Calley: Phasing out Granholm tax credits could pay for personal property tax reform
- Related story: Lt. Gov. praises Ann Arbor: 'This is really one of the most dynamic and innovative regions in the nation'
The problem with Michigan's personal property tax, says Lt. Gov. Brian Calley, is that it punishes companies for making capital investments.
And it's particularly hard on manufacturers that rely on expensive tools and equipment in their operations, Calley told an Ann Arbor area crowd Monday night.
"The more investment you make in Michigan, the higher your taxes go," he said. "That's not the type of tax policy that we like."
Calley addressed about 50 residents, business owners and local officials as part of a town hall meeting organized by state Rep. Mark Ouimet, R-Scio Township.
Calley shared details of a new legislative proposal to overhaul the state's personal property tax, which businesses pay on items such as machinery, furniture and other equipment.
Brian Calley
"We're trying to resolve what we think is an issue that could put our state at a better place tomorrow than it is today," Ouimet told residents Monday night.
The state House hasn't taken up the issue yet, but it's gaining traction in the Senate.
Calley gave an overview of a package of eight Senate bills that could reduce or totally eliminate portions of Michigan's personal property tax in the coming years.
The fear among opponents of the proposal is that lost revenue won't be made up to local governments that stand to lose while manufacturers see millions in tax relief.
In Washtenaw County alone, local governments and schools stand to lose about $43 million if the personal property tax is eliminated without replacement revenue.
Calley attempted to assuage those fears, saying he's identified replacement revenue that would hold at least 98 percent of each local government's budget harmless. And that source of revenue, starting in 2016, is the expiration of business tax credits awarded by the Granholm administration.
The Michigan Municipal League, which represents cities, villages and townships throughout the state, interprets the proposal differently.
Matt Bach, the league's communication's director, recently summarized the bills this way: It's the Legislature and Snyder telling local communities and schools: "We are going to take $470 million a year in local revenues from you, we are going to repay as much as $381 million back to you, and we are going to pay you from a new 'Personal Property Tax Replacement Fund' that we will write into state law but that does not, and never will, have a penny in it unless some future Legislature and governor decide to put money in it."
Here's a recap of Calley's take on the proposal:
The small parcel exemption
The first component of the multi-year reform measure is a move to wipe off the tax rolls all of the personal property taxes on commercial and industrial parcels where the taxable value is less than $40,000. That's achieved through Senate Bill 1070.
Calley said the small parcel exemption, while it fully exempts the majority of all commercial and industrial properties from the personal property tax starting in 2013, is not as much about tax relief as it is about administrative efficiency.
According to Calley, personal property makes up about 3.1 percent of the entire property tax base across the state, while real property makes up 96.9 percent.
"Of that 3.1 percent of the entire property tax base, by doing this exemption, it will wipe out 7 percent of that revenue — 7 percent of the 3.1 percent," he said.
But it's more than 60 percent of the parcels, he said.
"So if you think about this way: over 60 percent of the system is established in order to collect 7 percent of the revenue. When I say it's an inefficient tax, this is what I'm talking about."
Calley concluded it makes no sense for local governments to spend time and money collecting such small amounts of tax revenue from those "small parcels." He said it's a burden to local governments as much as it is to the businesses that pay the tax.
"This is an area where, frankly, we've picked up a lot of support from local governments all across the rest of the state that say, 'I might be nervous about the rest of the plan, but this part right here — if I didn't have to send out $12 tax bills anymore — I think that'd be swell,' " Calley said. "This is probably the least controversial aspect of the entire plan."
Calley said the $40,000 threshold is just a number the proposal's supporters picked, and he acknowledged that's one of its biggest weaknesses.
"All we're trying to do is get a whole bunch of the little parcels out of the system to make it much more efficient to administer," he said. "The problem that we run into is it creates a cliff. So if I have $40,000 in personal property values, I'm out of the system. If I have $41,000 in personal property values, I am in the system in terms of as a taxpayer."
