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State Tax Commission Bulletin No 10 of 2004

State Tax Commission Bulletin No 10 of 2004

Date: October 28, 2004
To: Assessors, Equalization Directors
From: State Tax Commission (STC)

Exemption of Real and Personal Property of Qualified Start-Up Businesses

Public Acts (P.A.) 251 and 252 of 2004 were signed by Governor Granholm on July 22, 2004 with an effective date of July 23, 2004. Public Acts 321, 323, and 324 of 2004 were signed by Governor Granholm on August 27, 2004 with an effective date of August 27, 2004. Copies of these Acts are available on the Internet at https://www.legislature.mi.gov/. When you reach the site, click on Public Acts and enter the act number and the year 2004.

P.A. 252 of 2004 provides for an exemption of the real and personal property of Qualified Start-Up Businesses FOR TAXES LEVIED AFTER DECEMBER 31, 2004, provided that certain requirements have been met. This is an exemption from part of the tax levied on the regular ad valorem tax roll authorized by the General Property Tax Act. The provisions of P.A. 252 of 2004 will be discussed in Paragraph A of this bulletin.

P.A. 251 of 2004 provides for an exemption from part of the specific tax levied upon the owners of property already exempt under the Obsolete Property Rehabilitation Act STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. The provisions of P.A. 251 of 2004 will be discussed in Paragraph B of this bulletin.

P.A. 321 of 2004 provides for an exemption from part of the specific tax levied upon every owner and user or occupant of property already exempt under the Technology Park Development Act STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. The provisions of P.A. 321 of 2004 will be discussed in Paragraph C of this bulletin.

P.A. 323 of 2004 provides for an exemption from part of the specific tax levied upon every owner of property already exempt under P.A. 198 of 1974 (sometimes known as the Industrial Facilities Tax Act) STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. The provisions of P.A. 323 of 2004 will be discussed in Paragraph D of this bulletin.

P.A. 324 of 2004 provides for an exemption of the property tax levied upon Qualified Start-Up Businesses which are lessees or users of tax-exempt property, FOR TAXES LEVIED AFTER DECEMBER 31, 2004. This exemption is for the tax levied under the authority of Public Act 189 of 1953 (MCL 211.181 to 211.182). The provisions of P.A.324 of 2004 are the same as those for P.A. 252 of 2004 and are discussed in Paragraph A of this bulletin.

A) Exemption From the Tax Levied on the Regular Ad Valorem Tax Roll.

P.A. 252 of 2004 states that, FOR TAXES LEVIED AFTER DECEMBER 31, 2004, the real and personal property of a Qualified Start-Up Business is exempt from certain ad valorem taxes FOR EACH TAX YEAR IN WHICH BOTH OF THE FOLLOWING OCCUR:

  1. The Qualified Start-Up Business applies for the exemption in a timely manner for the tax year for which it desires the exemption. The application must be sent to the assessor of the local tax collecting unit.
  2. The governing body of the local tax collecting unit adopts a resolution approving the exemption for the tax year requested.

This two-step process will be discussed in detail below.

IMPORTANT NOTE: The status day for most exemptions is December 31 of the prior year. That is not the case with the exemption for the real and personal property of a Qualified Start-Up Business provided by P.A. 252 of 2004. Please see question d on page 4 of this bulletin.

IMPORTANT NOTE: The procedures discussed in Paragraph A of this bulletin also apply to the tax on lessees or users of exempt property as authorized by P.A. 189 of 1953 (MCL 211.181 and 211.182). This is true because the language in P.A. 252 of 2004 which describes procedures is the same as the language in P.A. 324 of 2004.

1) The Qualified Start-Up Business Must Apply for the Exemption in a Timely Manner for Each Tax Year for Which it Desires the Exemption.

  1. What is a Qualified Start-Up Business?

P.A. 252 of 2004 states that "Qualified Start-Up Business" means that term as defined in Michigan Compiled Law (MCL) 208.31a. The following is the definition contained in MCL 208.31a:

"Qualified start-up business" means a business that meets all of the following criteria as certified annually by the Michigan economic development corporation:

