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Michigan Personal Property Tax Phase Out Will Proceed

by Morgan Thomas, Chicago and Randy Davis, Vice President - Specialty Property Tax Services, August 2014

 

Business personal property taxes will be phased out in Michigan after voters approved Proposal 1 on August 5. Lawmakers approved an initial plan to do away with the tax during a lame-duck session in late 2012. Then this year, they came up with a way to replace the lost revenue in time for Proposal 1 to go on the ballot.

 

What You Can Expect

 

Michigan business personal property will become tax exempt under the following time frame:

 

  • January 1, 2014 - all new business personal property valued at $80,000 or less is exempt

  • January 1, 2016 - all new business personal property, as well as all personal property purchased between 2013 and 2015, will be exempt

  • Also on January 1, 2016 - all business personal property at least 10 years old will be exempt

Older personal property will continually roll off the tax rolls until all business property becomes exempt in 2024.

 

An Unpopular Tax

 

Proposition 1 supporters successfully argued that commercial and industrial personal property taxes discourage business growth and investment. Gov. Rick Snyder called it the “second dumbest tax” in the state behind the Michigan Business Tax, which he moved to eliminate in 2011.

 

Businesses don’t like the personal property tax because in addition to paying sales tax when they initially purchase their property, they then have to pay tax on the property’s value each year thereafter.

 

Tax Shift

 

Most of the revenue from business personal property taxes go to local governments. Proposal 1 replaces the lost revenue by shifting money from the state's 6% use tax.

 

Once the tax is eliminated, there are projections that it could leave a $500 million hole in the state general fund. However, officials say they expect the deficit to be offset as tax credits, which were issued under the old Michigan Business Tax, expire.