Eliminate personal property tax in Michigan? Only if it's revenue-neutral
Businesses in Michigan have seen their property taxes fall by nearly $500 million since 2001 when adjusted for inflation, according to a recent analysis. And they are hoping for an additional reduction this year, with help from Republicans.
GOP lawmakers say one of their top priorities for 2012 will be to eliminate or phase out the personal property tax that businesses in Michigan pay on equipment, such as manufacturing machinery or computers.
There’s a case to be made that Michigan would be in a better position to retain or attract business -- particularly manufacturing -- if it did not impose this particular tax. However, we haven’t seen any hard evidence that this move would create new jobs.
The personal property tax falls heavily on manufacturers because it taxes equipment and machinery.
File photo | AnnArbor.com
According to the Anderson Economic Group, which did an analysis of personal property taxes last November, repeal of the tax would improve the business climate in Michigan even if the revenue were replaced by other taxes. The Anderson Group said other than Indiana, our neighboring state’s don’t tax personal property or exempt a large portion of it from being taxed, which gives them a competitive advantage over Michigan.
(To download a PDF of the Anderson Economic Group report, click here.)
But the personal property tax is a major source of revenue, generating more than $1 billion a year for schools districts and local government. While most local entities take in relatively little personal property tax revenue, some are heavily reliant on it. There are about 30 communities in Michigan that derive more than 30 percent of their property tax revenue from personal property taxes, and eight communities where it accounts for 40 percent of their property tax revenue.
Considering how schools and local government have been hammered by other revenue losses in recent years, this is not the time to deliver another body blow. We believe that when businesses make decisions about where to locate, factors like quality of life and good schools are as important - if not more important — than tax rates. Eviscerating local school districts and government services works against that, and makes Michigan less desirable place to do business.
We acknowledge that the personal property tax is a vestige of an era of manufacturing might in Michigan, and that in the current climate, it gives equipment-heavy industries another reason to locate elsewhere. While our manufacturing base has declined dramatically, it’s still important to our state economy.
There’s a widespread misconception in Michigan that the business tax reform pushed through the Legislature last year created a windfall for corporate fat cats. That’s not the case. Most of the benefit went to smaller businesses. If anything, the reform hurt manufacturers because it did away with an important tax credit that reduced what they were paying in personal property taxes. So their tax burden is going up this year. While we haven’t seen evidence that relentless tax-cutting is the path to prosperity for Michigan, we do believe that Michigan can benefit from a tax system that is fair and predictable — something that could not be said about the much-maligned Michigan Business Tax, which was replaced last year with a corporate income tax. So we’re open to a discussion about the merits of doing away with the personal property tax — but only if it’s phased out and only if it’s revenue-neutral. Absent those two ingredients, we don’t see a discussion here worth having.
(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board at AnnArbor.com.)
Comments
snapshot
Wed, Jan 25, 2012 : 1:10 a.m.
Public schools want revenue neutrality when it comes to tax breaks but when they ask for more money that concept seems to escape them. It seems giving is not as rewarding as receiving after all.
Steve Pierce
Tue, Jan 24, 2012 : 1:07 a.m.
Mr Dearing, It is little wonder why AnnArbor.com would call for revenue-neutral tax decreases. In fact, I don't think you or the editorial board have ever met a city income tax, or millage increase, or bond renewal that you didn't think should be approved by the voters. Yet, not once did anyone at AnnArbor.com or the Ann Arbor News ever call for one of those tax INCREASES to be revenue neutral. Sometimes a tax increase is a good thing, sometimes a tax decrease is a good thing. Each increase or decrease should be based on its merits and not on a public policy like "revenue neutral" that abhors change. Instead of demanding revenue neutrality, make the case why the decrease in personal property taxes is bad for Michigan and our community. Others will make the case for why it is a good thing and then the voters and our elected officials can decide. All you do when you proclaim revenue neutrality is to demand the continuation of the status quo. Doing nothing is what got us into this mess in the first place. Steve Pierce Ypsilanti, Michigan
sbbuilder
Mon, Jan 23, 2012 : 1:51 a.m.
