PPT Changes Nearing Completion In Legislature
A number of technical changes to the personal property tax (PPT) exemption are moving at breakneck speed through the Michigan legislature this month. These bills amend the PPT reforms that were made by the legislature and Governor Snyder in 2012.
No other state in our region taxes personal property and equipment the way Michigan does. The personal property tax, which has for years been derided in the business community as unfair and job-killing, essentially amounts to a double-tax. Businesses and manufacturers pay the initial 6% state sales tax when purchasing a piece of equipment (desks, chairs, computers, vehicles, machinery, etc.), and then are also required to pay an annual property tax on the equipment for the life of that equipment. Even if the equipment is out-of-date or past its usefulness, businesses are still required to pay tax on it each year. This serves as a disincentive for businesses and manufacturers to invest, and puts our state and region at a competitive disadvantage with surrounding states.
The Tax Cut Plan
- Beginning in 2014, small businesses with $80,000 or less in equipment (true cash value) are exempt from PPT.
- Beginning in 2016, manufacturing personal property that was new in 2013-2015 would be 100% exempt.
- Beginning in 2016, manufacturing personal property that was new in 2005 or earlier would be 100% exempt. In each subsequent year, one additional year would be added to the exemption.
- By 2023, all existing eligible manufacturing personal property would be exempt.
The legislation makes several key changes to the PPT reform law as it was passed in 2012:
100% Local Reimbursement
- Local units of government now will be reimbursed 100% for all local services including school/ISD operating debt loss, lost TIF capture, etc., that relied on industrial personal property tax. As passed in December 2012, essential services, including police, fire ambulance and jails would have been reimbursed at 100%, while all other services would be reimbursed at 80%.
- Locals will benefit from guaranteed reimbursement by dedicating a portion of the state Use Tax to become a local use tax called the “local community stabilization share.” This share is determined by the amount reported by locals that was lost due to the elimination of the personal property tax on manufacturers and small businesses.
- This package maintains the provision that would repeal the whole plan, both the tax cut and the reimbursement plan, if the ballot proposal does not pass on August 5, 2014. This provision was designed to provide a high level of comfort to local units of government that they would be reimbursed if the tax cut is implemented.
The State Essential Services Assessment
- The package changes from a local Essential Services Assessment to the “State Essential Services Assessment.” The new approach simplifies the collection and payment of taxes and fulfills the promise to support essential local services, including police, fire, ambulance and jails.
- Just as anticipated when passed in 2012, the package results in a statewide average of 80% reduction in taxes for manufacturers with a 20% offset to support local essential services.
The Ballot Proposal
- The ballot proposal is scheduled for August 5, 2014. The proposal asks voters to approve the dedication of the “local community stabilization share” of the use tax to communities.
- The ballot proposal language asks voters to approve the following:
- Amend the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan.
- Require the Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services.
- Increase portion of state use tax dedicated for aid to local school districts.
- Prohibit Authority from increasing taxes.
- Prohibit total use tax rate from exceeding existing constitutional 6% limitation.
- The ballot proposal is required because the reimbursement plan involves dedicating a portion of the state use tax to a local tax with revenues then being local revenues. This statutory change requires statewide approval.
- The proposal DOES NOT amend the constitution.
Some northern Michigan businesses have already seen immediate tax savings anywhere from $200 to $2,000 in 2014.
Each Chamber of Commerce comprising the Northern Michigan Chamber Alliance has been or will be discussing the personal property tax reform proposal to consider officially supporting this measure. If you have information or stories on how the personal property tax has effected your business or industry, please contact the Alliance’s Director of Government Relations Kent Wood at email@example.com , or by phone at 231-995-7109.