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Thursday, 20 February 2014 11:48

Bills would restore community funding cut under personal property tax reforms

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A 10-bill package that would completely reimburse local communities for lost revenues as a result of reforms to the state’s industrial personal property tax will soon be headed to the Legislature.

While the business community — and manufacturers in particular — lauded the repeal of the tax on equipment and machinery, it caused consternation among communities, who would only be reimbursed at 80 percent for revenues that go to non-essential services.

The new bills aim to address communities’ concerns over the lost revenue, sources told MiBiz.

Under the original PPT reforms, the state planned to phase out its industrial property tax through 2022 and shift to a use tax paid on out-of-state purchases. The state planned to use that revenue to reimburse municipalities 100 percent for essential services such as police, fire, ambulance and jail operations and 80 percent for non-essential services. But only municipalities that saw a reduction of more than 2.5 percent in taxable value as a result of the repeal are eligible for any reimbursement. Those who didn’t qualify could put forward special assessments to make up any difference in funding for essential services.

“What remained was how to replace the rest of the lost revenues,” said Scott Smith, an attorney with Dickinson Wright PLLC. “These 10 bills … would provide 100-percent replacement for local governments from an amount set aside from the use tax.”

Smith, who recently presented on the bill package to the Michigan Economic Developers Association, said the proposal would reallocate a portion of the use tax from the state’s general fund to local governments and would also include a statewide essential services assessment at “very low rate.” He expected the bills to be introduced the week of Feb. 24. 

“Most business in the state would get an 80-percent reduction in personal property tax, and they would be paying a single statewide assessment for all of the industrial personal property they have in the state with a single check,” Smith said. “So it would be a very simplified kind of thing that would provide significant tax relief and 100 percent replace revenue for local governments.”

An authority created under the bills would distribute the money set aside from the use tax, Smith said. As a result, the funds would not go through the state’s annual budgeting process, and the money would be permanently set aside and go automatically to the authority to be distributed, which is another benefit to local governments, Smith said.

The package seems to have good support from local government groups and police and fire unions, he added.

“The repeal of the personal property tax is seen as one of the things that makes Michigan more competitive with other states,” Smith said. “It looks like most believe this a good solution that streamlines how to claim exemptions and should minimize the paperwork for businesses.”

The package stems from work convened by Lt. Gov. Brian Calley in 2013 to find a solution to make up the lost revenues and address some technical and procedural issues in the reforms, sources told MiBiz. For example, the Legislature adopted two laws last year — PA 153 and PA 154 — that cleaned up the exemption process, including how to claim exemptions, particular criteria for eligibility and consequences for fraudulent claims.

The entire PPT repeal hinges on a statewide vote in August. Voter approval is needed to reallocate a part of the use tax to go to municipalities. If voters reject the plan, the entire package of reforms is erased and lawmakers must start over.

MiBiz Managing Editor Joe Boomgaard contributed to this report

Read 2794 times Last modified on Friday, 21 February 2014 15:26

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