Lt. Gov., Lawmakers Offer Plan to Reform Personal Property Tax

November 28, 2012

Wednesday, Nov. 28 - A plan to keep Michigan’s economy driving forward by reforming the burdensome personal property tax was outlined yesterday 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 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 all property.

 

    • 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.