Calley said if anyone had a better idea for how to wipe the small parcels off the tax rolls without creating a "cliff effect," he's all ears.
New personal property exemption
Another piece of legislation, SB 1069, would exempt all new eligible manufacturing equipment from taxation beginning in 2016.
The reason 2016 was picked, Calley said, is because that's when business tax credits approved by the Granholm administration will phase out, meaning replacement revenue would be available. By Calley's calculation, the Granholm administration doled out about $6.6 billion in targeted tax credits that are still being honored by the state.
"By the time 2016 hits, a lot of those tax credit awards will have been exhausted, and state government that used to have to pay out hundreds of millions of dollars a year in these tax credit awards will no longer have to do so," Calley said.
"This is personal property tax relief at the expense of targeted business tax credits. That's where the entire schedule comes from."
Calley acknowledged when he says the exemption would apply to all "new" manufacturing equipment beginning in 2016, it actually will apply to any equipment that was placed into service on or after Jan. 1, 2012.
And it would apply only if the equipment is located on a parcel that's used more than half the time in industrial processing — such as line manufacturing — or in a direct integrated support role such as research and development, testing, engineering or warehousing.
Exemption for existing personal property
Another bill, SB 1071, addresses how the state would phase out the "old stuff" that's already on the tax rolls, meaning equipment pre-dating 2012, Calley said.
"We phase out over the course of seven years — 2016 plus six more years — and we do it on an age-basis," he said. "So starting in 2016, we say anything 10 years old or older, it's out. It's off the system. And then every year that goes by, the next oldest year falls off."
That means in 2016, the only manufacturing equipment that still would be taxable is property purchased between 2006 and 2011. All of it would be exempt by 2022.
Between all of the different pieces happening in 2016, more than 70 of the industrial personal property would be exempt and the rest would be phased out over time. About 40 percent of all commercial personal property also would be exempt in 2016.
"The reason why there's a big chunk in that first year in 2016 is because that's when the battery credits expire," Calley said, referring to tax credits Granholm gave out to lure advanced battery production to Michigan. "We're going to be paying out huge credit awards to them in 2012, 2013, 2014, 2015 and then they run out."
Existing tax abatements
Four bills in the package, SBs 1065-1068, allow for continuation of existing abatements on personal property, which local governments have the ability to approve right now.
"What this does is it establishes a system where wherever the abatement is at right now — let's say if it expires in the next few years — it just stays where it's at until it phases out," Calley said.
"In other words, it prevents the idea that you're going to have something go back on the rolls just to be immediately phased back out," he said.
Reimbursement fund
SB 1072 establishes a reimbursement fund, which Calley said is intended to provide replacement revenue when personal property taxes are phased out.
He acknowledged it only establishes an expectation of an amount. The mechanism by which local governments actually get the money, he said, is very much open to discussion.
Calley shared a formula the administration has in mind. He called it a "bare minimum" expectation for providing replacement revenue to local governments.
He said any lost tax revenue that was tied to a local government's debt repayment or a tax-increment financing arrangement would be reimbursed 100 percent.
And there would be an expectation that at least 98 percent of the rest of the budget of each local government unit would be protected as well, Calley said.
"I know we've got the money, and I'm willing to dedicate it to local government, and I'm putting it on the table saying it's yours," he said.
Legislative timeline
Calley said the Legislature is going to work at whatever pace it deems appropriate, but the Senate is treating personal property tax reform with much more urgency at this point.
"The Senate seems to want to move the package through the process between now and mid-summer," he said, adding he hasn't heard anything from the House.
"It will probably move out of Senate committee over the course of the next few weeks," he said. "When it might move out of the Senate itself is very much an open question. But in terms of the process in the House of Representatives, I do not believe that the leadership in the House of Representatives is committed to moving it at all before the traditional summer break."
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's email newsletters.
