Legislature should slow its race to eliminate personal property tax
For local governments across Michigan, budgets are looking a lot less grim than they were last year. Ann Arbor is a good example of that. City Council came into this year thinking it would have to cut another 14 positions from the police and fire departments. Instead, council members now are talking about the possibility of adding police and firefighters.
That’s a reflection of how the state economy is improving, and how local governments are beginning to regain their financial footing after years of brutal cuts in budgets and services. Which makes this exactly the wrong time for Lansing to gut local government budgets with another large tax cut aimed at businesses.
George Basar, the Howell police chief and former Ypsilanti police chief, talks at a recent press conference held by the Michigan Municipal League. Local government officials are urging the Legislature not to scrap the Michigan Personal Property Tax (PPT) without guaranteeing replacement funds for local services and schools.
Photo courtesy of the Michigan Municipal League
The personal property tax is a levy that businesses in Michigan pay on their equipment, such as computers or manufacturing machinery. Opponents of the tax call it an anachronism that hurts the business climate in Michigan and discourages manufacturers in particular from locating plants or expanding here. There is a legitimate case to be made for that. Other than Indiana, our other neighboring states either don’t tax equipment, or exempt most of it from being taxed, which gives them a competitive advantage over Michigan.
However, the personal property tax also is an important source of revenue, generating some $1.2 billion a year for local governments and schools. Some communities, such as Ann Arbor, don’t rely a lot of that particular tax for revenue, but others are heavily dependent on it. About 30 communities generate nearly a third of their revenue from it.
Republican lawmakers have said that getting rid of the personal property tax is one of their highest legislative priorities in 2012, claiming the move would create more jobs. We’d like to see some proof of that. We believe that when businesses make decisions about where to locate and expand, factors like good schools and quality of life are as important as tax rates, if not more important. Cutting funding for education and local services compromises our ability to be attractive to employers.
Lawmakers who want to eliminate the personal property tax now are saying they can make up most that revenue with money the state will receive as it eliminates tax credits for certain businesses like battery producers. But as the Associated Press recently reported, local officials are skeptical about promises from Lansing to replace lost revenue. They’ve heard that song and dance before.
Local officials say that if the state plans to phase out the personal property tax, they want to see a constitutional amendment that requires the state to replace the lost revenue. We’re not sure this issue rises to a level that would justify amending the constitution. But we are adamant in our belief that local governments and schools have been hit hard enough by budget cuts in recent years, and deserve to be protected from being slammed again at a time when they are experiencing a fragile economic rebound. While the current proposal is a phased approach, it still only calls for replacing about 80 percent of the lost revenue, which is inadequate. The revenue should be fully replaced.
A huge tax cut was handed out to Michigan businesses last year - one that, admittedly, manufacturers did not share in. Most manufacturers fared better under the much-maligned Michigan Business Tax that was done away with last year, and actually are paying more with the corporate income tax that replaced it. We understand their unhappiness. Still, we’d like to see some hard evidence that the tax cut enacted last year is really creating new jobs before the state undertakes yet another major tax overhaul.
We don’t see what the rush is to eliminate the personal property tax. If this issue is being pushed through the Legislature without an iron-clad plan for replacing the lost revenue, we call upon our local representatives to vote against it.
(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board at AnnArbor.com.)
Comments
Richard Wickboldt
Sun, May 6, 2012 : 1:02 p.m.
It is disgusting that our politicians continue to shift the full tax burden onto the individual citizen tax payers. All the while those businesses don't pay a fair and effective wage so we can pay the taxes. So us workers make less, pay more taxes and the wealthy pay less taxes and keep more of the money for themselves. We should start a tax revolution. When a millage comes up for a vote. We should vote it NO and off the tax rolls. We should also start petitions to get all millages onto the ballot and vote them out. I have the same right to pay less taxes as a business does. When employers start giving annual pay increases a few percent higher than the rate of inflation... then maybe we should consider supporting lowering their taxes.
Alex Brown
Tue, May 1, 2012 : 12:42 p.m.
When will the economic illiterates learn that businesses DO NOT PAY TAXES! Their customers are the ones who pay the taxes. the businesses consider them a "Cost of doing business" and add them into their prices. Additionally, the bills that are in the process of wending their way through the legislature WOULD NOT eliminate Personal Property Tax. They are only eliminating the "Industrial" class of Personal Property. There would still be the "Agricultural", "Commercial", Residential", and "Utility" classes of Personal Property Tax. More sloppy reporting from a source noted for that.
Richard Wickboldt
Sun, May 6, 2012 : 1:11 p.m.
And the cost of doing business should be paid in the price of the goods or services by the person or business purchasing them. Not spread out to all citizens of the who vast majority do not buy the product by taxing us. This will insure that the business model put together by the owner get's tested in the market place. Not subsidized by us all. Remember taxes pay for protection services, infrastructure and the like which a business needs to conduct their business. The best and efficient economic model is for the business to pay for its true cost and then try and be competitive. That is what I have read in so many places on business and the economy. Maybe somebody else is illiterate.