  1. Has fewer than 25 full-time equivalent employees.
  2. Has sales of less than $1,000,000.00 in the tax year for which the credit under this section is claimed.
  3. Research and development make up at least 15% of its expenses in the tax year for which the credit under this section is claimed.
  4. Is not publicly traded.
  5. Met 1 of the following criteria during 1 of the initial 2 consecutive tax years in which the qualified start-up business had no business income:
  1. During the immediately preceding 7 years was in 1 of the first 2 years of contribution liability under section 19 of the Michigan employment security act, 1936 (Ex Sess) PA 1, MCL 421.19.
  2. During the immediately preceding 7 years would have been in 1 of the first 2 years of contribution liability under section 19 of the Michigan employment security act, 1936 (Ex Sess) PA 1, MCL 421.19, if the qualified start-up business had employees and was liable under the Michigan employment security act, 1936 (Ex Sess) PA 1, MCL 421.1 to 421.75.
  3. During the immediately preceding 7 years would have been in 1 of the first 2 years of contribution liability under section 19 of the Michigan employment security act, 1936 (Ex Sess) PA 1, MCL 421.19, if the qualified start-up business had not assumed successor liability under section 15(g) of the Michigan employment security act, 1936 (Ex Sess) PA 1, MCL 421.15.
  1. P.A. 126 of 2004 states that the Michigan Economic Development Corporation will certify that businesses meet the criteria set out in the law to be a Qualified Start-Up Business.
    1. Who determines whether a business is a Qualified Start-Up Business?
    2. Is there a form the applicant must use to apply for the exemption?

P.A. 252 of 2004 states that a Qualified Start-Up Business may claim the exemption by filing an affidavit with the assessor of the Local Tax Collecting Unit. The affidavit shall be in a form prescribed by the State Tax Commission.

The form prescribed by the State Tax Commission is Form # 4226. This form can be found on the Treasury Department Web site at www.michigan.gov/treasury. When you reach the site, click on Forms, then click on Property Tax, and then click on Property Tax-Abatement/Exemption.

IMPORTANT NOTE: P.A. 252 of 2004 requires that the applicant shall state that the Qualified Start-Up Business was eligible for and claimed the Qualified Start-Up Business credit under section 31a of the Single Business Tax Act for the last tax year ending before May 1. This statement has been incorporated as part of Form #4226 discussed above.

P.A. 252 of 2004 requires that the applicant include the following documents with the affidavit used to file for the Qualified Start-Up Business Exemption.

  1. A copy of the Qualified Start-Up Business's annual return filed under the Single Business Tax Act, AND
  1. A statement authorizing the Department of Treasury to release information contained in the annual return filed under the Single Business Tax Act. This statement of authorization has been incorporated as part of Form #4226 discussed earlier in this bulletin.
    1. Is there a deadline for filing the affidavit to apply for the exemption?

P.A. 252 of 2004 provides for 2 possible deadlines depending on certain circumstances. These deadlines are as follows:

  1. Except as provided in paragraph "ii" below, a Qualified Start-Up Business must file the affidavit (Form #4226) on or before May 1 of the tax year for which exemption is being requested. For instance, if exemption is being requested for assessment year 2006, the affidavit must be filed on or before May 1, 2006.  (Please also see paragraph "ii" below).
  2. A Qualified Start-Up Business may file an affidavit (Form #4226) after May 1 if ALL of the following conditions are met:
  1. The Qualified Start-Up Business applies for an extension for filing its Single Business Tax return as provided by MCL 208.73 AND
  2. The governing body of the local tax collecting unit adopts a resolution approving the exemption for all Qualified Start-Up Businesses that apply for an extension for filing their annual Single Business Tax returns AND
  3. The Qualified Start-Up Business submits a copy of its application for an extension for filing its Single Business Tax Return AND a copy of the affidavit (Form #4226) to the DECEMBER BOARD OF REVIEW. P.A. 252 of 2004 authorizes the December Board of Review to grant the exemption. The law only mentions the December Board of Review. It does not include the July Board of Review.
  1. Yes, P.A. 252 of 2004 provides that the Qualified Start-Up Business must apply for the exemption every year.
    1. Must the Qualified Start-Up Business apply for the exemption every year?
    2. Is there a limit on the number of years for which the local unit can grant exemption?

Yes, P.A. 252 of 2004 states that a Qualified Start-Up Business SHALL NOT receive the exemption under this act for MORE THAN 5 years. The 5 years do not have to be consecutive years. For instance, exemptions could be granted for the years 2005, 2006, 2008, 2009, and 2010, skipping the year 2007.

  1. What is the first year that a Qualified Start-Up Business can qualify for the exemption from certain ad valorem property taxes?

