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Lt. Governor, lawmakers offer plan to reform personal property tax
November 27, 2012
LANSING, Mich. - A plan to keep Michigan's economy driving forward by reforming the burdensome personal property tax was outlined today by Lt. Gov. Brian Calley, Senate Majority Leader Randy Richardville and House Speaker Jase Bolger. The proposal recognizes the vital role that strong communities and schools play in Michigan's future by providing reimbursement rates to most local units of 100 percent for police, fire and ambulance revenue losses and a minimum of 80 percent for everything else. It also holds the School Aid Fund harmless and fully covers school debt.
The PPT is imposed on job providers for their commercial, industrial and utility equipment. The antiquated tax, which is more than 100 years old, poses several barriers to job creation and economic growth. Gov. Rick Snyder and Calley continue to work collaboratively with a bipartisan group of lawmakers and stakeholders to reduce the burden on job providers while minimizing revenue losses to local units of government, many of which rely on PPT revenue. Supporters of the plan include the Fraternal Order of Police, Police Officers Association of Michigan and the Michigan Professional Firefighters Union.
"This is a fiscally responsible strategy that helps to lay the groundwork for a more prosperous future," Calley said. "It's an excellent compromise that balances the tax-relief needs of job providers with the revenue needs of our communities and schools. Michigan has come a long way in the past two years but we're not content. We must eliminate obstacles to growth like the PPT so that more families can get better jobs. Reducing this unfair burden on job providers will attract investment and expand local tax bases. This is a critical step that keeps Michigan on the right track."
"The PPT is a tax that punishes job creation while providing essential support for local governments," said Bolger, R-Marshall. "We need to reform this tax so that we can attract the investments that will create new jobs for Michigan's workers. This reform will lead to more opportunities for Michigan families to succeed. I realize many communities rely heavily on the support they receive from the personal property tax. That is why it is essential to provide full replacement funding for police, fire and schools. Things that are worthwhile are rarely easy and this tax reform is no exception. The House looks forward to working on this package with the Senate and the Governor's Office to take another giant step forward in improving Michigan for hardworking families."
"Reforming personal property tax has been at the top of the Senate's agenda for quite some time," said Richardville, R-Monroe. "This is a tax that literally punishes our job providers for growth and expansion. In order to support our local businesses and attract new companies and industries to Michigan, we have to continue to eliminate obstacles to job creation. This is a proposal that will make us competitive with other states in the region and ensure resources for our local communities. We have tackled a number of tough issues over the course of the past two years and we pledge to maintain that momentum over the next two years. Reforming personal property tax is the next logical step in the process of getting Michigan back to work."
The PPT actually punishes job providers for their success by imposing a tax burden on their capital investments. When a company expands or modernizes, it is penalized with a tax on new equipment ranging from computers to already expensive tools and machinery. It is especially hard on manufacturers, who rely on expensive tools, equipment and other personal property.
The current system discourages investment in Michigan because it disproportionately impacts highly mobile companies, which tend to pay high wages and provide substantial spinoff jobs. It also imposes high compliance and administrative costs on businesses and local governmental units. The PPT puts Michigan at a competitive disadvantage. For example, Ohio and Illinois have eliminated their versions of this tax.
The proposal does not impose a new tax. Reimbursement funding comes from a portion of the existing Use Tax, which is paid on out-of-state purchases. Losses to the state's General Fund due to the redirection of a portion of the Use Tax will be made up with savings realized through expiring certificated tax credits.
Specifically under the proposal:
- Beginning in 2014, all of a taxpayer's industrial and commercial property within a local tax
collecting unit will be exempt, as long as the combined taxable value of such property within
the unit is less than $40,000.
- Beginning in 2016, new eligible manufacturing personal property and eligible manufacturing
personal property that was new in 2012-2015 would be fully exempt.
- Beginning in 2016, eligible manufacturing personal property that was new in 2005 or earlier
will be fully exempt. In each subsequent year, one additional year is added to the exemption
until all existing eligible manufacturing personal property is exempt in 2022.
- Eligible manufacturing personal property means all industrial and commercial personal
property located on a parcel of real property if the personal property is used more than 50
percent of the time in industrial processing or direct integrated support.
- Regarding reimbursement of lost PPT to local units and School Aid Fund, 80 percent of non-
police/fire/ambulance personal property loss will be replaced by the state, except for those
subject to the "no reimbursement" threshold. There is no reimbursement for locals whose
exempt personal property taxable value is less than 2.5 percent of their total taxable value for
- Locals could levy a special assessment - an Essential Services Assessment (ESA) - on the real
property of exempt taxpayers at a rate needed to replace all of the lost PPT revenue that
otherwise would have funded police, fire and ambulance services from their General Fund.
- Taxpayers claiming the eligible manufacturing PPT exemption will have to pay the ESA.
School Aid Fund and school debt PPT losses will be fully reimbursed, and reimbursement will
begin in Fiscal year 2016.
- In order to reimburse the locals for PPT losses, a portion of the state Use Tax currently going to
the General Fund will be dedicated to reimburse locals for PPT revenue losses. The Use Tax
will continue to be capped at 6 percent.
- The state General Fund and the School Aid Fund will be reimbursed for the loss of the Use
Tax revenue by the savings on the certificated credits that are expiring.
- The local Use Tax component provides a mechanism for distributing certificated credit savings
to locals that is not subject to the annual legislative appropriations process. The proposal calls
for levying a new "metropolitan areas" component of the existing Use Tax on a statewide basis
to generate replacement revenue for PPT reductions. At the same time, the state component of
the Use Tax will be reduced by the amount of the metropolitan areas component so that total
state and metropolitan areas Use Taxes will never exceed the current 6 percent rate, which is
constitutionally limited. Under the plan, about 1 cent to 1.5 cents of the 6-cent Use Tax will be
used for PPT reimbursement.
- The 6 percent Use Tax will continue to be paid by businesses and consumers in the same
manner as under current law. However, a "metropolitan authority" will receive the revenue
generated by the metropolitan areas component for distribution to local taxing units as
replacement for reduced PPT revenue.
- Local revenue will not be distributed by the state. It will be distributed by a metropolitan
authority with statewide jurisdiction created under Article 7, Sec. 27 of the Michigan
Constitution. Funds generated by the metropolitan areas component tax will be funds of the
metropolitan authority, and not state funds subject to the legislative appropriations process.
- The change in the Use Tax will be "revenue neutral" and will not increase total state and local
taxes levied in Michigan. The levy will require statewide voter approval before taking effect.
- The metropolitan authority will distribute the metropolitan component tax revenue to local
units as replacement for reduced PPT revenue. Initially, the replacement will equal 80 percent
of the non-police/fire/ambulance loss. Over time, a growing percentage of the reimbursement
will be based on the amount of industrial real property in the taxing unit.