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Michigan Modifies Personal Property Tax Reform

by Randy Davis, Dallas, May 2014

 

Michigan voters will decide in August if businesses should no longer pay taxes on their personal property. Lawmakers passed a 10-bill package to address concerns that municipalities would lose funding and be forced to cut essential city services.

 

Background

 

In late 2013, the Legislature passed Public Acts 153 and 154. Follow-up legislation was required because these statutes did not provide:

 

  • Procedures for claiming, denying, and appealing exemptions

  • Consequences for improper exemption claims, and

  • Details for replacement revenues

 

In March, Public Acts 80, 81, and 86-93 (See links to the right) were signed into law. All of the statutes are tie-barred to approval of the ballot proposal in the August state primary election.

 

Exemptions Phased In

 

If voters approve the plan, businesses with a total true cash value of $80,000 or less in personal property can file an affidavit claiming an exemption. While the affidavits are due February 10 each year, businesses can appeal to the local board of review to get the exemption in 2014.

 

Beginning in 2016, owners of "eligible manufacturing personal property" that is at least 10 years old or was acquired after December 31, 2012 can claim an exemption. Eligible personal property is machinery predominately used in industrial processing or direct integrated support as defined in the sales and use tax statutes.

Links:

Public Acts 80

Public Acts 81

Public Acts 86

Public Acts 87

Public Acts 88

Public Acts 89

Public Acts 90

Public Acts 91

Public Acts 92

Public Acts 93

 

Reimbursement Plan

 

The new legislation ensures that local governments will be eligible for 100% reimbursement for personal property tax losses. The losses are generally determined to be the difference between what a municipality would have collected if its lowest millage rate was applied to its 2013 personal property taxable value, and what it actually would collect in the current year if it applied its lowest millage rate to the then taxable value of non-exempt personal property.

 

The source of the replacement revenues is a "local community stabilization share" of the use tax. The amount is fixed in the legislation in increased amounts for each year through 2028 and will increase after that at the rate of 1% per year.

 

Since the state's portion of use taxes will now comprise the local community stabilization share, the state will need replacement revenues. Those will come from two sources:

 

1. The expiration of various tax credits, and

 

2. A state essential services assessment

 

The state essential services assessment will be levied on the acquisition value of exempt eligible manufacturing personal property. Differing millage rates will be applied depending on the number of years since it was acquired. Property acquired 5 or fewer years earlier will be assessed 2.4 mills; between 5-10 years of the acquisition date at 1.25 mills; and after 10 years since its acquisition date at 0.9 mills. This should result in at least an 80% tax reduction for affected businesses.

 

These bills and the ballot proposal that goes before voters in August are supported by business groups, local government groups, as well as law enforcement and fire fighting associations.