Note: New amendments passed in 2013 for law changes that affected the original guidance contained below.
Governor Snyder signed a package of bills on December 20, 2012 that collectively provide personal property tax exemptions for “small taxpayers” and for “eligible manufacturing personal property.” However, both exemptions have deferred effective dates as explained in the overview that follows.
Small Taxpayer Exemption
Beginning in 2014, all of a taxpayer’s industrial and commercial personal property within a local tax collecting unit is exempt if the combined taxable value of such property within the unit is less than $40,000. To claim the exemption, the taxpayer will be required to file an affidavit with the local tax collecting unit by February 20 of each year attesting that its industrial and commercial property in the local tax collecting unit is under $40,000 taxable value.
“Eligible Manufacturing Personal Property”
The exemption for eligible manufacturing personal property (EMPP) is segregated into two exemptions – one for “new” property and one for “existing” property. The exemption for both new and existing EMPP begins in 2016.
“Eligible Manufacturing Personal Property” Defined
EMPP is defined as all personal property located on a parcel of real property if the personal property on an aggregate, weighted basis is used more than 50% of the time in “industrial processing” or “direct integrated support”, as those terms are defined within the General Property Tax Act. The meaning of “industrial processing” is similar to, but not exactly the same as, the sales and use tax definitions of the term. Specifically excluded is the generation of electricity. “Direct integrated support” includes research and development, testing and quality control, engineering, and certain warehousing facilities and sorting and distribution centers.
“New” Eligible Manufacturing Personal Property
EMPP acquired new and placed in service in 2013 or later is eligible for the “new” property exemption. Taxpayers claiming the new EMPP exemption must file a one-time affidavit by February 20, 2016.
“Existing” Eligible Manufacturing Personal Property
The exemption for “existing” EMPP will be phased-in from 2016 to 2022. In 2016, existing EMPP that was acquired new in 2005 or earlier is eligible for exemption (i.e., property that is at least 10 years old as of
December 31, 2015). For each subsequent year, existing EMPP that becomes at least 10 years old as of December 31 of the prior calendar year is exempt. For example, in 2017, assets acquired in 2006 are exempt.
Taxpayers must file an exemption claim by February 20 of each year for assets that become eligible for exemption in that year. Once an exemption claim is filed for a particular asset, that asset does not need to be reported with a subsequent exemption claim.
Eligible Manufacturing Personal Property under Current Property Tax Incentives
EMPP that as of December 31, 2012 is subject to any of the following incentive programs will remain under such programs until the property qualifies for the “existing eligible manufacturing personal property” exemption or the “small taxpayer exemption” discussed above:
- Plant rehabilitation district or industrial development district (commonly, referred to as industrial facilities tax (IFT) or P.A. 198 exemption)
- New personal property exemption under P.A. 328 of 1998
- Technology Park Development Act
- Enterprise Zone Act
Other Personal Property
Personal property that is not eligible for the above exemptions will continue to be subject to personal property tax in the same manner as currently taxed.
Funding the Personal Property Exemptions
Local units of government will be provided two sources of funding to replace lost personal property tax revenue due to the above exemptions.
Essential Services Assessment
A county, township, village, or city is authorized to levy a special assessment beginning on January 1, 2016, on all industrial real and commercial real property located within that local unit of government. The special assessment is to replace 100% of the lost personal property tax revenue that would have been used to fund essential services, namely police, fire, ambulance, and county jail services. The essential services assessment imposed on a real property parcel may not exceed the amount of personal property tax that otherwise would have be collected on EMPP located on that parcel and used to fund essential services. However, taxpayers will need to file an annual affidavit to establish the essential services assessment cap for its industrial and commercial real property.
Allocation of Michigan Use Tax Revenue
A new “Metropolitan Areas Metropolitan Authority” will be created to which a portion of the Michigan use tax collections will be directly deposited. The Michigan use tax rate will remain at 6%; however, an estimated 1.0 to 1.5 cents of every 6 cents will be directly deposited with the Metropolitan Authority.
The state general fund loss from the use tax reallocation will be supplemented by expiring Michigan Business Tax incentives (e.g., MEGA credits, Brownfield credits, etc.). The state school aid fund will not be impacted by the reallocation of use tax revenue.
Only local units of government, including school districts and community colleges, that experience a reduction in property taxable value of at least 2.3% as a result of the personal property tax exemptions are eligible for funds from the new Metropolitan Authority. This funding source is expected to reimburse eligible local units for 80% of the revenue loss used to support non-essential services.
The reallocation of the Michigan use tax revenue to the new Metropolitan Authority requires approval by a statewide vote. Further, the entire personal property tax reform package is contingent on and tie-barred to voter approval of the use tax reallocation. The statewide vote will occur during the August 2014 regular election.
Several amendments have been passed to clean up the reform signed in 2012. The major
changes include shifting the small taxpayer exemption measurement from
"taxable value" to "true cash value," due dates for the exemption
affidavit, and updates to the definition of eligible manufacturing
View the updated Michigan Personal Property Tax Reform Amendments