Area lawmakers save income tax exemption

December 26, 2011
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When the ball drops at midnight on New Year’s Eve, the nearly tax-exempt status of the city’s original 15-year Renaissance Zone will come to an end for the owners of more than 1,300 parcels on 536 acres in six designated areas of Grand Rapids.

But 2012 won’t end all the zone’s tax benefits: Four areas with roughly 38 acres that were created in 2002 will continue to have an almost tax-free status through 2017. And thanks to actions taken by two West Michigan lawmakers, homeowners in two of those four areas will be able to fully exempt their incomes, capital gains, dividends and even lottery winnings on their state tax returns through 2014, and also deduct 75, 50 and 25 percent of those revenue sources for three more years.

State Rep. Holly Hughes, R-Montague, and State Sen. Dave Hildenbrand, R-Lowell, introduced bills in their respective chambers that reinstated the income-tax exemption owners were promised when they bought their homes, but which the new state income-tax law erased earlier this year. It’s the same tax law that eliminated the brownfield and historic tax credits many developers used to construct condo buildings.

Just before lawmakers recessed for the year, the Senate and House passed their bills to restore the residential deduction.

The major qualification for a resident to continue receiving the zone’s income-tax deduction is to have lived there for at least 183 consecutive days before Jan. 1, 2012.

“It will follow the natural Ren Zone expiration date. I know that in Muskegon, in Traverse City and in Grand Rapids, there are Ren Zones that expire at different times. If that income-tax exemption was part of their package and there is an existing residence, they will keep that income-tax exemption. And if there are new residents before the end of the Ren Zone, they will keep it until the end of the Ren Zone,” said Hughes.

“They are headed to the governor for his consideration, so they should be signed into law in the next couple of weeks. We passed a flurry of bills here at the end of the year, so the process behind getting those through the printing and the final spell-check proofing and everything can take a little bit of time and can delay the presentation to the governor. But (the bills) would be effective for the entire tax year, beginning Jan. 1,” said Fred Schaible, chief of staff for Hildenbrand.

“So if somebody is living in there now, they’ll continue to get the benefit for the life of the zone as it is currently defined. But for some reason if they extend that Renaissance Zone after December 31, the residential income component will not be part of that agreement,” Schaible added. “So we’re honoring the understanding that was in place when we did the tax-law changes.”

Hughes told the Business Journal that she held a series of November meetings with developers and homeowners about the issue in Muskegon to get their take on the matter. She said Jon Rooks of Parkland Properties, who has turned vacant buildings into zone-qualifying residences in Grand Rapids and Muskegon, was one of those in attendance.

“One of his in Muskegon goes to 2023. So anyone that he sells to will also get that exemption,” she said of the Ren Zone ending date for HighPoint Flats, an eight-story, historic building in downtown Muskegon that will have 48 condos. Construction is expected to be finished in the spring and reportedly 33 of the residences have been reserved.

“I believe the governor will sign it, and I think we’re in good shape,” said Hughes.  The fiscal impact of the bills has been estimated as reducing state revenue by $300,000 per year. The state general fund would lose about $230,000 of that total annually, while the School Aid Fund would be lowered by $70,000 each year.

“We worked very closely with the administration when we were crafting these bills to get them into a form that would be agreeable. We don’t speak for the governor’s office, but it’s our hope that with the cooperation we had with him during the legislation process that he will be agreeable to (signing) it,” said Schaible.

As for homeowners, their savings will be based, of course, on their total income. But for those who earn $80,000 a year, not having to pay state income tax would give them about another $3,440 to spend or sock away. In addition, the same wage earners will save around $1,200 on their city income-tax returns. If their condo is valued at $225,000, they’ll also save $3,350 in property taxes.

In Grand Rapids, the Monroe Center zone offers tax benefits to homeowners in the City View Condos, Front Row Condos, 65 Monroe Condos and 49 Monroe Center through 2017. The Metropolitan Hospital zone on Boston Street SE offers the same deductions for the same duration to those who bought apartments in Beacon Hill at Eastgate, which is on the former site of the Michigan Christian Home.

“Changing the rules on Michigan residents who bought homes in Ren Zones expecting a certain tax structure is unfair and unreasonable,” said Hughes. “Plenty of input from businesses and Ren Zone residents in my district made it clear that this bill was necessary.”

Although Gov. Rick Snyder and the Legislature ended the Ren Zone income-tax exemption, they didn’t end the exemption for property taxes or city income taxes. But owners in the zone will still have to pay debt millages, like those for Grand Rapids Public Schools.

City Economic Development Director Kara Wood noted that there won’t be a state corporate income tax exemption for businesses located in a zone in the state’s new tax structure. “However, those businesses with ‘negotiated Renaissance Zone agreements’ may continue to use the Ren Zone exemptions, but must file under the Michigan Business Tax for the remaining duration of the Ren Zone certified credit,” she said.

Wood added that business owners who are uncertain of their zone status should contact her. The city’s two other continuing zones are largely industrial areas with a total of 22 acres that expire at the end of 2017.

The zone that fully expires drew more than $250 million in investments and created more than 1,100 jobs over those 15 years. “It did a great job of stimulating a lot of new activity and also helped attract new residents to the downtown area,” said Wood.

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