By ALEX MITCHELL
Capital News Service
LANSING—With Gov. Rick Snyder planning to propose reforms to Michigan’s personal property tax this month, many counties and businesses are speculating about potential ways to replace lost revenue.
Businesses pay personal property tax on their equipment. Critics say the tax discourages businesses from growing because they pay more as they invest in equipment. But local governments are worried because the tax accounts for anywhere from 3 percent to 27 percent of revenue for Michigan counties.
“We won’t be proposing to totally do away with personal property taxes but to both change the way the system works and get rid of certain classifications of personal property taxes that do the most harm to Michigan,” Lt. Gov. Brian Calley said. Calley is the administration’s point person on the issue. Earlier he led efforts to reform Michigan’s business tax.
Some counties are calling for a constitutional amendment to guarantee a replacement revenue stream. Calley said that may not happen. But there are options to replace some of the personal property tax that brought in $1.2 billion to Michigan’s counties last year.
One source of revenue may come from money that now goes toward company-specific financial awards a business can receive for various projects the state deems beneficial, Calley said. Such projects include general economic growth projects and advanced battery manufacturing projects.
Once the $638 million that the state has allocated for the awards is paid, no more will be given out.
“The money we are now paying out to those companies in credit awards could be used to mitigate the impact on local government,” Calley said. The credits are no longer awarded, but the state will honor payments to businesses that received a previous award. Relocating these funds to local units of government would require action from the Legislature.
Democrats introduced legislation earlier in the year that opposed the elimination of incentives for the advanced battery industry. Some lawmakers claim that such credits pay for themselves by promoting job creation.
It sounds like a good idea for replacement revenue, but it needs some sort of guarantee, said Martin Marshall, director of the Lenawee County Equalization Department.
Marshall said that without a guarantee the state could abandon promises for replacement revenue.
Money can also be saved by not collecting taxes from businesses that don’t bring in more than it costs to collect the tax, Calley said.
“We collect a lot of small personal property tax bills to where the amount of money that we collect is less than the amount that it cost to appraise, assess, bill and collect the tax itself,” Calley said. “Eighty percent of the taxpayers pay about 5 percent of the tax.”
Chuck Hadden, president of the Michigan Manufacturers Association, agrees.
“At a certain level, say $15,000, personal property tax isn’t even worth collecting because it takes more than that to collect the tax than it brings in,” said Hadden.
Since the tax is collected locally, the savings would be passed directly to local governments.
Regardless of how the revenue is replaced, Hadden said the tax needs to be eliminated or restructured to ease the burden on manufacturers and to encourage new business. Wisconsin, Illinois, and Indiana have already altered or eliminated their personal property taxes. Hadden says this causes businesses to shy away from Michigan because businesses are drawn to states without personal property tax.
Another potential revenue solution Hadden would like to see implemented is to exempt all new personal property from the tax while continuing to tax existing property. That would ease the transition to altering or repealing the personal property tax.
He admitted this is not an ideal solution for existing businesses, but that it would encourage new businesses while existing ones would not have to worry about paying more taxes to expand.
He acknowledged the stress this loss of revenue can put on local units of government.
“The problem is that you have cities that are growing and need more personal property tax and you have cities that are declining and are collecting less,” Hadden said. “How do you divide out that pot of money? I know they can get the money, but they have to decide how to pay it out or face not getting it.”
One Michigan lawmaker is trying to ensure his district doesn’t lose too much revenue from restructuring the personal property tax.
Sen. Mike Green, R-Mayville, is sponsoring a bill to reclassify wind turbines from personal property to real property so that counties with wind farms would still receive tax revenue. Huron County, which is in his district, has two wind farms that the county collected $230,000 in taxes on last year.
If the personal property tax is repealed, the county would receive no tax money from any new wind developments. The only people that could receive money are landowners with wind leases.
“Sen. Green supports repealing the personal property tax,” said Ryan Mitchell, communications director for Green’s office. “The bill he is sponsoring is just a way to guarantee his district revenue from these turbines. He is trying to look out for his communities and any in Michigan that have wind energy developments.”
© 2011, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.
By ALEX MITCHELL