GASB 77 tax abatements in Michigan FAQ
We took a closer look at the Governmental Accounting Standards Board’s new rules related to tax abatements during our recent webinar regarding GASB 77. Our GASB experts have compiled a list of answers to many of the questions that we received from entities in all states during the webinar in our article GASB 77 tax abatements: Frequently asked questions. In addition, we’ve answered the following questions that only apply to entities within the state of Michigan.
- Do Downtown Development Authorities and Tax Increment Financing Authorities, as commonly structured in Michigan, qualify as a GASB 77 tax abatement?
In general, there are two reasons why such TIFs don’t meet the definition of a GASB 77 tax abatement. First, there are typically no specific agreements with an individual or entity. Consequently, there are no individuals or entities that are required to perform any actions. In addition, TIF agreements do not result in an overall reduction of the taxpayers’ tax revenues. Therefore, GASB 77 would not apply as not all the criteria are met.
- Are Brownfields considered tax abatements under GASB 77?
Because Brownfields in Michigan are structured differently, it depends on the nature of the agreement. While you should evaluate your specific situation using the criteria above, note the following general circumstances:When a developer performs remediation and is reimbursed through captured taxes, it’s likely that GASB 77 applies.When the Brownfield Redevelopment Authority performs remediation on public land, and the captured taxes are used by the government to pay debt that was issued to complete this remediation, it’s unlikely that GASB 77 applies because there is no reduction of taxes and no agreement or specific action performed with an outside entity.
- An industrial facilities exemption certificate (IFEC) may be applied for up to six months after purchasing equipment or beginning construction of a new facility –– If the agreement occurs after the activity, is it considered a tax abatement?
The general Plant Rehab District or Industrial Development District must be established prior to the start of construction of the property for which exemption is being sought; however, the actual IFEC application can be pre-filed, but can also be filed within six months of the commencement of the improvements (MCL 207.559(2)). Each exemption should be separately analyzed to determine if the specific action occurred after the agreement was entered into. If the specific action commenced prior to the exemption being approved, this agreement is NOT a GASB 77 tax abatement.
- What impact does GASB 77 have on our organization if we’ve recently issued the new personal property exemption, also known as PA 328 of 1998?
PA 328 of 1998 likely meets the definition of a tax abatement under GASB 77. For many communities, the size of these abatements will be insignificant. If the abatements are significant, work closely with your auditor to determine the best approach.
- Do payroll taxes used for the Michigan New Jobs Training Program meet the definition of a GASB 77 tax abatement?
It does not appear that this program results in reduced taxes being paid by the taxpayer, so GASB 77 would not apply. The taxpayer is paying the same amount in taxes, but the money is directed in a different manner.