A package of bills passed in the lame-duck legislative session would begin phasing out the personal property tax on industrial equipment in 2014. But that phase-out is contingent on voters’ approval of replacing lost revenues for municipalities with a portion of the state’s use tax.
Proponents say maintaining a coalition of business and public-sector interests that worked out the compromise repeal legislation is needed to ultimately secure passage of the proposal that will appear on the August 2014 primary ballot.
Despite the lengthy period between now and the public vote, proponents have no intention of allowing the issue to go dormant.
“We’re going to keep talking about it and keep it in the public eye because what we’re talking about is growth in Michigan,” said Mike Johnston, vice president of government affairs for the Michigan Manufacturers Association.
The MMA and others have long advocated for complete repeal of the personal property tax that critics argue posed a disincentive for business investment. The tax generates about $1.2 billion annually. Eliminating industrial equipment from the levy will cost the state about $590 million.
The legislative package enacted in Lansing would phase out the industrial personal property tax through 2022 and shift part of the revenues from the state use tax — a business tax paid on out-of-state purchases. That revenue would go to reimburse municipalities 100 percent of personal property tax revenues that are presently used to pay for services such as police and fire protection and 80 percent of revenues that go toward non-essential services.
Only municipalities that see a reduction of more than 2.5 percent in taxable value as a result of the repeal would become eligible to receive any reimbursement. Municipalities could enact a special assessment to make up the difference and pay for essential services: Police, fire, ambulance and jail operations.
If voters reject the shift in the use tax in 2014, the entire package goes away.
“If the vote fails, we’re back to the drawing board,” said Andy Johnston, vice president of government affairs at the Grand Rapids Area Chamber of Commerce.
The coalition that finally got the Legislature to move on the personal property tax after years of trying will need to continue to plan and eventually execute a campaign on behalf of the August 2014 ballot proposal, Andy Johnston said. The Grand Rapids Area Chamber and other business advocates will spend 2013 “laying the groundwork” for a campaign and then “probably kick it up a notch in 2014,” he said.
“We’re going to have to stay on it,” Andy Johnston said. “We just need to make it very clear in terms of what the vote will do.”
Proponents say it would lead to increased business investment and jobs for Michigan, one of just two states in the Great Lakes region that continues to tax personal property. Indiana is the other, although it has a significantly lower tax rate.
Business Leaders for Michigan CEO Doug Rothwell expects business and groups to rally around the ballot proposal come 2014 and help to fund a campaign to support it.
“They’ll all come together,” Rothwell said. “It’s too important.”
Terming the personal property tax as “obnoxious,” Gov. Rick Snyder sees both the public and private sectors getting behind the ballot proposal. Any economic gain the state receives from the tax’s repeal will benefit municipalities through increased tax revenues.
“This is a case where it’s about jobs,” Snyder told MiBiz in December. “For municipalities, this is in their best interest. So I think you could find a good alignment of local and state resources all saying, ‘Hey, here’s a situation that’s just going to make us more competitive, that’s going to lead to more jobs, that doesn’t cost individual citizens more money.’ Let’s get it done.”
The Legislature approved the package of bills during the lame-duck session after proponents of repeal worked out a compromise to address the concerns of municipalities that fund public services with revenues from the personal property tax.
The legislation applies only to the tax on industrial equipment and not equipment used by service-sector businesses and utilities. The compromise was needed to finally get something through the Legislature, said Mike Johnston of the Michigan Manufacturers Association.
As manufacturing leads the state’s economic recovery, MMA and other business groups were willing to accept a partial repeal of the personal property tax and compromised with municipalities on the final package.
“We think this is a huge victory. We just made Michigan more competitive,” the MMA’s Mike Johnston said. “To become more competitive, we need to remove the obvious barrier (to business investment). You shouldn’t tax something that you need the most.”
An economic analysis commissioned by the MMA last spring concluded that eliminating the personal property tax — on top of the 2011 reforms enacted in the state’s business tax structure — would drive a “notable increase” in business investment. That ultimately could create between 20,000 and 45,000 new jobs, according to the analysis prepared by the Lansing-based Anderson Economic Group.
The personal property tax’s phase out would begin in 2014, starting with commercial and industrial property valued at less than $40,000 per taxing jurisdiction. The repeal would extend to larger businesses in 2016.
John Weiss, executive director of the Grand Valley Metro Council, considers the phase-out bills an appropriate compromise that helps business and addresses the concerns of municipalities as best as possible.
Leaders of cities, counties and townships recognized the need for eliminating the personal property tax, Weiss said. Once Gov. Rick Snyder made it a priority and the move gained traction in the Legislature, municipalities sought to cut the best deal possible.
“It was the best compromise for local government that was going to be available,” Weiss said.