A business cannot qualify for the exemption in 2005 because 2006 is the first year that a business can claim the Qualified Start-Up Business credit under the Single Business Tax Act.

2) The Governing Body of the Local Tax Collecting Unit Must Adopt a Resolution Approving the Exemption for Each Tax Year Requested.

  1. The State Tax Commission considers township and cities to be local tax collecting units.

Yes, P.A. 252 of 2004 provides that a Local Tax Collecting Unit must adopt a resolution approving these exemptions ON OR BEFORE ITS LAST MEETING IN MAY IN EACH YEAR.

Yes, P.A. 252 of 2004 provides that the Clerk of the Local Tax Collecting Unit shall notify, in writing, the assessor of the Local Tax Collecting Unit and the legislative body of each taxing unit that levies ad valorem property taxes in the unit. These parties shall be afforded the opportunity for a hearing.

    1. What is a Local Tax Collecting Unit?
    2. Is there a deadline for the Local Tax Collecting Unit to adopt a resolution approving exemptions of the real and personal property of Qualified Start-Up Businesses?
    3. Is it necessary for the Local Tax Collecting Unit to notify anyone prior to approving a resolution for exemption?
    4. What may the governing body of the Local Tax Collecting Unit approve on or before its last meeting in May?

P.A. 252 of 2004 provides that the Local Tax Collecting Unit may approve ONE OR BOTH of the following on or before its last meeting in May:

  1. A resolution approving the exemption for one or more of the individual Qualified Start-Up Businesses that claim the exemption on or before May 1 of the current year.
  1. A resolution approving the exemption for all Qualified Start-Up Businesses that claim the exemption after May 1 of the current year. (Please see paragraph "c" on page 3 of this bulletin for more information about claiming the exemption after May 1.)

NOTE: Even though a unit approves these at its meeting on or before its last meeting in May, it is still necessary to also present the application filed after May 1 to the December Board of Review as discussed earlier in this bulletin.

    1. What happens if a Qualified Start-Up Business Exemption is erroneously granted?

P.A.252 of 2004 provides the following:

If an exemption under this section is erroneously granted, the tax rolls shall be corrected for the current tax year and the 3 immediately preceding tax years. The property that had been subject to that exemption shall be immediately placed on the tax roll by the local tax collecting unit if the local tax collecting unit has possession of the tax roll or by the county treasurer if the county has possession of the tax roll as though the exemption had not been granted. A corrected tax bill shall be issued for the tax year being adjusted by the local tax collecting unit if the local tax collecting unit has possession of the tax roll or by the county treasurer if the county has possession of the tax roll. If an owner pays the corrected tax bill issued under this subsection within 60 days after the corrected tax bill is issued, that owner is not liable for any penalty or interest on the additional tax. If an owner pays a corrected tax bill issued under this subsection more than 60 days after the corrected tax bill is issued, the owner is liable for the penalties and interest that would have accrued if the exemption had not been granted from the date the taxes were originally levied.

The State Tax Commission has established the following procedures which shall be used by assessors when an exemption has been erroneously granted:

  1. Upon determining that an exemption has been erroneously granted, the assessor shall immediately recalculate the assessed value(s) and the taxable value(s) for the current year and the 3 immediately preceding tax years in which the property was improperly exempt. This requires that the assessor calculate what the taxable value(s) would have been if the property had not received the incorrect exemption.
  2. The assessor shall immediately notify the property owner in writing that the determination has been made that the Qualified Start-Up Business Exemption has been erroneously granted. The notification should include the reason(s) for this determination and the years involved. The assessor shall also advise the owner of his/her right to appeal to the Michigan Tax Tribunal by letter within 30 days of receiving the notice.
  3. The assessor shall immediately correct the assessment roll(s) and tax roll(s) for the appropriate year(s) by entering the recalculated assessed value(s) and taxable value(s) on the roll(s). The assessor shall also, within 30 days, file an affidavit covering each year with all affected taxing units. The affidavit shall be filed with the proper officials who are involved with the assessment figures, rate of taxation, or mathematical calculations and all official records shall be corrected. A sample affidavit (Form #4242) has been developed by the State Tax Commission. This form can be found on the Treasury Department Web site at www.michigan.gov/treasury. When you reach the site, click on Forms, then click on Property Tax, and then click on Property Tax-Abatement/Exemption.
  4. For each tax year in which the tax roll is corrected, a corrected tax bill shall be issued by the local tax collecting unit if the local tax collecting unit has possession of the tax roll or by the county treasurer if the county has possession of the tax roll. If an owner pays the corrected tax bill issued under this subsection within 60 days after the corrected tax bill is issued, that owner is not liable for any penalty or interest on the additional tax. If an owner pays a corrected tax bill issued under this subsection more than 60 days after the corrected tax bill is issued, the owner is liable for the penalties and interest that would have accrued if the exemption had not been granted from the date the taxes were originally levied.
    1. Are there any millages that are still levied even though the exemption for the real and personal property of Qualified Start-Up Businesses is granted?

