Our government experts closely monitor activities within the State of Michigan legislature and Michigan Department of Treasury, and share important changes with our clients to help keep them up to date. There’s a lot of activity in Lansing right now that we expect will significantly impact local government units. Here are three current hot topics that you should be aware of, and one pending bill that may impact your government.
1. Transformational Brownfields (PA 46-50 of 2017)
This reintroduced legislation became Public Acts 46-50 of 2017 with immediate effect. Public Act 46 of 2017 has created a new type of Brownfield while Public Acts 47-50 of 2017 amend prior acts for this change. The acts grant the ability to create “Transformational Brownfields” allowing the capture of income taxes and exemption of sales and use tax from “certain” personal property. In order to qualify, projects must obtain approval from the local Brownfield Redevelopment Authority, the local governing body, and the Michigan Strategic Fund (MSF).
Projects should have a transformational impact on local economic development and community revitalization. Each project must meet the definition of a “large scale investment”. This definition varies based on population. The minimum is $15 million for communities under 25,000 but increases based on population (for example, the city of Detroit, at over 600,000 in population, would have a minimum of $500 million).
During the construction, renovation, or improvement phases, projects could capture up to 50 percent of income taxes (state and city, if applicable) related to the wages paid for those physically present and working on the project. Upon completion, the project would capture up to 50 percent of income taxes related to those domiciled within the property. The limit for total tax capture over the life of the bill is $1 billion with a maximum of $40 million per year, and a further limit of five projects in any one community prior to December 31, 2022. In addition, in one calendar year the MSF may not approve more than five transformational brownfield plans (with the exception of if less than 5 are approved in a year, the unused quota can carry over to the next calendar year). Tax captures per parcel are limited to 20 years.
Public Act 47 amends the Income Tax Act to allow for the income tax captures noted above. Public Act 48 amends the General Sales Tax Act to exempt from sales tax the sale of goods for use in eligible projects. Public Act 49 amends the Use Tax Act and would not apply to goods used in the project. Public Act 50 amends the Michigan Renaissance Zone Act so that income tax exemptions would not apply.
There is a lot of activity happening in Lansing right now that we expect will significantly impact local government units.
2. F65 online filing is now required
The State of Michigan Department of Treasury Local Fiscal Accountability Division has made revisions to the filing process for the F65 (Annual Local Unit Fiscal Report). Communities historically have had an option to file the form either using the electronic form online or by sending an Excel file/hard copy. Effective Aug. 1, 2017, all local units must submit the report via the state’s online electronic form. This is in compliance with Section 141.424, Section 4 (3) of Public Act 2 of 1968: The state treasurer shall prescribe the forms to be used by the local units for preparation of the financial reports. Local units will now file the F65, audit reports, and the Qualifying Statements in the same location using only one login.
The state’s goal is to prevent errors and ensure submitted data is accurate. As a built-in safeguard, local units may receive an error message when trying to submit the form to resolve any problems before submission. Additionally, this change supports a single system, allowing the state to maintain all documents centrally.
- F65 report submittal online form
- State of Michigan document search
- Michigan community financial data and historical F65 summaries
3. Updated Uniform Chart of Accounts
In April 2017, the state released an updated Uniform Chart of Accounts. Compliance by local units of government is required beginning with June 30, 2018 year ends. Local units should begin evaluating this new chart of accounts to determine what changes will be necessary and set up a plan to achieve compliance. Some accounting software vendors have already worked with local units on an automated remapping solution to the extent needed, this could be a possible solution for some. The changes in the chart of accounts are not voluminous, but will require some review.
4. Senate Bill 578 to amend the Tax Tribunal Act
An additional emerging item that warrants attention is Senate Bill 578, which has been introduced in response to the “dark stores” issue that has been occurring in Michigan. If passed, it would amend PA 136 of 1973 the “Tax Tribunal Act” by amending Section 3 (MCL 205.703), as amended by 2008 PA 125, and by adding Section 38. The bill would require that, when a dispute regarding the true cash value of real or personal property is brought forth, the following must be done by the Michigan Tax Tribunal:
- Review comparable properties in the market that have similar “highest and best use” as the property under review.
- Separately state their conclusions of law and fact for those properties.
Comparable properties should be determined as follows:
- Ensure that all information gathered on each property is verified for completeness and is accurate with regard to all noted disclosures, covenants on use of the property, private restrictions, the impact of such covenants and restrictions, sale terms, and the financing method.
- If one of the comparable properties identified has a private restriction or covenant in connection with the sale or rental of the property, which causes the property to have a “substantially impaired highest and best use” as compared to the property whose assessment is under review OR if the private restriction or covenant does not assist in economic development of the property, does not provide a continuing benefit to the property, or if the chance of vacancy or inactivity on the property is “materially” increased such property should be excluded as a comparable.
Overall, the intent of the bill is to eliminate properties that are vacant (dark stores), inactive, or have certain restrictions or covenants from being used as a comparable in an assessment dispute.
Awareness of what’s ahead
It’s important to consider the impact these changes will have on your government unit and put a plan in place to address them as needed. For more information on any of these changes, please give us a call.