Columns
May 18, 2012
The proposal to eliminate Personal Property Taxes has created two distinct camps: those cheering on the side of business and economic development, and local government leaders wailing with cries of fear and despair on the other. How can one segment see this as such a clear victory for Michigan business, while the other views it as the loss of an entitlement?
The origins of PPT in the State of Michigan date back to 1893 with the creation of the General Property Tax Act. It is Michigan?s oldest form of taxation and is divided into two types: Real Property and Personal Property. An Assessor levies Real Property (consisting of land, buildings, and all permanent fixtures). Personal Property is that which is not permanently affixed to land (such as equipment, tools, furniture and computers).
This is a self-reporting system due to the difficulty?and legality?of assessors entering one?s property each and every year.
Today only commercial properties, utilities, and industries pay both. Up until the 1930?s Michigan households also shared the burden of the personal property tax. When State Senator Mike Nofs (R-Battle Creek), first addressed the subject of eliminating the PPT, many agreed it was long overdue. While thirty-five states have some form of PPT, Nofs stated, ?Surrounding states do not have this tax and this is hurting both expansion of existing business and recruitment of new business.?
Many believe this is just one more unnecessary burden to doing business in the state. Until recently, Michigan was ranked forty-ninth in corporate tax burden. Chief Executive magazine?s survey of six hundred and fifty CEO?s ranked Michigan the fifth worst business climate nationwide based on taxation, regulations, workforce quality, educational resources, infrastructure, and living environment.
If statewide business associations are listing the repeal of the PPT as a major legislative goal, regions are pumping millions of dollars into economic development, local governments are rolling out the red carpet to prospective businesses and our youth are leaving the state in record droves, surely we can all agree that something must change.
However, as with most good ideas for change, that is easier said than done. Dependence on a tax that has been around for over one hundred years is at the heart of the debate. First, eliminating this revenue stream will affect all levels of government from the smallest township to the largest city. Second, anger results from having a local tax eliminated at the state level, thereby eliminating any choice in the matter back home.
Obviously, the impact varies depending upon the amount of PPT each tax jurisdiction receives. Statewide, the average PPT comprises 25% of a municipality?s revenues. While all commercial, industrial, and utilities share in this tax, the heftiest share of the PPT is paid by only twenty percent of the businesses. However, the other eighty percent complain that this annual self-reporting tax is both time consuming and puts them at a competitive disadvantage.
As a member of a southwest Michigan City Council serving forty-six thousand people, my observations about the PPT were the subject of healthy debate during budget discussions this past week. The front page of our local newspaper had just proclaimed, ?Officials: Tax Repeal Would Threaten Vital Services.? One city leader was even quoted as stating that due to the elimination of PPT, ??police and fire services, therefore, public safety may be impacted.? Fear travels fast: My phone started ringing immediately!
For months leading up to that budget meeting, our Council was provided data graphs claiming that if the PPT is eliminated our city would lose over four million dollars. Last week?s budget binder contained the same number. However, according to Senator Nofs, if the current proposal is signed into law this year, the PPT would be eliminated for only those businesses with real properties valued under forty-thousand dollars.
Since the bigger businesses are picking up eighty percent, that leaves twenty percent for the so-called ?Mom and Pops.? So, where is that number in our city?s budget? The newspaper article? When looking at actual numbers (which somehow never made it into my 2013 budget binder), our city would actually lose only $150,000. Given that our budget exceeds sixty million dollars, that hardly seems worthy of battening down the hatches or running for the cellar.
Recently, the Republicans changed the legislation directing how local governments would receive reimbursement in exchange for curbing the personal property tax. The key change would reinstate the PPT to its current form if local governments did not receive reimbursement for revenues lost as a direct result of the reduction in the tax. The new legislation requires the state to cover the payment for all bonded indebtedness starting in 2013, three years earlier than originally proposed. Nofs made certain to include the full replacement of voter-approved dedicated millages, including for police and fire. Both the Michigan Municipal League and Michigan Association of Counties have switched from opposing the bill to one of neutrality.
Whether ?business? or ?government?, all agree that taxes have an impact on economic development, even if there is disagreement on ?how much? and ?when.? Of course, this also begs the question, ?Does business exist to support government? Or does government exist to support business??
If what we, as a State, have practiced for the past one hundred and nineteen years is no longer working, it would seem that what government leaders thought was a great idea in 1893 may not make sense today. Put another way, ?change, change, change? is now more essential than ?location, location, location.? Only those who adapt will survive and thrive. Michigan needs to be on that list.
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