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Proposed Legislation Would Eliminate Personal Property Taxes For Most Michigan Businesses

The personal property tax (“PPT”) is one of Michigan’s oldest forms of taxation, dating back to the 1890s. However, during the last decade, the PPT has been a constant source of contention.  Advocates include local governments, which argue that the PPT is a vital source of revenue.  Opponents include many businesses, which contend that the PPT is a competitive disadvantage and impediment to attracting and retaining businesses in Michigan.

The PPT is assessed on the following classes of businesses:

  1. “commercial” businesses (e.g., offices and retail stores),
  2. “utilities” (e.g., phone companies and electrical companies), and
  3. “industrial facilities” (e.g., small shops to automobile assembly plants).

In general terms, personal property is taxed using taxable value, which is 50% of the property’s cash value.  Cash value is the purchase price adjusted for depreciation. The PPT is collected at the local level and revenues are channeled to local governments.

On April 17, 2012, Senate Bills 1065-1072 were introduced before the Michigan legislature (the “PPT Reform Package”). Below is a summary of some of the key provisions in the PPT Reform Package.

  • Low-Taxable Value Exemption.  The PPT Reform Package proposes to exempt from the PPT all industrial and commercial personal property at businesses that own less than $40,000 of personal property in the local tax-collecting unit.  A business would claim the exemption by filing an affidavit with the local tax-collecting unit in which the personal property is located and with the Department of Treasury.  This proposed exemption would become effective on December 31, 2012 and is expected to excuse most commercial and industrial businesses from paying PPT.
  • Manufacturing Personal Property Exemption. The PPT Reform Package proposes to exempt all “manufacturing personal property” from the PPT. Manufacturing personal property is defined as all personal property that is located on a parcel of real property if that personal property is used more than 50% of the time in industrial processing or in direct support of industrial processing (e.g., research and development). The proposed exemption would begin in 2016 and all manufacturing personal property would be exempt from the PPT by 2022.
  • PPT Exemption Reimbursement Act. Many local governments rely heavily on the revenues from the PPT.  The PPT Reform Package proposes to establish a fund at the state Treasury that will be used to partially reimburse local governments for revenue lost due to the exemptions contained in the PPT Reform Package. As proposed, expiring business tax credits will fund the reimbursement fund.

Legislative committees are currently debating the PPT Reform Package.  I will provide further updates as the PPT Reform Package moves through the Michigan Legislature.

Categories: Personal Property Tax

Photo of Nicholas M. Oertel

focuses his practice in the areas of Michigan non-property tax disputes, business entity selection, corporate transactions, and information technology.

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