So try this on for size: We know slavery is bad (let's imagine ourselves back in 1850), but by golly, wouldn't it hurt the economy if we did away with it? So, we will continue with this onerous method until another method comes to light. Nonsense! The reason for doing away with something that is bad is because (wait for it) IT IS BAD. That's reason enough. This stupid tax should have never been enacted to begin with, but now that we are dependant on it, we are loath to let it go. Do the right thing. Perhaps suffer the consequences, but I bet that there will be much more positive to come from it than negative.
Arboriginal
Sun, Jan 22, 2012 : 7:43 p.m.
Will the write off for said equipment be eliminated? I didn't think so.
Chase Ingersoll
Sun, Jan 22, 2012 : 5:51 p.m.
Tony: I hit the link that you provided. The parent company is listed as: ANN ARBOR OFFSET LLC Unit: L -12 251 W GARFIELD RD STE 287 AURORA, OH 44202 Owning the equipment at: 5690 HINES DR ANN ARBOR, MI 48108 Am I correct in summarizing that $150,000 IN BUSINESS PROPERTY TAXES is being paid annually on a $5,000,000.00 printing press, on top of the real estate taxes, corporation taxes, payroll taxes, employment insurance taxes, etc? OUCH!!!
bobfromaccttemps
Wed, Feb 29, 2012 : 2:25 p.m.
If the ppt rate was around 5% they woukld pay around $111,000 of tax in the first year on that press. After 15 years they would be paying about $28,000 if taxed at 5%. If this tax goes away the company will end up paying higher real property taxes and/or some other form of tax. Plus homeowners will see increases in real property tax or some other tax because the local governments still need the income no matter how much they cut back. This tax exists in 35 or so other states. The ones that don't have higher real estate tax typically or other taxes to bring in this revenue.
Ron Granger
Sun, Jan 22, 2012 : 4:06 p.m.
@1bit: "Say you have a business and you buy a computer. As a good citizen, you pay your sales or use tax on the device. That should be it, right? Nope. The personal property tax will tax you on owning that computer annually for as long as you own the computer (minus some depreciation)." You left out the part (intentionally?) where the cost of the computer is deducted from income, so the income tax that would normally be paid on those profits is not paid. To put it another way: Most people pay income tax on the money they use to buy a computer. But if I buy the computer for my business, I deduct the amount paid from my before-tax income, so I don't pay taxes on it. But I then must pay property tax on it. This is why people like to buy stuff through their business - it's a large tax write-off.
1bit
Sun, Jan 22, 2012 : 5:26 p.m.
You would only use post tax dollars once to buy the computer using your example, not year after year as with the PPT. So, if you are offering businesses a one-time 4% or 6% tax on equipment purchased instead of the PPT then that would be one solution, but my guess is that would not be revenue-neutral.
Technojunkie
Sun, Jan 22, 2012 : 4 p.m.
Businesses should have to spend as little time as possible thinking about how they're going to comply with tax laws. Torturing them with the PPT is insane. The loss of make-work accounting jobs in favor of productive businesses by replacing the PPT with a simple to calculate tax should be a no-brainer. The replacement of the monstrous MBT with a simple 6% income tax is instructive and gave hope to Michigan entrepreneurs of a saner future. Yes, PPT revenue in some districts will need to be replaced. Pick one of the other existing taxes and increase it. Anything would be better than the current paperwork-heavy PPT that discourages investment in plant and equipment.
information please
Sun, Jan 22, 2012 : 3:54 p.m.
Public libraries in Michigan, which are often overlooked under the category of local government, will be deeply impacted by the elimination of personal property taxes. State direct funding for public libraries in Michigan is incredibly low in comparison to other states, so our libraries are heavily dependent on local millages to support operations. Eviscerating public libraries even further threatens access to information and job resources that are critical to our citizens and our democracy.
DonBee
Sun, Jan 22, 2012 : 2:04 p.m.
Getting rid of the paperwork that the personal property tax creates would be wonderful. Getting to a simple tax that could be settled in a year (some personal property tax settlements take years) would be wonderful. Keeping companies from cutting up equipment to take it off the books, so they don't have to pay personal property tax would be wonderful - millions of dollars in good equipment is cut up to avoid the tax each year - meaning those jobs have nothing to come back to. The right answer is already in place. The Governor got a simplified Income tax for businesses last year, a good tax from a paperwork standpoint - few loopholes and fewer forms to fill out. Raise that tax to match the loss in the personal property tax. The non-competative nature goes away, the barriers to moving go away, and the equipment can be left in place or put in a warehouse instead of scraped. The only losers are the Accounting firms that will have less paperwork to deal with.
