If you do the math, changes to Michigan’s personal property tax could add up to new savings for most business taxpayers.
A little background first: Companies in Michigan have long paid taxes on “personal property” — the tangible assets it takes to run the business, from desk chairs to stamping presses. Personal property tax, or PPT, has long been a disincentive to manufacturers to invest in upgrading new equipment.
In August 2014, Michigan voters approved Proposal 1, which was widely — and mistakenly — thought to repeal the PPT. However, Proposal 1, which is fully in effect this year, does not eliminate the PPT.
Rather, it creates three different exemptions and adds one new tax for some exempt property. For personal property not granted an exemption by Proposal 1, the personal property tax will continue.
Exemption No. 1
The first exemption provided that, beginning in 2014, if all industrial or commercial personal property owned by, leased by or in the possession of a taxpayer or a related entity in a single local tax collecting unit has a combined true cash value of less than $80,000, it is exempt from the PPT.
This exemption is helpful for small businesses, especially those with multiple, smaller locations around the state.
To secure this exemption, the taxpayer must file Form 5076 – Affidavit to Claim Small Business Tax Exemption Under MCL 211.9(o) with the relevant local assessor.
The deadline for the local assessor to receive the form is Feb. 10 of the tax year in question.
Exemption No. 2
The second exemption provides that, beginning this year, a phased exemption goes into place for personal property that is located on occupied real property, that is predominantly used in industrial processing or direct integrated support, and that has been in service for at least 10 years.
So qualifying personal property that was placed in service in 2005 or earlier is now exempt; in 2017, qualifying personal property placed in service in 2006 will also be exempt, etc.
This phased exemption will be complete in 2023.
Exemption No. 3
The third exemption provides that, also beginning this year, all personal property that is located on occupied real property, that is predominantly used in industrial processing or direct integrated support, and that was placed in service in 2013 or after is exempt.
To secure either or both of the second and third exemptions, the taxpayer must file Form 5278 – Affidavit and Statement for Eligible Manufacturing Personal Property and Essential Services Assessment with the relevant local assessor.
The deadline for the local assessor to receive the form is Feb. 20 of the tax year in question.
The new tax
Personal property exempt under either the second or third exemption is, however, subject to a new essential services tax levied by the state.
The rates for this new tax are: 2.4 mills of a personal property’s acquisition cost for property acquired by the first owner one to five years before the assessment year; 1.25 mills for property acquired by the first owner six to 10 years before the assessment year; and 0.9 mills for property acquired by the first owner more than 10 years before the assessment year.
It is also important to note that these millage rates are charged against the acquisition cost of the property, not on a depreciated value.
We expect that these three exemptions, plus the new tax, will add up to savings for most businesses subjected to the personal property tax. However, due to taxpayers’ differing situations and due to complications that may be caused by a taxpayer’s existing exemptions, businesses should consult first with a trusted property tax advisor.
Chris Meyer is a partner at Warner Norcross & Judd LLP where he concentrates his practice on real estate, zoning and property tax matters for businesses and individuals. He can be reached at firstname.lastname@example.org.