Comments
Lets Get Real
Thu, May 3, 2012 : 12:43 p.m.
Why is this meeting being publicized AFTER THE FACt? Give this much page play to an important topic like this ahead of time so people can plan to attend and get the facts themselves.
Randolph
Wed, May 2, 2012 : 7:27 p.m.
Electrolux was offered a better deal than this and they still went to Mexico. This will not attract new businesses to Michigan; it only provides quick bucks for those already existing (stuck) here and may allow them to snap up some sweet deals in the short run at citizen expense. Many of the people who own and profit from this do not even live in this state (or country for that matter). It would be likened to offering sub-prime mortgages again. Seems like an empty bag full of hot air were asked to hold on to and hope. It is a privilege to do business in our state. The cost should be some money, a commitment and some cooperation. We are all impacted by what goes on here and we can compete on that level. Do we really want to invite those who would exploit us?
Townie
Tue, May 1, 2012 : 10:50 p.m.
Our new Overlords - rich businessmen. They get their taxes cut while we replace that missing state revenue. But we are just serfs to our Overlords who have paid our legislators to do their bidding. Oh, and our Overlords don't need to provide any proof that even ONE job was created. Nice work if you can get it.
outdoor6709
Tue, May 1, 2012 : 9:57 p.m.
All of the "evil" corporations pay $ 0 in taxes. Taxes are hidden in the cost of every product or service you buy. Personal property taxes, sales taxes, income taxes are a cost of doing business and are hidden in the price. The reason politicians like business taxes is the true cost is hidden from view. Politicians also like to give credits to there voting block. Pesonal property taxes are a rellic from a time when money and jobs were less mobile.
Ron Granger
Tue, May 1, 2012 : 8:41 p.m.
Why isn't anyone in Lansing ever talking about lowering the taxes of the people of Michigan? It's always "Snyder's business buddy's this" and "Snyder's out of state business buddy's that". We are apparently here to service, and increasingly subsidize, the business "elites".
Sparty
Tue, May 1, 2012 : 7:52 p.m.
Trust them? They have got to be kidding. Trust the republicans to fund this mystery mechanism in 2016 and beyond. I don't think so .....
PoliSci
Tue, May 1, 2012 : 3:56 p.m.
Why is it that during the campaign, during their administration, and not now do they ever have to mention the companies, businesses, etc. that have left the State of Michigan due to tax policies. what companies have moved to neighboring states? Over seas perhaps. But name some names.
Basic Bob
Tue, May 1, 2012 : 5:26 p.m.
Pfizer.
Susie Q
Tue, May 1, 2012 : 3 p.m.
I attended the meeting last night and Mr Calley mentioned several ways that units of government could re-coup the loss of revenue if (I guess not if, but when since this legislature wants to jam a lot of stuff through while they have a super-majority); only one of which was the ending of the tax credits awarded to lure businesses, which will end in 2016. He also said that local governments could vote to increase their sales tax and/or income tax. Unfortunately, this would end up shifting tax burdens away from business and on to the citizens, which happened last year when the business tax was cut and the revenue lost was made up by ending tax exemptions on individuals and taxing seniors' pensions. He also stated that the current tax is a disincentive for companies to invest in new equipment because their taxes will go up; well, it works the same way with individuals....if you make improvements on your home and property, your taxes will go up. If you earn more money, you pay more income tax.......so are these a disincentive for individuals to ask for a raise or fix up their house? Another of his points was a chart that showed some of our neighboring states that did NOT have a PPT (such as Ohio and Wisconsin). However, he did not mention that 36 other states, including prosperous Connecticut and Massachusetts DO have personal property taxes....36 out of 50. And lastly, he admitted several times that he cannot promise that the money that is lost would be made up to the units of government. He stated that HE was willing to put the expiring tax credit money on the table, but indicated that the legislature could do whatever they wanted. And given the governor's track record of saying one thing, but doing another (stating that he did not want to see a motorcycle helmet repeal on his desk, but signing off on it anyway); he will sign whatever it is that they put in front of him. This is just another excuse to shift tax burden to individuals.
