As you are probably aware, several personal property tax bills cleared the Senate Committee on Finance this week and will go to the Committee of the Whole in the near future. To keep you up-to-date on the key aspects of each bill, we have summarized them for you. Personal Property Tax Exemptions
Summary of Senate Bills 1065-1072
Overall, the bills would:
- Amend various acts and create a new act to provide tax exemptions for commercial personal property, industrial personal property, and new and previously existing manufacturing personal property
- Retain specific taxes and existing property tax exemptions for manufacturing personal property until it became eligible for a new exemption
- Require the reimbursement of local taxing units for a portion of revenue lost as a result of the personal property tax exemptions
|| Amends various abatement acts - eligible manufacturing personal property is to remain subject to a specific tax, and exempt from the property tax, until the property became exempt under Senate Bill 1069 (bought after 12/31/11), 1070 (included in a total that is less than $40k), or 1071(older than 10 years)|
|| New personal property currently fully exempt at December 31, 2011 that was eligible manufacturing personal property is to remain exempt until it is otherwise exempt under Senate Bill 1069, 1070, or 1071 (similar to above).|
||Beginning December 31, 2015, eligible manufacturing personal property purchased after December 31, 2011 is exempt from tax. The property owner would have to file an affidavit to claim the exemption.|
||Beginning December 31, 2012, if the combined taxable value of commercial and industrial personal property for a taxpayer is less than $40,000, the property is exempt from tax. The property owner would have to file an affidavit each year. |
||Beginning December 31, 2015, eligible manufacturing personal property that had been subject to or exempt from taxation for 10 years is now permanently exempt. In other words, eligible manufacturing personal property purchased before 2006 would be fully exempt. |
||Personal Property Tax Exemption Reimbursement Act (see below) |
The Personal Property Tax Exemption Reimbursement Act contains the following provisions:
- Requires the Department of Treasury, beginning in fiscal year 2015-16, to reimburse local taxing units and TIF Districts for revenue lost due to the personal property tax exemptions
- Requires the Department to estimate the amount by which revenue lost by local taxing units exceeded 2% of governmental fund revenue (based on revenues for the 2011-12 fiscal year), PLUS:
- The full amount lost attributable to debt millage
- Aggregate amount of lost tax capture for each TIF district
For an economically distressed local taxing unit, the Department could consider the amount by which revenue lost exceeded 1% of the governmental funds revenue in FY 2011-12 of that local taxing unit.
An economically distressed local taxing unit would mean a local taxing unit that meets one or more of the following conditions:
- Has entered into a consent agreement or has an emergency manager appointed under the Local Government and School District Fiscal Accountability Act
- Has a projected general fund deficit for the current fiscal year in excess of 5%
- Has a bond rating that is less than investment grade
- Has had a smaller increase or greater decline in taxable valuation than the statewide change in taxable valuation in three of the preceding 5 years
- Is determined to be economically distressed by the Department of Treasury
The Act creates the Personal Property Tax Reimbursement Fund and requires the Legislature to appropriate to the Fund each fiscal year at least the amount estimated by the Department. In theory, the amount appropriated to the Fund is to be derived from an anticipated revenue increase upon the expiration of certificated credits under the Michigan Business Tax Act.
The 2% limit means that for local units where personal property taxes represent less than 2% of total revenue, the local unit would receive no reimbursement at all. Also, reimbursements would not begin until fiscal year 2015-16, meaning revenues lost from tax years 2013 through 2015 would not be reimbursed.
To be eligible for reimbursement under the proposed Act, each local unit would have to submit the following to the Department within 180 days after the end of its 2011-12 fiscal year and similar information for subsequent years:
- The ad valorem and specific taxes levied on and the revenue collected from commercial personal property and industrial personal property by that taxing unit in that fiscal year.
- The dollar amount equal to 2% of that local taxing unit's governmental funds revenue in FY 2011-12.
- The number of debt mills levied in FY 2011-12.
To be eligible for reimbursement, each TIF authority would have to submit all of the following to the Department within 180 days after the end of its 2011-12 fiscal year:
- The amount of ad valorem and specific taxes levied by each local unit on commercial personal property and industrial personal property that the authority captured and retained in the fiscal year.
- A list of obligations the authority incurred before the end of its 2011-12 fiscal year, the payments due on each of those obligations in that fiscal year, and the total amount of all the payments due on all of those obligations in that fiscal year.
- The amount that the authority's tax increment revenue in the fiscal year was insufficient to make the required payments due in that year on obligations incurred before the end of its 2011-12 fiscal year.
The exemption of personal property tax will have varying degrees of significance for Michigan governments. We encourage you to become familiar with the proposed bills in order to determine the short-term and long-term implications to your entity.