Michigan Personal Property Tax Reform – Passage of Proposal 1

Margaret Amsden

Michigan voters gave final approval August 5, 2014, to a plan that will phase out Personal Property Taxes (“PPT”) that small businesses and manufacturers pay on business equipment. The reform makes the following changes to the future reporting of PPT:

• All business owners with personal property having a Combined True Cash Value of less than $80,000 as of January 1, 2014, will be eligible for an exemption from the PPT. Combined True Cash Value is the market value of all personal property owned, leased, in the possession of or controlled by the owner or related entity within a local tax collecting jurisdiction.
• Manufacturers are provided an expanded exemption for eligible manufacturing personal property (EMPP). EMPP is property used predominantly in industrial processing or in the direct integrated support of industrial processing. To qualify, greater than 50 percent of all of personal property of the company must be EMPP. The exemption is segregated into two parts – one for “new” property and one for “existing” property. The exemption for both new and existing EMPP begins in 2016, which reports the assessable personal property as of December 31, 2015.

“New” EMPP property, defined as purchased from January 1, 2013 and beyond, would be 100 percent exempt from PPT beginning in 2016.

“Existing” EMPP property, defined as property at least 10 years old, will be exempt from PPT. Therefore, in the first year of the exemption, 2016, any assets purchased on or before December 31, 2005 would be exempt from PPT. This will continually roll older personal property off the tax rolls until all EMPP is exempt in 2024.

Local units of government will be eligible to be made whole for the PPT losses through two sources of funding. The following replacement revenue will be phased in as the tax is phased out.

• Essential Services Assessment (ESA) – Local governments are authorized to levy a special assessment millage tax beginning January 1, 2016, on businesses claiming the manufacturing exemptions. The ESA will be assessed to businesses claiming the EMPP exemption starting in 2016 according to the following rates:
  • 2.4 Mills for assets that are 1 to 5 years old,
  • 1.25 Mills for assets 6 to 10 years old and,
  • 0.9 Mills for assets more than 10 years old.
• Local Community Stabilization Share Tax – Essentially this is a re-allocation of the state use tax that previously went into the General Fund and will now be dedicated to reimburse impacted local government units.