Tech Park Firms Get Break

February 13, 2004
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LANSING — Privately owned startup businesses operating out of technology parks in the state may not have to pay full park facilities taxes for five years of operation.

A bill proposed by Sen. Bruce Patterson, R-Canton, would exempt a “qualified startup business” from portions of the tax for five years.

“Such a bill would be pretty valuable,” said Matt Dugener, executive director of the Western Michigan Science and Technology Institute in Grand Rapids.

The bill would act as an impetus to technology startup businesses, said Charles Blankenship, president of the Traverse Bay Economic Development Corp.

The exemption would be on that portion of the facilities tax that businesses located in these parks would pay in lieu of property tax, and it would not be limited to new businesses.

The incentive would help startups to become profitable by benefiting from research and development carried on in the state’s public institutions, according to a legislative analysis.

It is aimed at those sites created under the Technology Park Development Act of 1984 and is a part of a larger tax-relief package aimed at promoting economic expansion, said Bob Mauseth, Patterson’s chief of staff.

Startups that would qualify for the exemption are those that employ fewer than 25 full-time equivalent employees and do less than $1 million in sales annually.

A business would also have to spend at least 15 percent of its annual expenses on research and development.

Businesses in the state’s technology parks are mainly in sectors such as robotics, computers and communication.

According to the Michigan Economic Development Corp., Michigan ranked fourth in the country in 2001 in terms of total employment in high-tech industries.

Michigan also has 11 designated parks known as SmartZones. These zones foster technology businesses and enhance job creation by clustering them in areas with access to an expert work force, capital and technology infrastructure, according to MEDC.

The SmartZones were created under the Local Development Finance Authority, said Dugener.

“Startups need pretty much every dollar to keep things moving. It’s not an incentive but a need for these companies,” said Dugener.

There are no technology parks in the Traverse City area because the current law allows them only within a 10-mile radius of the main campus of a four-year public or private university.

However, Blankenship said that the Traverse City area attracts startups from places like California and Florida. “We rely on other remedies like offering quality of life, availability of real estate and a well-trained, reliable work force.”

Bill Kratz, director of Mason County Economic Development Corp., said that the bill would not impact his county, which does not have a technology park either. Kratz said that narrowness of the current law excludes much of the region.

According to Charles Hadden, vice president of government affairs at the Michigan Manufacturers Association, the current law is intended to minimize revenue loss, encourage small business and attract new business to the state.

The bill would dent local tax revenue by around $50,000 annually, and Blankenship said there could be some opposition from local officials.

But that revenue loss would be offset mainly by the creation of new jobs, said Mauseth.

And Hadden said the tax implications would be minimal because the bill would impact only about 65 companies.

Referring to provisions limiting net profits and maximum number of employees, Kratz said that small businesses would not limit their growth for a tax exemption. “The reality is that the market dictates how many people a business hires.”

A Senate analysis estimated that about 1,400 of Michigan’s businesses conduct research and development. Of these, less than 5 percent would meet all the requirements of the bill.

“The key is to help these companies. They will be the new, major employers going forward,” Dugener said.

Mauseth said the bill has cleared the Economic Development, Small Business and Regulatory Reform Committee and now awaits full Senate action.

“I do not see any opposition,” he said.    

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