Mike
Wed, May 2, 2012 : 11:54 a.m.
Suzie Q - You don't seem to understand that you already pay the tax in everything you buy. This just makes it more apparent and up front but the bottom line is you're still paying it and will continue to do so.
4Bells
Tue, May 1, 2012 : 9:08 p.m.
Thanks for the info - especially the fact that 36 other states do have the PPT on manufacturers. Snyder/Calley must've forgotten to mention that, but quick to point out the few that don't. They're "all in" for business tax relief, but the rest of us can share in the sacrifice & "pony up"! Does being "sold down the river" come to mind?
John Q
Tue, May 1, 2012 : 6:28 p.m.
Unless Calley's proposing legislation to allow that to happen, he's pretty clueless. Cities don't have the authority to levy local sales taxes or hotel taxes.
Susie Q
Tue, May 1, 2012 : 4:34 p.m.
Yes, he did say sales tax, though perhaps he meant the state should raise the sales tax. He said that he favored "consumption taxes" and income taxes. Maybe he meant cities could raise local hotel taxes or something like that, but he definitely said sales tax. And I took him to mean that cities could create or raise income taxes to make up for the lost revenue.
John Q
Tue, May 1, 2012 : 3:28 p.m.
Local governments can't raise sales taxes. Is that what Calley actually said?
Peter Eckstein
Tue, May 1, 2012 : 2:41 p.m.
If Calley is concerned about creating a "cliff" effect--by only taxing personal property if the total is above $40K--then the answer is simple. Just create an exemption of the first 40K for all businesses. Since he says that a majority of businesses have less than 40K in personal property, then such a measure would cost less than double the amount of the exemption being proposed. As for replacemnt revenue, what was the logic of first eliminating any taxation of S-corps, including giants like Bechtel, many of whom are in MI because this is where their customers are? Dry cleaners and law firms can't easily relocate to Indiana and still served MI customers. Manufacturing firms are less tied to their local customer bases, and reducing the personal property tax for them makes some sense, especially for new investments. But why not pay for it by reinstating taxation of so-called small businesses?
John Q
Tue, May 1, 2012 : 2:32 p.m.
Calley keeps claiming that this is going to save time and money for administering the PPT. But local assessors are still going to have to track all of the personal property so that they can classify it as exempt or non-exempt. The only savings is when a tax bill isn't sent out. Big savings for business, no savings for local government.
John Q
Tue, May 1, 2012 : 2:28 p.m.
"Granholm Tax Credits"? Calley served in the House and voted in support of many of these tax credits and only passed because Republicans voted for them. I have no problem with Ryan reporting Calley's spin on this but to use that as part of the headline isn't a sign of a journalist, it's the sign of a stenographer.
hermhawk
Tue, May 1, 2012 : 1:58 p.m.
Where is the job creation Snyder and company promised? I am sick and tired of the business community crying foul over taxes and shifting the blame and expenses to those not as fortunate, such as retirees. It takes revenue to run governments; I forgot the business community and their tea party friends want to limit, if not outright eliminate or outsource government. Beware, what you sow with this mentally you will surely reap.
xmo
Tue, May 1, 2012 : 1:33 p.m.
Gov. Snyder is starting to sound like President Obama! Blaming Gov. Granholm for everything bad. When Gov. Granholm left office, the state had low unemployment, was in great financial and business could not get here fast enough! Now look what Gov. Snyder is doing to this "Worker's Paradise"
jns131
Wed, May 2, 2012 : 12:25 a.m.
