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Deadline looms for personal property tax exemption
Small business exemption may be beginning of end of tax on industrial firms.
The personal property tax or PPT — seen by many as the bane of business in Michigan but crucial revenue for many local governments, schools and library districts throughout the state — will not apply this year to small businesses with personal property of a total true cash value less than $80,000.
But there is a catch: Qualified businesses have to file for an exemption by Feb. 10.
Grand Rapids City Treasurer Al Mooney said he was worried some small businesses may not get the word in time to meet the deadline. If a small business hasn’t received the new exemption affidavit, he suggests they “contact their local assessor and get a copy,” then “get it to the person who prepares their tax returns, or call that person.”
According to the Kent County Bureau of Equalization, “a taxpayer who owns, leases, or has possession of personal property, with a total true cash value of less than $80,000, may request the property be exempt by filing an exemption affidavit (Form 5076) with the local unit of government” by Feb. 10.
Property owners who file the affidavit are not required to file the personal property statement as they have in the past.
“Businesses will want to pay special attention to their personal property statements and other letters from their assessor this year,” said Matt Woolford, director of the Kent County Bureau of Equalization. “The majority of small businesses may find they are eligible to be exempted from paying personal property taxes. Like a homeowner, though, businesses will have to apply to their local assessor to receive an exemption. It is in every business owner’s interest to educate themselves on these new tax breaks.”
Property owners may not divide their property among different entities to fall under the threshold. In addition, the law requires the property owner to maintain records demonstrating the value of their personal property and make those records available to the assessor on demand.
Mooney believes most small businesses in Grand Rapids may be eligible for the exemption. Unlike the usual process involving personal property tax, it’s a one-page document and much easier to file.
Mooney said there are two rates for the existing personal property tax: one on commercial businesses and the other on industrial businesses. A commercial business in Grand Rapids with $80,000 in true cash value personal property paid about $1,521 last year, while an industrial business with the same amount of property paid about $1,054.
True cash value is just that, while the assessed value is 50 percent of true cash value.
Mooney said guidance issued by the state after PPT legislation was approved in 2012 and 2013 is “more technical than anybody wants to see” and “many people don’t understand it” — and then there’s the language voters will be looking at Aug. 5.
A ballot question in the August primary election in Michigan would end the personal property tax on industry, if approved, and also enact a partial replacement source for the PPT revenue that has been going to the state’s local taxing units. Mooney said it is “going to be known as the metropolitan areas component tax” and will be based on the use tax — the 6 percent state tax on goods bought out of state.
Cathy Lambert, a CPA who is an expert on the PPT, said the exemption for small business will only happen once if the ballot proposal fails in August. And if it does pass, it will only end the PPT on industrial companies, over a phase-out period lasting eight to 10 years. Commercial businesses will still be subject to the PPT in either case.
Lambert, a principal in state and local taxation at the Troy office of the Rehmann accounting firm, said she believes the legislature added the exemption for small business because, for many local taxing authorities, the actual amount collected was a small amount and it was a complicated process. For many tax offices, she said, “it was costing them more (to collect the tax) than they were collecting.”
Lambert said the ballot proposal language is also “real complicated.”
“I think the more important thing is just basically to know that the ballot proposals would help fund the municipalities” and other local taxing entities that are going to lose substantial revenue from the repeal of the personal property tax on industry.
The PPT is imposed on companies based on their commercial, industrial and utility equipment. Lambert said this personal property “can be anything you can touch: furniture, fixtures, equipment, computers — anything,” except the building itself and the land it is on.
In proposing a plan to eliminate the PPT, Gov. Rick Snyder said in late 2012 it is an “antiquated tax” more than 100 years old and “presents barriers to job creation and economic growth.” He added, however, that in reducing “the burden on job providers,” a replacement plan must include ways to minimize revenue losses to local units of government.