How Does The New Michigan Business Tax Impact My District?
School Advisor, 2007 Issue No. 3

By now you are all aware that the Michigan Single Business Tax (SBT) has been replaced by the new Michigan Business Tax (MBT). While it will take a long time to clarify and fully understand this very complex legislation, two key provisions of the MBT will clearly have an impact on K-12 education in Michigan.

Education Foundation Credit

The existing community foundation credit has been expanded to include education foundations. This may or may not lead to additional contributions to district foundations. Key provisions are as follows:

• Available only to businesses, not individuals
• Credit is 50 percent of the contribution limited to 5 percent of the tax liability or $5000
• Various requirements are required for any foundation receiving such a donation. Six months prior to the tax year of the donation, foundations must comply with such provisions as:
  • Foundation must be able to prove they are actively seeking such gifts and bequests.
  • Foundation funds must be dedicated to an individual school district or public school academy.
  • Foundation must have an "independent" board.
  • Foundation must conduct annual program reviews and independent audits every three years.

So there are quite a few hoops to jump through to qualify for these donations. It remains to be seen if this credit will generate much interest between the business community and district foundations.

Personal Property Tax Relief 

The MBT provides two different reductions in the personal property taxes paid by businesses.

• Direct Personal Property Tax Relief
  • 24-mill reduction (18-mill school operating and 6-mill state education tax) on industrial personal property
  • 12-mill reduction (school operating) on commercial personal property
• Personal Property Tax Credit
  • Industrial personal property receives a credit of 35 percent of tax paid during the tax year on property tax levied after December 31, 2007
  • Telephone company and natural gas personal property are allowed similar credits at a lesser rate

Obviously the direct personal property tax relief will have a significant impact on school districts. Most districts will receive a substantial reduction in personal property tax receipts. To offset this reduction, the MBT requires specific payments directly to the school aid fund of $136 million for fiscal year 2008, $479 million for fiscal year 2009, and $479 million adjusted for inflation (CPI) for all future years. Only time will tell how this will work out for districts. Some initial observations are as follows:

• The amount of funds collected under the MBT and transferred to the school aid fund could be more or less than what would otherwise have been the personal property tax collected by local districts. It appears the calculation does not take into account unpaid taxes, and the CPI adjustment could exceed the normal increase in personal property tax — so districts could come out OK in this calculation.
• Cash flow could be negatively impacted at some districts, since the personal property tax may have been collected in the summer and will now be folded into the 11 state aid payments.
• There are a few districts in the state that do not receive any state aid. What happens to them?
• It is not clear how ISDs are to be reimbursed, but it has been represented that they will be made whole in this process.

As they say, "the Devil is in the details", but at this point, the details don’t exist! Many rules, regulations, interpretations, and technical corrections to the MBT remain. This article just starts the discussion of the MBT’s impact on K-12 school districts.