Another tax break for Michigan businesses?

Sep 12, 2011

Michigan lawmakers are considering eliminating the Personal Property Tax.  That’s a tax businesses pay on equipment.  The money goes directly to local units of government.  Businesses say it’s a complicated tax that punishes them for investing in equipment.  Cities, townships, counties and schools say if the tax is eliminated, that revenue has to be replaced. 

The Personal Property Tax basically is a tax on things businesses use.  It’s not the buildings or land, but the computers, machinery, vehicles, office chairs, things like that.  Businesses say the Personal Property Tax makes Michigan less competitive compared to surrounding states. 

Tricia Kinley is with the Michigan Chamber of Commerce.

“It’s a disincentive to being in Michigan, particularly in the Midwest where many other states have already either eliminated their Personal Property Taxes or just recently just phased them out, in the case of Ohio.”

Kinley says Michigan’s economy is heavily reliant on the manufacturing industry.  And Manufacturers have a lot of expensive equipment.  So, they end up paying a lot more Personal Property Tax.

And Kinley says not only does that make it more expensive for the kind of businesses we’ve depended on in Michigan…  it’s hard for any businesses to comply with the Personal Property Tax.

“It’s complicated.  You have property that depreciates over time; you have to keep all the schedules that go with that.  But, to top it off there’s often disputes about what is considered personal, business equipment, machinery property versus real property, land and building.  And that results in not just disputes between the taxpayer and the assessing unit, the local government, but they end up in court.”

And that’s expensive for the businesses, the local governments and the court system.

So the business community is pushing to get rid of the Personal Property Tax.

With the economy up and down  -mostly down-  and the legislature already cutting state money going to local governments, the Personal Property Tax has been one of the only steady sources of revenue for local units of government. 

If the governor and the legislature eliminate it, the big concern is replacing the revenue with something else.

Dan Gilmartin is the the Michigan Municipal League, an advocacy group for municipalities.

 “Scrapping the Personal Property Tax without guaranteeing replacement funds for services and for schools would harm public school students, counties, libraries, and police and fire protection across the state.”

And to make the point, the Michigan Municipal League paraded local officials before the news media to warn against cutting the Personal Property Tax without replacing those revenues to local governments and services.

 “It would impact the schools by over $300-million,” said Stan Kogut who is the Superintendent of the Ingahm County Intermediate School Board.

“Would be the final blow for all public libraries across the state,” Christine Berro, past President of the Michigan Library Association noted.

“I would be devestating to the ability of police departments across the state to provide safety,” George Basar , past-president of the Michigan Association of Chiefs of Police said.

Richard Notte, Mayor of Sterling Heights said  “We would get a loss of $9.2-million with the loss of Personal Property Tax.”

And Dave Weisenberg with Michigan Professional Fire Fighters Union explained, “Remembering the events of 9-11, we have so many politicians that are just clamoring for photo ops with firefighters, with police officers.  They all want to have their pictures taken today, but they’re going to forget us tomorrow.”

Local officials from around the state are worried about losing revenue from the Personal Property Tax because their budgets can depend on it greatly.  It can mean anything from a small percentage of a local government’s budget to more than half of a community’s budget.   

All together in the state, the Personal Property Tax amounts to about $1.2 billion for local governments.

Deena Bosworth is with the Michigan Association of Counties.

“We are very happy with having a very stable revenue source.  Personal Property Tax is not something that gets filtered through the state. And, so, therefore our communities can rely on that funding without threats of cuts from the legislature, without broken promises from things they’re supposed to fund.  And, so our focus is a guaranteed revenue replacement.”

Local officials are wary of promises from the legislature.  Many of them feel the lawmakers in Lansing have reneged on promises to share money in the past.  Many local governments just went through tough budgeting decisions due to cuts to revenue sharing from the state.

Bosworth says local governments don’t want any more promises from the state legislature.

“Honestly, the only way to guarantee revenue is through a constitutional amendment or perhaps a supreme court decision that holds them to something.  But, there have been numerous statutory promises for funding that have not been kept.”

Legislators say they’ve followed the constitution and disagree with the statement that they’re breaking promises.

Governor Rick Snyder has said he wants to eliminate the Personal Property Tax, but he wants find a way to replace it with some other source of money for local governments.  Sara Wurfel is the governor’s press secretary.

 “And there’s a strong commitment from the administration to make sure that there’s some kind of replacement revenue.”

Wurfel says Lieutenant Governor Brian Calley is already holding meetings to try to find a way to elminate the Personal Property Tax and replace it.  Somehow.

“Lieutenant Governor is definitely spearheading the work from this end.  And he’s actually (involved in) ongoing work with a variety of stakeholders including our legislative partners to again explore all the issues and potential options and solutions.”

But in the legislature, not everyone is talking about a permanently replacing the revenue local government’s will lose from the elimination of the Personal Property Tax. 

Randy Richardville is the Senate Majority Leader.  He says the tax probably won’t disappear overnight.  But he thinks local governments and schools can be weaned off the tax revenue.  He says phasing out the tax will give local governments enough time to find new ways to save money.

“In other words, I think if you look at the individual cities, you talk to mayors, you talk to city councils, you talk to township supervisors or officials, they will say, ‘We’ve done just about everything we could to cut our costs internally within this silo,’ so to speak.  Now, I think we’re at the point where we have to start looking at expanding the silos and instead consolidating some of these services with others that are next door.”

So instead of replacing the Personal Property Tax revenue, Senator Richardville wants local governments to save money by consolidating services and maybe some of those local units of government should go away.

“I think we’re going to have to step back and take a look and say maybe we don’t need quite as many cities, quite as many villages, quite as many townships, at least not in the same structure as they are today.”

It’s a controversial idea that will likely get a lot of push back from many local governments.

Senator Richardville says eliminating the Personal Property Tax is something of a trade off.  When the state changed the Michigan Business Tax to the flat six-percent corporate income tax, it did save businesses about a billion-and-a-half dollars.  But, most of that savings will end up benefitting medium and small businesses.  The largest business, such as the automakers and their larger suppliers are in many cases actually paying more in state taxes.  They want this elimination of the Personal Property Tax so they’ll get some tax relief as well.

But still, we’re talking about a billion-dollar tax cut for businesses at the expense of local government services.   That’s on top of that billion-and-a-half dollar tax savings for business under the new flat- tax that’s already been approved by the legislature the governor.

And there are no guarantees that cutting those taxes will attract the kind of jobs the Lansing politicians hope will be created.