The gloves are off in the battle to repeal the state’s personal property tax (PPT) imposed on business equipment, now that Republicans in the state Senate have put forward a plan to do just that.
In a legislative package unveiled last week, the upper chamber’s GOP Caucus is proposing to begin phasing out on Dec. 31 the PPT for commercial or industrial businesses that have personal property valued at less than $40,000, thereby eliminating between 75 and 80 percent of the PPT filings, according to Republicans.
Eligible manufacturing personal property bought after Dec. 31 would not be taxable beginning Dec. 31, 2015. Also on that date, any personal property 10-years-old or older will no longer be taxed, an exemption that will continue until all personal property is exempt.
Many argue that axing the PPT will remove an onerous financial liability for companies looking to invest in new equipment or retool, but some in local government have been concerned about a possible loss of revenue.
Legislative analysts say the proposal, consisting of Senate Bills (SBs) 1065 through 1072, would hit the state and local property tax revenues significantly: Roughly an $840 million loss 10 years from now. But the GOP plan has a mechanism in place to shore up those losses, consisting of a reimbursement fund administered by the state Department of Treasury that would begin receiving annual appropriations from the state Legislature based on estimated revenue losses.
“It is important to understand that these bills do not cut businesses tax at the expense of taxpayers, but rather this legislation takes aim at businesses tax credits. Many of the changes in this package of legislation do not take place effect until 2016, which is when the MEGA (Michigan Economic Growth Authority) and battery tax credits expire,” said state Sen. Jack Brandenburg (R-Harrison Township), a sponsor of two of the bills in the legislative package. “The expiration of these credits will mean that the state will be receiving more tax dollars. A portion of the increased tax revenue will be placed in a fund to help replace personal property tax revenue; local officials will then decide how the money should be distributed.”
As a way of replenishing some of the lost revenues, each local taxing unit would have to submit to the Treasury Department the specific taxes levied on commercial personal property and industrial personal property. The department would estimate PPT revenue losses in excess of 2 percent of total local unit revenue, legislative analysts say, meaning that local units of government that receive less than 2 percent of their revenue from the PPT would receive no reimbursement. That figure for distressed governments is 1 percent.
State Sen. Mike Kowall (R-Commerce, Highland, Milford, Walled Lake, Wixom, Wolverine Lake, White Lake, Orchard Lake, West Bloomfield) said the proposal is a way to get a conversation started about repealing the PPT.
“I want to bring in the local units of government and have them fully understand what the timelines are,” Kowall said, highlighting communities like Walled Lake, Wixom and Novi, where the PPT constitutes significant portions of those communities’ budgets. “There’s a lot of preparation that has to be made.”
State Sen. David Robertson (R-Waterford) said Senate Republicans plan to have the state reimburse “89 percent of the revenue that would be lost” to local units of government, although a distribution formula for that reimbursement still has to be devised.
“We can’t eliminate it without replacement revenue for them. That’s a significant part of this, and phasing it out is vitally necessary,” Robertson said.
But Senate Democrats blasted the GOP’s plan as one that would siphon nearly $1 billion from local governmental units, including schools and police departments, in favor of “lining the pockets of those already at the top,” said Senate Majority Leader Gretchen Whitmer (D-East Lansing) in a written statement.
“This legislation is guaranteed to raise taxes on Michigan’s families while additionally cutting the most critical services our communities rely on,” she said.
“Republicans already rushed through a wholesale overhaul of Michigan’s tax structure that gave a $1.8 billion handout to large corporations last year, and despite lacking even a single metric to claim that their plan has created a single job or a dollar of economic growth in our state, today they are taking us back down that same misguided road,” Whitmer said. “This legislation would take nearly $1 billion more away from our schools, our public safety and our neighborhoods and hand it over to businesses with no questions asked, no promises of new jobs and no metrics of success required.”
The legislation is being deliberated in the state Senate Finance Committee, which Brandenburg chairs.