Personal Property Tax Reform – What You Need to Know
Prior to 2014, all businesses filed the same Personal Property Tax (“PPT”) Statement by February 20 each year and were subject to the tax on all personal property that was used in a trade or business. In 2014, Michigan voters passed Personal Property Tax Reform, which essentially phases out the PPT that small businesses and manufacturers pay on business equipment, and adds a new tax, the Essential Services Assessment (“ESA”). The new law is being phased in over several years, as follows:
Small Business Exemption
Beginning with the December 31, 2013 year-end filing due in 2014, this exemption applies to all industrial and commercial property owned, leased to, or in possession of the owner or a related entity within one local taxing unit. The property is exempt from PPT if the combined true cash value of all personal property is less than $80,000. The affidavit must be filled annually, and must be postmarked by February 10.
Eligible Manufacturing Personal Property (“EMPP”)
The exemption begins with the December 31, 2015 year-end filing due in 2016.
- There is a complex set of definitions to determine if the personal property is exempt. One of the more complicated exemptions states that the property must be located on occupied real property that is used greater than 50 percent for industrial processing or direct integrated support. This is an all or nothing test, so properly computing the 50 percent limitation is critical.
- Once a location is established as eligible, the year the personal property was placed in service determines its exemption as follows:
- Qualified new personal property placed in service in 2012 and later
- Qualified previously existing personal property placed in service 2005 and prior
These timespans leave a gap that includes property placed in service from 2006 to 2011. This property will become exempt one year at a time from 2017 through 2023.
To claim the EMPP exemption, the required form must be received by the assessor of the local taxing unit by February 20. It is important to note, this is not the date mailed, but the date received.
Essential Services Assessment (“ESA”)
This begins with the December 31, 2015 year-end filing due in 2016, and is a new tax levied by local governments to fund essential services. It is applicable to all taxpayers that file an exemption with regard to EMPP. Starting May 1, 2016, a statement will be available on www.michigan.gov reflecting the property that has been reported as EMPP. The taxpayer must review this online and has until August 15, 2016 to submit the final ESA statement and pay the related assessment.
As you will note, there are several critical deadlines, and missing the filing periods will prevent a taxpayer from claiming an exemption for the year. Therefore, filing timely and accurately is critical, and the cost of missing the deadlines is very costly.