Bed partners they are. Tax everyone and reap the rewards. Go figure. You voted for em and now we are paying for it. Literally.
maallen
Tue, May 1, 2012 : 6:13 p.m.
xmo, "When Gov Granholm left office, the state had low unemployment, was in great financial and business could not get here fast enough!" You are kidding, right? When Granholm became governor, unemployment was at 6.8%. When she left office unemployment was at 10.7%. Michigan's unemployment was about 33% higher than the national average, hardly the "low unemployment" rate you claim. Businesses were leaving Michigan because of the anti-business climate she created, with the exception of the Movie Industry. As she continuously increased taxes on businesses and residents, Michigan's revenue was declining because companies and residents were leaving Michigan. Under Snyder, unemployment is now down to 8.5% as of March 2012. Businesses are coming back to Michigan. Not bad, eh?
BigMike
Tue, May 1, 2012 : 1:08 p.m.
Hey Murphthesurf, "personal" is a term of art that distinguishes things owned by a person or business other than "real" property ("real estate"). A lot of people don't know it, but businesses have to pay tax (personal property tax) on most of the stuff they buy, like computers, desks, copiers, manufacturing machines, software, coffee makers, and so forth. As the owner of several small businesses, the personal property tax drives me crazy! After I pay to own a piece of equipment I need to help run my business (and pay sales tax on it), I then have to fill out a complex form to identify it (or pay my accountant to do so), and pay personal property tax on for several years. As Calley says, it discourages investment by businesses in Michigan, and penalizes us for trying to grow our businesses. He may not have all the details right yet, but I am a BIG FAN of wiping out the personal property tax in Michigan.
Lets Get Real
Thu, May 3, 2012 : 12:58 p.m.
Good explaination, Big Mike. I too own a small business and it infuriates me when I am a good stewart of my financial resources and economize by buying a coffee pot for my business at the Salvation Army Store. only to turn around and have to list it as personal property and pay tax on it. Government is run on the back of small business: 6% tax on the purchase, ppt tax on the item, then all of the small business taxes for self-employment and income (if there is anything left to pay one's self). Don't forget to count the unpaid jobs small business does for the government and pays for in employee time: collect sales tax, collect use tax, account for it on reporting forms, maintain and pay bank fees for a separate escroe account to keep the funds separate . . . . . . . . All cost of doing business - guess where those costs get recovered? Right - from the customer who pays more for the product or service - all to give those government workers job security.
murphthesurf
Tue, May 1, 2012 : 12:44 p.m.
personal property? maybe im wrong but doesn't "PERSONAL" MEAN INDIVIDUAL ? why is this tax on equipment and other things used to run a business being called PERSONAL? this is a tax on businesses,not individuals ! or am i missing something?
Lynn Liston
Tue, May 1, 2012 : 2:19 p.m.
I've been in business and known enough business owners long enough to understand this, although it is complicated. We have a repressive tax on businesses that not only taxes their annual profit as a business, but taxes the business as though it were personal property, so any increase in value due to reinvestment (machinery, property) is also taxed. As individuals, we are used to paying an annual income tax plus a property tax on our homes. If we improve the home, our property may increase in value and our tax may go up the next year. For a business, this personal property tax applies to anything that they own or add to their business. Home owners don't pay annual property tax on the value of their furniture, home computers, TV's, cars (we pay a sales tax at time of purchase), but business owners are taxed on the new furniture, computers, vehicles at time of purchase and again as personal property tax. This really hurts small businesses and cuts down on hiring and investing in the business.
Forever27
Tue, May 1, 2012 : 12:39 p.m.
this administration doesn't even try to hide the fact that they are nothing but corporate hacks. Good governance is the least of their concerns. They're simply businessmen trying to make a profit (at the expense of whatever it takes).
Basic Bob
Tue, May 1, 2012 : 5:24 p.m.
And the alternative? In the majority of cases, the cost of collection is greater than the amount paid. We are actually taking money OUT OF THE HANDS of the schools and libraries to keep accountants, tax clerks, letter carriers, and collection agencies busy. Great use of our local tax dollars.
no flamers!
Tue, May 1, 2012 : 12:38 p.m.