DonBee
Mon, Apr 30, 2012 : 9:11 p.m.
Mr Dearing - As I read the current version of the bill it will completely phase out in 2022, about a decade from now. Is that slow enough? Having been involved in "clearing factories" to prevent having to pay this tax, I can tell you that companies remove excess equipment from the state as fast as they can. That means that once a piece of equipment is shutdown it is dismantled, destroyed or moved out of state before the tax man comes again. This is a piece of why the automotive suppliers don't have the capacity to support growth in production. I have watched equipment leave Michigan, not because the manufacturer wanted it to, but to avoid the taxes. Raising the business tax to collect this money would mean that equipment could stay in place or at least in the state and we could see jobs come back faster in the next downturn. I am all for dumping this tax as quickly as possible, so long as we create a replacement for the money... Now the issue is how to split the money moving forward, since it was a locally collected tax based on assets. That to me is the hard problem to solve, initially it will be easy - just give them what they got last time, the problem is how to make it work 10 or 20 years from now.
information please
Mon, Apr 30, 2012 : 12:44 p.m.
Public libraries in Michigan, which are primarily funded by property taxes on both residences and businesses, as well as by these personal property taxes, will be hit hard if this revenue is not replaced. Most have already experienced a significant decline in revenues due to declining property values, at a time when library usage has increased significantly.
Jay Thomas
Mon, Apr 30, 2012 : 11:01 a.m.
So AnnArbor.com thinks that even a business fighting to survive should pay this tax (even though it's losing money). I was hoping moving to a corporate state income tax would have eliminated this albatross.
Mick52
Sun, Apr 29, 2012 : 6:03 p.m.
No brainer here. From the time I first heard of the personal property tax I consider it an idiotic tax. I side with Mr. Dearing that if the state ends it, another form of revenue has to replace it and my suggestion is raising the personal income tax. Michigan has a low income tax, 4.35% of your federal adjusted income. This chart shows the comparisons to other states. Note many states have graduated tax rates by income and the 4.4% rates usually applies to only very low income rates. I would not mind an increase in state income tax if it will enhance business coming to Michigan.
Mick52
Tue, May 1, 2012 : 9:13 a.m.
John if you have a better idea that will draw more business (jobs) into Michigan lets hear it. Drop the silliness ("Is that you Rick Snyder") and offer alternatives with your criticisms. It is easy to criticize, but not so easy to say what you think Michigan needs to do. Actually I do not think he is doing enough. Not sure he can, Michigan is too entrenched in union politics.
John Q
Sun, Apr 29, 2012 : 11:02 p.m.
Is that you Rick Snyder? You already eliminated many tax credits and deductions so that millions of us are going to pay more in state income taxes next year. How about giving us a year to adjust to higher state taxes before you give your business buddies another tax break at our expense.
Plubius
Sun, Apr 29, 2012 : 4:29 p.m.
"Instead, council members now are talking about the possibility of adding police and firefighters." Don't the dolts on city council EVER learn? Now is NOT the time to spend more and to be saddled with future expenses. STOP SPENDING!
clownfish
Sun, Apr 29, 2012 : 4:13 p.m.
Not one person against the PPT has offered a plan to replace the money that would be lost to local municipalities. I agree that it is a harsh system, but what is your plan for Other People to pick up the lost revenue? Which group do you want to see pay more? Seniors and the working poor have already been hit, next up will be gasoline consumers if the gov gets his way.
YpsiVeteran
Mon, Apr 30, 2012 : 2:46 a.m.
Clownfish, I bet the governor could identify an offsetting amount of waste, unnecessary programs and unnecessary departments that could be cut from the state budget, and raise the rest by closing the corporate tax loopholes they've mentioned they would like to end. How many billions could be saved by doing away with the "Friend" of the Court alone? Other states don't operate with a dept. like Friend of the Court -- we don't need to either. Perhaps then we could eliminate the Office of the State Archaeologist.
sbbuilder
Sun, Apr 29, 2012 : 11:13 p.m.
Aaah, I beg to differ. I pointed out in my post that there are real, tangible benefits to business immediately if this tax is repealed. Getting rid of it would have a huge beneficial impact on business that would be reflected in increased revenue due to better business performance. That change would be seen very quickly. But it wouldn't replace the entire loss, though, right? TOO DAMN BAD. Business in this State has been knocked around for way too long. Now, we are being told by the non-business owners to put up and shut up. I could say that's none of my concern, and am tempted to say just that. I'll tell you this: I will replace some of the aging equipment in my shop the minute this law goes away. Delta (an American company), will be very happy with me.
braggslaw
Sun, Apr 29, 2012 : 8:43 p.m.
shrink govt. pensions and benefits.
