Expected tax overhaul puts counties on edge

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Capital News Service
LANSING—With the Snyder administration set to overhaul the personal property tax, Lenawee County is facing the unknown that could include how it will replace up to 8 percent of its total evaluation, roughly $1.2 million in revenue annually, said Martin Marshall, director of the Lenawee County Equalization Department.
The tax, which businesses pay on their equipment, hurts Michigan’s attempt to attract new business, according to Snyder. Instead of paying a one-time tax on new equipment, businesses pay a yearly tax for all equipment.
“It’s an issue that a lot of people are concerned about in the district,” said Rep. Nancy Jenkins, R-Clayton, who represents the Lenawee County area. “It’s a real killer for businesses coming here.”
Counties rely on the tax because it is guaranteed revenue that is both collected and distributed locally.
Repealing the tax would attract businesses to Michigan, Jenkins said. But there has to be some sort of replacement revenue since many counties like Lenawee rely on it so heavily.
Counties across Michigan rely on the personal property tax for anywhere from 3 to 27 percent of their revenue, accumulating $1.2 billion total.
Some citizens of Lenawee County believe removing the tax would do more harm than good.
Michigan businesses are already used to paying personal property taxes and have the benefit of not having to pay an inventory tax like several other states, said Dave McCrate, real estate agent with Edward Surovell Realtors in Tecumseh, and former president of the Lenawee County Association of Realtors.
McCrate said that keeping the personal property tax in place would be better than replacing it with a revenue stream that is unproven.
“The devil you know is better than the devil you don’t,” McCrate said.
McCrate gave a reason why Michigan businesses shouldn’t be so concerned about the personal property tax, underutilized renaissance zones in Lenawee. These zones exempt businesses that build there from paying any personal property tax.
While counties don’t expect to be completely left out in the cold by an all-out repeal, they do have concerns that the government will follow through on any promises it makes regarding replacement revenue, said Deena Bosworth, legislative coordinator for the Michigan Association of Counties.
“The Legislature and governor’s office are talking about replacing it as opposed to repealing, but our concern is they will replace it with some mystery revenue source that requires annual appropriations,” Bosworth said.
“Different units of local governments have bonds backed by this because they know this is revenue that is coming in.”
However, she acknowledged that the tax is burdensome and discourages investment. The Michigan Association of Counties supports the repeal of the personal property tax as long as there is guaranteed replacement revenue, which it believes can only occur through a Constitutional Amendment.
Bosworth said that she is concerned the state government may treat any promised replacement much like it treats revenue sharing, the system in which the state gives an annual amount of its federal tax revenue to its counties. In 2004, Michigan Counties were taken off of revenue sharing to help save the state money. Counties returned to revenue sharing last year and were promised the full amount, only to see their revenue sharing cut by 33 percent.
Marshall shared Bosworth’s concern over any promised replacement revenue.
“I believe there can be an effective revenue replacement,” Marshall said. “The difficulty with it is, where does it come from and is it guaranteed? Over time, will the commitment to it be lost just like the commitment to revenue sharing? It was very easy for the state to cut ties to that commitment during the recent economic downturn.”
Lt. Gov. Brian Calley said that the Snyder Administration will reveal its plan for the personal property tax overhaul in a “couple weeks.” Until then, Snyder won’t tip his hand as to how he plans to ease the minds of concerned counties across the state.
“To be blunt, we can’t do a program that would guarantee every single dollar to every single jurisdiction in that way in perpetuity,” Snyder said recently at the Michigan Municipal League conference.
Until then, some legislators, such as Rep. Amanda Price, R-Park Township, have offered up possible solutions.
“Someone shared with me that when we were doing the business tax rewrite, if we had just increased it from 6 to 6.25 percent we could have done away with the personal property tax,” Price said. The tax was recently restructured by the Snyder administration and became a six percent income tax on corporations that have shareholders.
Bosworth said that the argument could be made that revenue lost could be replaced by attracting new businesses that would want to deal with Michigan’s new tax friendly structure, but that wouldn’t be guaranteed and could take years.
McCrate said that he has heard of implementing a service tax that would put a tax on all services from haircutting to lawn mowing, but he is against it.
“A tax on services would be detrimental to Michigan,” McCrate said. “A service tax, whatever the rate, would just be passed on to the consumer.”
© 2011, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.

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