023.
Local governments whose taxable values drop by more than 2.3 percent would be reimbursed for 80 percent of their PPT revenue loss, through Michigan's use tax. Money the state gains from expiring business tax credits would offset the reduction in the use tax.
Local units could also levy a new assessment on certain industrial and commercial real property, to fully reimburse for lost PPT revenue that supports police, fire, ambulance and jail operations.
A statewide vote in August 2014 on the use-tax diversion is essential to cementing the PPT reforms and relief.
The TCBN spoke with Tricia Kinley, senior director of tax and regulatory reform for the Michigan Chamber of Commerce, about the changes.
Personal property tax reform has been something in which members of the Michigan business community have long been interested. How significant do you see these changes?
From the Michigan chamber's perspective, this new reform to begin phaseout of the personal property tax is a significant breakthrough, because for decades the Legislature has tried and just could not come up with a solution, simply because it is so hard to untangle the question of how to reimburse the money to locals. But it is a critically important piece of Michigan's tax climate puzzle, and business climate puzzle. Particularly because we do continue to have so many manufacturers and the cost of this tax has been an issue for them. If we kept the tax, we would remain at a competitive disadvantage, particularly in the Midwest.
So will this make Michigan more attractive as a place to start, expand or locate a business?
All of the above. Personal property tax is a significant burden on Michigan's manufacturers, but it is also a significant burden on the rest of the employers in Michigan. When you look at small job providers, many of them just spend more on complying with the tax than actually paying.
Still, some personal property taxpayers aren't included in these current changes. Who won't see relief?
Commercial taxpayers that have personal property of more than $40,000; that could be anything from grocery stores to service providers. And, utility providers. So these two major segments of employers will still have a personal property tax burden.
At the Michigan chamber, we would have loved to have seen the plan go further, and go faster, but we also recognize that we have to start somewhere. So an incremental approach in getting a structure in place is a meaningful step forward. We think the good news is that we now have a structure that can serve as a model for expanding tax relief to the rest of the job providers.
Will you seek to do that, and if so, when?
We would definitely like to see this expanded to include all business taxpayers in Michigan, but also recognizing that the plan doesn't even kick in until 2014 and really 2016, we feel strongly we need to make sure all of the remaining administrative issues and questions and definitions are all perfected over the next year, and that local governments feel comfortable with the plan.
While the Legislature and the governor approved these reforms, there still needs to be a statewide vote in August 2014 to fully implement the plan and dedicate a stream of use-tax revenue to local governments. If the vote fails, what happens?
If the statewide vote to dedicate those revenues fails, the tax relief does not go into effect and we would have to go back through the legislative process to seek an alternative solution.
Do you see this voting requirement as problematic?
It's not necessarily the way the Michigan chamber would have liked to see this fully resolved. But we were still very supportive. Actually, we think this is a pretty easy sell. Since it's not a question of a tax increase, but simply dedicating a revenue stream, we're not concerned at this point that it would fail. But it is still a long ways off.
Amy Lane is a former reporter for Crain's Detroit Business, where she covered energy and utilities, state government and business for nearly 25 years.