By SAODAT ASANOVA -TAYLOR
Capital News Service
LANSING – While lawmakers consider repealing the personal property tax on business, some officials in Northern and Southeast Michigan endorse the proposal while others argue that it will cause a major reduction to local government budgets.
Rep. Frank Foster, R-Pellston, said he supports the concept. “Businesses are the ones who bring more money to the state,” he said. “It is necessary to build a proper investment climate to attract new businesses.”
According to Foster, manufacturers would benefit the most, as they have to pay the tax on machinery and all other equipment. Elimination of the tax would mean that they save money to purchase additional equipment and hire more people, he said.
Personal property tax is levied against all kinds of equipment used for business operations, including machinery, computer software and furniture.
If the Legislature repeals the tax, it would mean an insignificant revenue loss to Emmet County because the tax contributes only about 3 to 4 percent of the total budget, about $500,000 a year.
According to County Controller Lyn Johnson, 70 percent of the budget revenue comes from local industrial base. “When we give the opportunity for the local businesses to grow, we can lose a half million on personal property tax revenue but generate more money through new hiring,” he said.
Reliance on personal property tax, however, varies from county to county.
For Mackinac County, repealing the tax would mean an 11 percent cut in revenue, or about $443,000 a year. Much of it comes from the pipelines owned by Enbridge Inc.
Richard Linn, treasurer and assessor for Mackinac Island, noted that Mackinac County does not have the same manufacturing base as neighboring counties and would be unable to fully replace the lost revenue.
“Mackinac County mostly has small commercial businesses and it is seasonal. Personal property tax from utility companies is the only consistent source of revenue at the moment,” he said.
Eugene Elmer, St. Ignace treasurer and assessor, said he doubts that local businesses would add jobs if the tax is eliminated. “Most of our money comes from utility companies and they don’t add many jobs immediately, but rather use the extra money for additional equipment purchases and renovations,” he said.
Several counties in Southeast Michigan are in the same position.
For example, Macomb County, with one of the biggest industrial and commercial bases in the state, could lose about $12.8 million a year. A significant portion of it comes from auto giants General Motors Co., Ford Motor Co. and Chrysler Group.
Steve Mellen, Macomb County equalization officer said since the auto companies just reached the stable phase of operation after the major economic recession hit in 2008, those companies most likely will take time to hire new workers.
“The personal property tax is 10 to 11 percent of the county budget. If we eliminate it now, without replacement, we will lose 2,000 jobs. At this point, I don’t see an economic surplus rather than a big burden for public service workers,” Mellen said.
In addition, he noted that a decline in the real estate sector has already caused a tax revenue loss of about 40 percent in the county since 2008.
Meanwhile, Mackinac and Macomb county officials say they might support repeal of the personal property tax, but not without viable revenue replacement that might raise sales, income or other taxes.
The Michigan Association of Counties, in collaboration with county governments, has urged Gov. Rick Snyder and lawmakers to find a replacement for lost revenue. Based on the association’s latest data, Michigan could abruptly lose about $1.2 billion if the tax is eliminated.
The association wants a constitutional amendment that would guarantee the state’s replacement of lost income.
Considering past experience, Deena Bosworth, legislative coordinator for an association, said the constitutional guarantee is necessary. “Our state has undergone major tax cuts in the last decade. State government promised to create jobs but the numbers were minor,” she said. “We cannot just get rid of personal property tax on business without any guarantees.”
Sen. Steve Bieda, D-Warren, supports such a constitutional amendment.
He also said that property tax elimination worked in Ohio and Illinois but there is no guarantee that it will work in Michigan.
“It is dangerous to compare different state’s economic development system. They might have additional sources of revenue that we don’t have,” Bieda said.
© 2012, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.
By SAODAT ASANOVA -TAYLOR