Seems like a good compromise--get rid of the personal property tax that drives investment out of Michigan, but do it slowly enough that the state revenue decline is minimized at worst, and revenue-neutral if the future tax credits to government-favored businesses are eliminated.
Chase Ingersoll
Tue, May 1, 2012 : 12:32 p.m.
Amazing. We are in a country where people believe in not just a right, but an obligation to tax producers, and that the right to do so is superior to the right to own property. You can look around the world and throughout history and see that this sort of thinking, inevitably leads to economic destruction and various forms of civil war. This sort of thought is fundamental to why so many people and jobs left Detroit (Detroit was taken over by sympathizers of Marxism/Communism) and that attitude legitimized those who believed in criminal rights rather than the fundamental civil right, which is ownership of private property. Chase Ingersoll
John Q
Tue, May 1, 2012 : 3:29 p.m.
The tax has been around since the late 1800s and Detroit managed to become the manufacturing capital of the world even with this tax in place. Guess your historical lesson is a bit lacking in factual basis.
JSA
Tue, May 1, 2012 : 12:28 p.m.
Did I misread the article and did it fail to outline what tax credits are to be eliminated?
SMAIVE
Tue, May 1, 2012 : 8:01 p.m.
Yes, he kept saying it was for battery manufacturers. Question, are there battery factories generating that kind of tax revenue?
information please
Tue, May 1, 2012 : 12:24 p.m.
"In Washtenaw County alone, local governments and schools stand to lose about $43 million if the personal property tax is eliminated without replacement revenue." ....and public libraries, many of which are district libraries, which are independently administered by elected boards rather than a part of a city or township government, just as school districts are. Ann Arbor, Ypsilanti, Saline, Dexter, and Chelsea are all district libraries. How about a story on how these potential cuts will impact our public libraries? Here's a good place to start: http://www.mla.lib.mi.us/sites/default/files/pptimpactrepfoster.pdf
Dog Guy
Tue, May 1, 2012 : 1:24 p.m.
information please: Decrease library funding and and Ann Arbor may not be able to afford a new downtown library/conference center building attracting people to keep our lonely downtown librarians company.
st.julian
Tue, May 1, 2012 : 11:56 a.m.
This is the typical unproven nonsense perpetrated by the Snyder administration. They've defined in detail how to get rid of the ppt, but not how to replace the lost revenues to municipalities. On this count, they ask local over meant and the voters to "trust them". For likely outcomes think of their abuseof K-12 funds.
mike gatti
Tue, May 1, 2012 : 11:16 a.m.
I don't understand this story. Is it me? Is it the writing? Is it the plan?
Ed Kimball
Tue, May 1, 2012 : 1:32 p.m.
I think it's the plan, which seems incredibly complicated, especially coming from the party that claims it wants not just to lower our taxes but also to simplify them.
SemperFi
Tue, May 1, 2012 : 12:33 p.m.
No Mike, it's not you. It's pretty typical of the nonsense that this administration esposes everyday. Steal from the middle class and give those who will support their party. It is politics over good governance.
4Bells
Tue, May 1, 2012 : 10:47 a.m.
The personal property tax will be overhauled legislatively, saving manufacturers millions of dollars up front; then later, other stuff will happen & change, all this other money we took from you & gave to manufacturers will be replaced by some other things that will happen and, honest - you'll pretty much, maybe, 98% or so, get your lost revenue back - I promise. You won't even hardly notice the difference . . . What? Is this the Snyder/Calley version of the old "Nigerian Advance Fee Scam?"
u812
Tue, May 1, 2012 : 10:30 a.m.
and I thought Democrats were out to tax me to death.
jns131
Wed, May 2, 2012 : 12:22 a.m.
I have that on my tombstone. Taxed to death. And a wooden coffin to go with it. Can't afford glam.
ChrisW
Tue, May 1, 2012 : 10:54 a.m.
The Democrats will not only tax you to death, they'll tax you in death.