Lets work together for business tax reform solution
Last year, Gov. Rick Snyder and the State Legislature took a number of positive steps toward putting Michigan’s economy back on track, including greater emphasis on fiscal responsibility in Lansing, and the elimination of, as the governor put it, “the job-killing Michigan Business Tax.”
Now it’s time for the Snyder administration and our lawmakers to take the next logical step to boost capital investment in Michigan and ensure long-term growth: eliminate the Michigan Personal Property Tax on businesses.
This tax, which is assessed on non-permanent business property such as machinery, furniture and computers, costs Michigan businesses approximately $1.2 billion per year in direct collections. However, what is often not considered are the extra costs associated with paperwork and inventory to comply with the tax rules. This is extra money that could otherwise be devoted to truly productive investments, like added employees, increased wages or further capital improvements.
In a 2011 white paper, East Lansing’s Anderson Economic Group concluded that “repeal of the personal property tax would improve the state’s competitive position relative to other states, even if most of the lost revenue were replaced by other taxes.” The report adds that the cost of compliance represents more than 35 percent of the actual tax revenue collected.
This is due to the fact that the tax is primarily administered by local municipalities, which are faced with the complicated task of assessing multiple depreciable commercial properties. As a result, we find the tax is inconsistently administered across the state, and leads to costly appeals to the State Tax Commission and Tax Tribunal, where many cases have been backlogged for years. Even some local governments complain that the tax costs more to administer than it generates for their communities.
Currently, local governmental units and school districts receive about 80 percent of personal property tax revenue. However, in many cases, the communities themselves have, over the years, given up much of this revenue by granting personal property tax abatements requested by companies wishing to update or expand their facilities. In short, the tax is antiquated, cumbersome, and does not provide the desired “bang for the buck” in providing local tax revenue. According to the Anderson report, “The PPT provides, in aggregate, 2.7 percent of total non-school local government revenue and just over 1 percent of revenue for schools.”
Many of our neighboring states, including Ohio, Illinois and Wisconsin, have eliminated this outdated tax, having realized the burden it places on businesses both small and large, and without a significant increase in overall revenues.
The Michigan Business and Professional Association looks forward to working with Gov. Snyder, the legislature and other business groups and manufacturers toward the elimination of the personal property tax. However, finding a way to help local communities and school districts make up for any lost revenue remains a major barrier to seeing the end of this tax.
This poses a dilemma for both business and government alike. With the tax, Michigan cannot grow economically and attract the best companies and jobs. However, without the tax, some Michigan communities, especially those in densely populated manufacturing zones that depend more on PPT revenue, may struggle with their budgets to provide basic services.
There are a number of alternative solutions that may satisfy all parties. Among them:
- A slow phase-out of the tax for all business taxpayers, which would provide local governments, over time and looking to future budget years, to redeploy resources, seek greater efficiencies and consolidate services and resources with neighboring communities.
- Reform the depreciation tables and implement a reasonable property value threshold. According to the Michigan Chamber, approximately 80 percent of business taxpayers are being taxed on property worth less than $50,000 in value. Setting a reasonable threshold would take most companies off the tax rolls, and local government wouldn’t have to bear the tax administration costs.
- Streamline the administration of the tax statewide to provide greater clarity and consistency. This would go a long way toward reducing long and costly disputes and appeals.
We appreciate the governor’s resolve, voiced during his State of the State address, to work cooperatively with local governments and business leaders to reform the personal property tax, while preserving funding for communities. There is no question that any serious proposals must identify simple and fair ways to replace at least some local tax revenue. We look forward to being an active participant in this discussion in the coming months.
Gov. Snyder is right. Michigan’s economy is finally beginning to improve. What’s needed now to sustain that growth is to have mutually agreed-to tax policies in place to help businesses and make Michigan the “go-to” state for investment and jobs.
Jennifer Kluge is president and CEO of the Michigan Business and Professional Association. Based in Warren, the MBPA is the largest business organization of small to medium-sized businesses in Michigan, representing more than 20,000 members.