Yes, P.A. 252 of 2004 provides that the exemption DOES NOT apply to the following:

  1. A special assessment levied by the local tax collecting unit in which the property is located.
  2. Ad valorem property taxes specifically levied for the payment of principal and interest of obligations approved by the electors or obligations pledging the unlimited taxing power of the local governmental unit.
  3. A regional enhancement millage of up to 3 mills levied by an Intermediate School District under the authority of MCL 380.705.
  4. A sinking fund millage of up to 5 mills levied by a local school district under the authority of MCL 380.1212.

B) Exemption From Part of the Specific Tax Levied Upon the Owners of Property Already Exempt Under the Provisions of the Obsolete Property Rehabilitation Act.

NOTE: While the State Tax Commission is not generally authorized to supervise the administration of specific taxes, the following information is being provided as a service to assessors.

P.A. 251 of 2004 provides for an exemption from part of the specific tax levied upon the owners of property already exempt under the provisions of the Obsolete Property Rehabilitation Act, STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. A business cannot qualify for the exemption in 2005 because 2006 is the first year that a business can claim the Qualified Start-Up Business credit under the Single Business Tax Act. (Please see STC Bulletin 9 of 2000 for information regarding the Obsolete Property Rehabilitation Act.) The exemption from the specific tax can occur when a Qualified Start-Up Business owns property already exempt under the Obsolete Property Rehabilitation Act.

The application developed by the State Tax Commission (Form #4226) and discussed in Paragraph A of this bulletin can also be used as the application for the exemption from part of the specific tax levied upon the owners of property already exempt under the Obsolete Property Rehabilitation Act. The procedures to be followed are substantially the same as those described in Paragraph A of this bulletin for the exemption from taxes levied under the General Property Tax Act.

Specifically, the following procedures are the same:

  1. The definition of Qualified Start-Up Business is the same.
  2. The exemption must be granted each year and cannot be granted for more than 5 years. The 5 years do not have to be consecutive years.
  3. The procedure for adopting a resolution by the governing body of the Local Tax Collecting Unit is the same.
  4. The deadline for adopting the resolution is the same.
  5. The notification by the clerk of the Local Tax Collecting Unit and the requirement to afford a hearing are the same.
  6. The exemption from the levy of the specific tax may not be a full exemption.
    If the specific tax includes one of the following, that part of the specific tax is not exempt:
    1. A special assessment.
    2. Taxes levied for the payment of principal and interest of obligations approved by the electors or obligations pledging the unlimited tax power of the LOCAL GOVERNMENTAL UNIT.
    3. A regional enhancement millage of up to 3 mills levied by an Intermediate School District under the authority of MCL 380.705.
    4. A sinking fund millage of up to 5 mills levied by a local school district under the authority of MCL 380.1212.

The following is an area where the procedures of P.A. 251 of 2004 for the exemption from the specific tax are different from those of P.A. 252 of 2004 for the exemption from the regular ad valorem tax:

  1. The deadlines for the filing of affidavits by Qualified Start-Up Businesses do not apply to applications for exemption from the specific tax on property exempt under the Obsolete Property Rehabilitation Act. See paragraph "c" on page 3 for an explanation of the deadlines which DO NOT apply.

C) Exemption From Part of the Specific Tax Levied Upon Every Owner and User or Occupant of Property Already Exempt Under the Provisions of the Technology Park Development Act.

NOTE: While the State Tax Commission is not generally authorized to supervise the administration of specific taxes, the following information is being provided as a service to assessors.

P.A. 321 of 2004 provides for an exemption from part of the specific tax levied upon every owner and user or occupant of property already exempt under the provisions of the Technology Park Development Act, STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. A business cannot qualify for the exemption in 2005 because 2006 is the first year that a business can claim the Qualified Start-Up Business credit under the Single Business Tax Act The exemption from the specific tax can occur when a Qualified Start-Up Business has property already exempt under the Technology Park Development Act.