1bit
Sun, Apr 29, 2012 : 5:10 p.m.
And this sums it up exactly. It is a terrible tax upon which communities are utterly dependent, for which no one has yet come up with a great replacement.
Chaz H
Sun, Apr 29, 2012 : 4:04 p.m.
I am a liberal, and I think the Personal Property Tax is absurd. I realize the property taxes I pay on my houses are a similar concept, but having businesses pay taxes on equipment they already own just seems out of line to me. How did the PPT come to be in the first place?
Mike K
Sun, Apr 29, 2012 : 11:03 p.m.
Chaz - thanks for you point of view. Most "liberals" are in a continuous search for tax revenue to fund all powerful government. I'm glad to see an individual who seems to work outside of the "party" lines.
Mick52
Sun, Apr 29, 2012 : 6:05 p.m.
Ah. A liberal this conservative agrees with on a issue. Very encouraging. I guess a business needs two sets of equipment so when the tax man comes get the crappy stuff out.
Tony Dearing
Sun, Apr 29, 2012 : 3:53 p.m.
If you're interested in reading more on this topic, the online Bridge Magazine published a pair of side-by-side pro and con pieces last week that make a good read. You'll find them here: http://bridgemi.com/2012/04/will-personal-property-tax-tug-of-war-drag-cities-into-the-mud/
Galileo2000
Sun, Apr 29, 2012 : 3:53 p.m.
I am completely against the PPT. It needs to be repealed as soon as possible as it does inhibit the growth of small business. I buy a piece of equipment to make stuff, but also computers, I pay sales tax on it, and then I have to pay the PPT on it each year. Make no mistake, this unfair tax does enter into business decisions. I have put off buying equipment as a direct result. This tax is absolutely ridiculous. I am not even sure how this is legal, taxing something I have already paid taxes on! Let's get rid of the PPT now then let the businesses grow. Let me add one more piece to the discussion, what percentage of personal property owneed by businesses is actually reported? I bet less than half, so its efficiency is even poor. End it now!
SonnyDog09
Sun, Apr 29, 2012 : 3:36 p.m.
They are now over one year in to a two year legislative session, so I guess I don't see the "race" to do this.
sbbuilder
Sun, Apr 29, 2012 : 3:18 p.m.
Everything about the PPT is bad, and both sides of the aisle readily admit it. The only "good" thing to be said about it is that it makes the State money. But even that argument is tainted because we must also factor in the potential revenue lost to normal taxation if A) these businesses were doing better because they wouldn't be starting ten yards behind the starting line in every race with competitors and B) the taxes lost to businesses who intelligently choose to go elsewhere when they start a new business, or choose to expand. Lots and lots of tax revenue going out the window here, folks. But, if what you like is bad legislation, feel free to keep your membership in the Stone Age Revenue Club.
Stan Hyne
Sun, Apr 29, 2012 : 3 p.m.
Small businesses also get taxed on their equipment. Many times the question on an old but still handy piece of equipment is not do we use it sometimes, but is it cheaper to scrap it than pay the tax.
JDed
Sun, Apr 29, 2012 : 2:48 p.m.
The PPT taxes businesses twice. That is why it needs to go. When a business buys a vehicle it pays tax. Then they are taxed on the same purchase again through the PPT. This double taxation needs to be ended
braggslaw
Sun, Apr 29, 2012 : 2:39 p.m.
Michigan needs to eliminate the things that forced companies and jobs out of the state...this tax is one of them. It is a structural disadvantage that needs to be eliminated once and for all. Just because a ray of sunshine can be seen through the clouds does not mean the storm is over.
johnnya2
Tue, May 1, 2012 : 1:15 p.m.
Nobody said taxes had nothing to do with costs. It is NOT a top reason any company chooses to locate their business somewhere. You both can not discuss the fact that INDIANA does have a property tax and is doing better than most states in the region. GM, Ford and Chrysler build things in Canada. You know why? Oh thats right, HEALTH care is a bigger concern than taxes. Apple pays higher taxes to have their headquarters in California. If taxes were a focus, why arent they based in South Dakota or Wyoming or Alaska? You can not answer that question because you know that the MOST important thing involved in location of a business is HUMAN CAPITAL. The funny part is, the so-called low tax states are the ones that take money from the rest of the country because they happen to be sitting on oil. It was not great budget management or low taxes for the Dakotas, or ALaska or Wyoming. It was sitting on oil. Oh, by the way, the oil companies pay HUGE taxes in those states., Who do you think pays for that? EVERY person who uses oil.
Mike K
Sun, Apr 29, 2012 : 11:12 p.m.
