James McBryde, Vice President and Senior AdvisorMichigan Economic Development Corporation

Michigan Personal Property Tax Reform and Local Revenue Stabilization Package

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What is the Proposal?APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL BUSINESSES GROW AND CREATE JOBS The amendatory act adopted by the Legislature would: 1. Reduce the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan. 2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services. 3. Increase portion of state use tax dedicated for aid to local school districts. 4. Prohibit Authority from increasing taxes. 5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation. Should this law be approved? YES [ ] NO [ ]

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What is the Proposal?• In 2014, taxpayers’ property valued at less than $80,000 is eligible for exemption.• Eligible Manufacturing Personal Property phased off tax rolls over 10 years:

Year Exemption2016 All personal property first placed in service before 2006 and after 20122017 Property first placed in service in 20062018 Property first placed in service in 20072019 Property first placed in service in 20082020 Property first placed in service in 20092021 Property first placed in service in 20102022 Property first placed in service in 20112023 All eligible manufacturing property

JobsWhy are we doing this?

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• Harmed manufacturers

Before: An obsolete, burdensome tax

• Overwhelming compliance costs for small businesses

• Businesses hesitant to purchase new equipment

• Little to no CIT tax relief for large manufacturers

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• Discouraged businesses from expanding or relocating

Before: Disincentivized business investment

•Michigan’s competitors already eliminated the tax

• Complicated and confusing for businesses – account for property and revalue based on formulas annually

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39%

1999 – 5.1

2011 – 3.1

Drop in Industrial PPT RelianceIndustrial PP SEV as a percentage of total SEV

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Local Reimbursement

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Police, FireAmbulance and Jails 100%Use Tax

Reimbursement After FY 2015

K-12 / ISDOperating & Debt Loss 100%Use Tax

Lost TIF Capture 100%Use Tax

Everything Else Est.100%Use Tax

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Expired

Baseline GF

Credits

General Fund

100% Reimbursement

New GFRevenue

StateUse Tax

LocalUse TaxState

Use Tax

State ESA

Reimbursement After FY 2015

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Michigan Use Tax

• Use tax enacted in 1937

• Combined state and local use tax cannot exceed 6% under the Constitution

Michigan Use Tax

• remote purchases• Telecom• lodging

• Use tax is sales tax on:

• Reimbursement only uses General Fund portion

• 4¢ goes to the General Fund; 2¢ goes to the School Aid Fund

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Michigan Use Tax

• Proposal would give local governments title to a share of the state’s use tax revenue.

• It would not increase use tax revenue.

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Projected Growth of Exempt PP Revenue vs. Use Tax Revenue 2023-2033

$600 M

$400 M

$200 MProjected growth in

Use Tax revenue:

2023

$582 M

Projected growth in revenue from exempt PP, assuming no exemption:

$30.3 M

2033

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Essential Services Assessment (ESA)

• Small assessment that provides continued funding for local government essential services, like police and fire

• Only assessed to businesses claiming the manufacturing exemptions

State ESA

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• No need to levy, collect or administer

Better for local governments because:

State ESA

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Better for manufacturers because:

• >80% tax reduction, on average

• No litigation risk – locals get guaranteed revenue through the use tax

• No need to continue granting PPT abatements and forgo revenue

• One return, submitted to the state

• Simple statewide calculation based on acquisition cost

• Three-tier rate structure provides simple depreciation and is fixed in statute

The August 5, 2014 statewide vote to dedicate a portion of the existing state use tax as a local tax levied by a new statewide authority.

If voters reject the proposal, the small parcel exemption will end after 2014 and the Eligible Manufacturing Personal Property exemptions will not take effect.

What’s Next?

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Questions?

Howard HeidemanMichigan Dept. of TreasuryHeidemanH@michigan.gov(517) 373-9002

Howard RyanMichigan Dept. of TreasuryRyanH1@michigan.gov(517) 335-1225

James McBrydeMEDCMcBrydeJ@michigan.org(517) 335-1847

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Lois MalhadoMEDCMalhadoL@michigan.org(517) 335-0526

Ballot Proposal LanguageAPPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL BUSINESSES GROW AND CREATE JOBS The amendatory act adopted by the Legislature would: 1. Reduce the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan. 2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services. 3. Increase portion of state use tax dedicated for aid to local school districts. 4. Prohibit Authority from increasing taxes. 5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation. Should this law be approved? YES [ ] NO [ ]

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