ESA Topic: Calculation of the ESA Specific Tax

P.A. 92 of 2014 provides for a three-tiered millage structure for the Essential Services Assessment (ESA). MCL 211.1055 indicates:

1. Beginning January 1, 2016, the state essential services assessment is levied on all eligible personal property as provided in this section.
2. The assessment under this section is a state specific tax on the eligible personal property owned by, leased to, or in the possession of an eligible claimant on December 31 of the year immediately preceding the assessment year and shall be calculated as follows:
   1. For eligible personal property acquired by the first owner in a year 1 to 5 years before the assessment year, multiply the acquisition cost of the eligible personal property by 2.4 mills.
   2. For eligible personal property acquired by the first owner in a year 6 to 10 years before the assessment year, multiply the acquisition cost of the eligible personal property by 1.25 mills.
   3. For eligible personal property acquired by the first owner in a year more than 10 years before the assessment year, multiply the acquisition cost of the eligible personal property by 0.9 mills.                       

Construction in Progress

Beginning with the 2017 assessment year, for property that is construction in progress, "acquisition cost" means 1/2 of the fair market value at the time acquired by the first owner, including the cost of freight, sales tax, and installation.

In terms of reporting for ESA purposes, for property that is construction in progress, "acquired by" in the preceding definition, means the year the property is first reported on the Combined Form in Part 2.

Effect of Additional Exemptions on ESA

Public Acts 92 and 93 allow for a reduction of ESA liability on Eligible Manufacturing Personal Property (EMPP) subject to additional exemption certificates.

The acquisition cost reported is reduced for EMPP subject to Industrial Facilities Tax (IFT) Certificates that were in effect before January 1, 2013. Specifically, this eligible personal property that is exempt under MCL 211.9m or MCL 211.9n and was previously subject to the IFT certificate, will pay the ESA Specific Tax at ½ the Fair Market Value at the time of acquisition by the first owner (Acquisition Cost) until that IFT Certificate expires. More specific information is provided in an ESA Topic on IFTs.

Personal Property located in a Renaissance Zone is 100% exempt (the acquisition cost is zero) from ESA until the three (3) years immediately preceding the expiration of the exemption of that personal property. During the last three years, the acquisition cost of the personal property in a Renaissance Zone is multiplied by the percentage reduction as outlined by MCL 125.2689:

1. For the tax year that is two years before the final year of designation as a renaissance zone, the percentage shall be 25%.
2. For the tax year immediately preceding the final year of designation as a renaissance zone, the percentage shall be 50%.
3. For the tax year that is the final year of designation as a renaissance zone, the percentage shall be 75%.

Alternative Essential Services Assessment

MCL 211.1071 provides that the Michigan Strategic Fund Board (MSF) may adopt a resolution to exempt from the assessment eligible personal property and either make the property subject to the Alternative ESA or to exempt the property from both ESA and the Alternative ESA. Like ESA, the Alternative Essential Services Assessment is a state-specific tax on the eligible personal property owned by, leased to, or in the possession of an eligible claimant on December 31 of the year immediately preceding the assessment year.

An eligible claimant may be exempt from ESA and would instead qualify for the Alternative Essential Services Assessment if the board of the Michigan Strategic Fund adopts a resolution to exempt the eligible claimant from ESA and instead states the eligible personal property is subject to assessment under the Alternative Essential Services Assessment.

The Alternative Essential Services Assessment is calculated by multiplying the acquisition cost of the eligible personal property by the following millage based upon the year the property was placed into service:

• Multiply the acquisition cost by 1.2 mills if the property was placed into service 1 to 5 years before the assessment year
• Multiply the acquisition cost by 0.625 mills if the property was placed into service 6 to 10 years before the assessment year
• Multiply the acquisition cost by 0.45 mills if the property was placed into service more than 10 years before the assessment year

An eligible claimant must present a business plan or demonstrate that a minimum of $25,000,000.00 will be invested in additional eligible personal property in this state during the duration of the written agreement.

Statute also requires that the MSF Board consider the following criteria when approving an exemption:

1. Out-of-state competition.
2. Net-positive return to this state.
3. Level of investment made by the eligible claimant.
4. Business diversification.
5. Reuse of existing facilities.
6. Near-term job creation or significant job retention as a result of the investment made in eligible personal property.
7. Strong links to Michigan suppliers.
8. Whether the project is in a local unit of government that contains an eligible distressed area as that term is defined in section 11 of the state housing development authority act of 1966, 1966 PA 346, MCL 125.1411.

For additional ESA information, links to statutes, forms, and to sign up for the ESA Email List, please visit the ESA website.

This information constitutes an interpretation of one or more statutes administered by the Bureau of Local Government and School Services and not legal advice. As the interpretation reached in these examples are limited to the facts provided, any variation in those facts might result in a different interpretation being reached.  Therefore, a taxpayer may wish to consult counsel before proceeding in this matter.