1bit
Sun, Jan 22, 2012 : 12:06 p.m.
Please read the Anderson Economic Group report via the link above before commenting on this thread. Unlike the many pseudo-informed comments that will ineveitably follow in this thread, it is a non-partisan assessment that makes fairly straightforward observations and suggestions. If you don't want to read the whole thing, just read the summary at the beginning. For those not aware of how the personal property tax works, here goes: Say you have a business and you buy a computer. As a good citizen, you pay your sales or use tax on the device. That should be it, right? Nope. The personal property tax will tax you on owning that computer annually for as long as you own the computer (minus some depreciation). Now imagine you have a larger business and you are buying more expensive equipment and more equipment in general - it gets expensive in a hurry, just because you are investing in your business. Moreover, you have to track each and every purchase and categorize it so that you can have the privilege of being taxed on it for years to come. So, it's a dumb tax. But right now it is so integral to the funding of many communities that you can't repeal it outright. A careful look at alternatives (including other taxes) is necessary. Insuring compliance with existing taxes (i.e. sales/use tax) for individuals and businesses would also help.
Chase Ingersoll
Sun, Jan 22, 2012 : 11:59 a.m.
Tony: I think it would help inform the public, who has never calculated or paid a personal [business equipment] property tax, if you provided: -the documents filed to calculate the tax the Ann Arbor News was paying every year on its presses, news stands, etc; -the documents filed to calculate the tax Ann Arbor.com is paying on equipment under its current operation. If I am a person or corporation with business interests in more than one state, or the ability to outsource, for example, -my printing operation to the under-used capacity of another in-state press; -I outsource my layout and graphics department to New Delhis part of the equation. In order to compete against competitors who may also have these options, I must consider them also. I think many of your readers won't fully appreciate the dynamic I've described, without your providing them with your own company's documents. Chase Ingersoll
Tony Dearing
Sun, Jan 22, 2012 : 2:08 p.m.
Chase, all real and personal property taxes are public record and available online. We continue to print our newspaper here in Washtenaw County on the same printing press that The Ann Arbor News used. Here is a link to the personal property taxes our parent company pays on that printing plant: <a href="https://is.bsasoftware.com/bsa.is/TaxServices/ServiceTaxDetails.aspx?dp=L+-99-30-031-500&i=3&on=Ann+Arbor+Offset&appid=1&actSn=5690&actSna=HINES+DR&unit=193" rel='nofollow'>https://is.bsasoftware.com/bsa.is/TaxServices/ServiceTaxDetails.aspx?dp=L+-99-30-031-500&i=3&on=Ann+Arbor+Offset&appid=1&actSn=5690&actSna=HINES+DR&unit=193</a> Anyone is who interested in any tax information about us or any local business can find that information on the web site of the local municipality that the business is located in.
a2grateful
Sun, Jan 22, 2012 : 11:52 a.m.
Ah, yes, "revenue-neutral" tax changes . . . A gentle buzz phrase to introduce cuts . . . A buzz saw for the budgets of school and local government. One cannot reduce significant revenues from one sector without raising revenue in other sectors. So, the main questions are: 1) How will lost tax revenue be recovered? 2) Will this recovery be spread evenly across all taxpayers? 3) If no additional revenue recovery is planned, who and what will be cut? Maybe we should start with ALL of our legislators and elected officials. Until they figure a way to replace lost school revenue, they should assign their entire salaries and benefits to the state, receiving $1 a year until revenue neutrality is achieved.
1bit
Sun, Jan 22, 2012 : 12:21 p.m.
"One cannot reduce significant revenues from one sector without raising revenue in other sectors." This is not true. Revenue-neutral changes to tax structure does not necessarily mean tax-shifting as you are describing. It is common sense that we would want Michigan businesses to be incentivized to invest in their businesses here in Michigan. The personal property tax is being used as a surrogate for profitability of the business, yet it is the "gift that keeps giving" as it is a recurring tax on property bought years ago. Replacing it with increased business tax rates or another better thought out business tax would be an improvement.