ESA Topic: Leased Equipment

Eligible Manufacturing Personal Property (EMPP) is defined by MCL 211.9m and 211.9n as all personal property located on occupied real property if that personal property is predominantly used in Industrial Processing or Direct Integrated Support.  For personal property that is construction in progress and part of a new facility not in operation, EMPP means all personal property that is part of that new facility if that personal property will be predominantly used in Industrial Processing when the facility becomes operational.

Personal property that is not owned, leased, or used by the person who owns or leases occupied real property where the personal property is located is not EMPP unless the personal property is located on the occupied real property to carry on a current on-site business activity.  Personal property that is placed on occupied real property solely to qualify the personal property for an exemption under 9m or 9n does not qualify as EMPP.

Leasing companies are specifically excluded from receiving the exemption and may not utilize Form 5278 – “Eligible Manufacturing Personal Property Tax Exemption Claim, and Report of Fair Market Value of Qualified New and Previously Existing Personal Property (Combined Document)” to report personal property. Instead, leasing companies must complete Form L-4175 - Personal Property Statement - when filing annually with the local tax collecting unit.

1. Although leasing companies are not permitted to receive the exemption, lessees may report leased personal property on their Combined Document (Form 5278) if all of the following qualifications are met, pursuant to MCL 211.9m and 9n: If the personal property is Eligible Manufacturing Personal Property, the lessee and lessor may elect that the lessee report the leased personal property on the Combined Document.
2. An election made by the lessee and the lessor under this subdivision shall be made in a form and manner approved by the department.
3. Absent an election, the personal property shall be reported by the lessor on the personal property statement unless the exemption for eligible manufacturing personal property is claimed by the lessee on the combined document.

Form 5467 – “Election of Lessee Report of Eligible Manufacturing Personal Property” - must be filed with the Combined Document (Form 5278) to make this election.  Form 5467 must be signed by both the lessee and lessor and attached to any Combined Document (Form 5278) reporting the leased equipment. A copy of the same signed Form 5467 may be attached to multiple Combined Documents in multiple local tax collecting units if the lease agreements result in personal property being in multiple locations. The election will remain in place until revoked by the lessee or lessor or until the lease agreement expiration date.

On Form 5467, the lessee will list the parcel number on which the leased personal property was reported for the prior year, the parcel number it will be reported on for the current year, the local unit and county where the personal property parcels are located and the associated lease agreement expiration date. All personal property under lease agreements between the two parties should be included on one Form 5467.  Copies of Form 5467 are to be attached to the Combined Document (Form 5278) submitted in any jurisdiction in which property under the lease agreement is located.

Form 5467 will be filed once with the local tax collecting unit and the election will remain in place unless revoked or until the lease agreement expiration. This election applies to all subsequently acquired personal property under the associated lease agreement. Lessees will annually provide acquisition costs of the leased equipment for which a signed 5467 agreement is in place in Part 3 of each Combined Document (Form 5278) filed.

Form 5467, which includes detailed instructions, is available on the ESA website.

For additional ESA information, links to statutes, forms, and to sign up for the ESA List Serv, 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.