The application developed by the State Tax Commission (Form #4226) and discussed in Paragraph A of this bulletin can also be used as the application for the exemption from part of the specific tax levied upon every owner and user or occupant of property already exempt under the Technology Park Development Act. The procedures to be followed are substantially the same as those described in Paragraph A of this bulletin for the exemption from taxes levied under the General Property Tax Act.

Specifically, the following procedures are the same:

  1. The definition of Qualified Start-Up Business is the same.
  2. The exemption must be granted each year and cannot be granted for more than 5 years. The 5 years do not have to be consecutive years.
  3. The procedure for adopting a resolution by the governing body of the Local Tax Collecting Unit is the same.
  4. The deadline for adopting the resolution is the same.
  5. The notification by the clerk of the Local Tax Collecting Unit and the requirement to afford a hearing are the same.
  6. The exemption from the levy of the specific tax may not be a full exemption. If the specific tax includes one of the following, that part of the specific tax is not exempt:
    1. A special assessment.
    2. Taxes levied for the payment of principal and interest of obligations approved by the electors or obligations pledging the unlimited tax power of the LOCAL GOVERNMENTAL UNIT.
    3. A regional enhancement millage of up to 3 mills levied by an Intermediate School District under the authority of MCL380.705.
    4. A sinking fund millage of up to 5 mills levied by a local school district under the authority of MCL 380.1212.

The following is an area where the procedures of P.A. 321 of 2004 for the exemption from the specific tax are different from those of P.A. 252 of 2004 for the exemption from the regular ad valorem tax:

  1. The deadlines for the filing of affidavits by Qualified Start-Up Businesses do not apply to applications for exemption from the specific tax on property exempt under the Technology Park Development Act. See paragraph "c" on page 3 for an explanation of the deadlines which do not apply.

D) Exemption From Part of the Specific Tax Levied Upon Every Owner of Property Already Exempt Under the Provisions of P.A. 198 of 1974 (sometimes known as the Industrial Facilities Tax Act).

P.A. 323 of 2004 provides for an exemption from part of the specific tax levied upon every owner of property already exempt under the provisions of P.A. 198 of 1974, STARTING IN THE YEAR IN WHICH THE RESOLUTION AUTHORIZING THE EXEMPTION IS ADOPTED BY THE LOCAL TAX COLLECTING UNIT. A business cannot qualify for the exemption in 2005 because 2006 is the first year that a business can claim the Qualified Start-Up Business credit under the Single Business Tax Act. The exemption from the specific tax can occur when a Qualified Start-Up Business owns property already exempt under P.A. 198 of 1974.

The application developed by the State Tax Commission (Form #4226) and discussed in Paragraph A of this bulletin can also be used as the application for the exemption from part of the specific tax levied upon the owners of property already exempt under P.A. of 198 of 1974. The procedures to be followed are substantially the same as those described in Paragraph A of this bulletin for the exemption from taxes levied under the General Property Tax Act.

Specifically, the following procedures are the same:

  1. The definition of Qualified Start-Up Business is the same.
  2. The exemption must be granted each year and cannot be granted for more than 5 years. The 5 years do not have to be consecutive years.
  3. The procedure for adopting a resolution by the governing body of the Local Tax Collecting Unit is the same.
  4. The deadline for adopting the resolution is the same.
  5. The notification by the clerk of the Local Tax Collecting Unit and the requirement to afford a hearing are the same.
  6. The exemption from the levy of the specific tax may not be a full exemption.
    If the specific tax includes one of the following, that part of the specific tax is not exempt:
    1. A special assessment.
    2. Taxes levied for the payment of principal and interest of obligations approved by the electors or obligation pledging the unlimited tax power of the LOCAL GOVERNMENTAL UNIT.
    3. A regional enhancement millage of up to 3 mills levied by an Intermediate School District under the authority of MCL380.705.
    4. A sinking fund millage of up to 5 mills levied by a local school district under the authority of MCL 380.1212.

The following is an area where the procedures of P.A. 323 of 2004 for the exemption from the specific tax are different from those of P.A. 252 of 2004 for the exemption from the regular ad valorem tax:

  1. The deadlines for the filing of affidavits by Qualified Start-Up Businesses do not apply to applications for exemption from the specific tax on property exempt under P.A. 198 of 1974. See paragraph "c" on page 3 for an explanation of the deadlines which do not apply.