Taxes most certainly do play a decision on where a business locates. Crazy talk. Taxes are a cost - period. If you think companies don't consider costs, you're absolutely crazy. The sad part of the debate is that few recognize that "business" creates tax revenue for governments to consume. More business = more tax revenue. Let's not fix the problem, instead let's just focus on certain specific groups like the rich and oil companies.....
braggslaw
Sun, Apr 29, 2012 : 9:08 p.m.
I guess I don't know where to start.... Apple builds its phones and IPADS in China. GM Ford Chrysler supplier etc. build things in Michigan. Michigan will not be a silicon valley, it will be a center for engineering and manufacturing which require an enormous capital investment. Ohio is much farther along than Michigan in its recovery.
johnnya2
Sun, Apr 29, 2012 : 5:55 p.m.
Indiana is held up as a model of pro-business and they have this tax. Ohio has been bleeding jobs like Michigan and does not have it. So which is it right wingers? Taxes have very little to do with where a business locates. It is very low on every survey if BUSINESS owners and decision makers who make these decisions. Finding QUALIFIED employees, quality of life, existing and future infrastructure all rate higher. If you believe that low taxes are the impetus for business growth, why is Apple based in California (a high tax state) and not in South Dakota (a low tax state)? Why is Microsoft in Washington state (high tax) and not in Alaska (low tax)? Why is Boeing in Illinois (high tax) and not Wyoming (low tax)? Of course there once was large computer company that was based in South Dakota run by the governor of the state of Michigan. It is now a division of Acer based in Irvine CA. I guess South Dakota could not meet the needs of the market
Greg
Sun, Apr 29, 2012 : 1:34 p.m.
Pretty amazing, those that love taxes (using other peoples money for just about anything) seem to have never met a tax they want repealed.
Mike K
Sun, Apr 29, 2012 : 3:46 p.m.
Krugman wrote an article a while back entitled, "Things we can tax." Liberals love taxes because it makes powerful governments more powerful. Liberalism - such great ideas they're mandated. It would be funny if it weren't true.
Susie Q
Sun, Apr 29, 2012 : 2:27 p.m.
Hey, Greg......lots of seniors received BIG tax increases so that businesses and "job creators" could get a BIG tax break. They are definitely getting other people's money and the Repubs in Lansing all touted it as the best thing since sliced bread. I'd like to see the tax on senior pensions, especially those under 40,000, repealed. Now, anything over $20,000 is taxed. These folks have LOTS of medical expenses and can no longer work or find a job if they wanted one.
A2anon
Sun, Apr 29, 2012 : 1:43 p.m.
Love taxes? What kind of nation would we live in if there were no taxes? Try to picture it. By the way, it's my money too.
A2anon
Sun, Apr 29, 2012 : 1:34 p.m.
Here's a question.... How are we supposed to *trust* Lansing to replace that revenue for local communities? Please. Snyder STOLE from the School Aid Fund to give corporations more money, and we are supposed to trust him?
Technojunkie
Sun, Apr 29, 2012 : 1:24 p.m.
The PPT is a ridiculously inefficient tax with heavy compliance costs. Replacing that revenue with a simpler tax or rolling it into an existing tax makes a lot of sense. Sure, this will cost accounting industry jobs but it will be a significant help to productive industries. If you think that tax simplification doesn't effect the economy you haven't talked to businessmen who have to deal with the soul-crushing insanity of tax paperwork. Speaking of which, pass the Flat Tax or Fair Tax at the federal level, preferably the latter. Wasting hundreds of $billions to figure out what amount of tax is required is lunacy, especially when the most powerful corporations use the system to dodge taxes entirely while small businesses get clobbered. The delay in getting the PPT repealed, versus the speed in other tax reforms under Gov. Snyder, has been in figuring out how to replace the revenue for the districts that collect it. The article's hand-wringing is premature.
Mick52
Sun, Apr 29, 2012 : 6:13 p.m.
Johnny. We point to Indiana because it ranked well in the list of states where the cost of doing business is low. Includes tax burden. See: http://www.cnbc.com/id/41666606
johnnya2
Sun, Apr 29, 2012 : 5:41 p.m.
I would love to see them do away with this tax, BUT there is not single republican willing to talk about raising the taxes elsewhere to offset the money it generates. By the way, every other state in the are EXCEPT Indiana dos not have this tax, BUT Indiana is the state that the right wing goes to as a model in the region. So which is it right wingers? The hand wringing is at a perfect time because the right wing is famous for cutting and then forcing bad things when it comes to taxes. The repeal of the SBT led to the MBT. zFind the fix BEFORE you dismantle the current system.
Basic Bob
Sun, Apr 29, 2012 : 5:23 p.m.
The other consideration is the savings in the local tax departments when they don't have to process tax forms, send out tax bills, process collections and appeals. These people make an honest living, but certainly there is a demand for their productivity in businesses who are creating wealth for the community. The cost to collect the personal property tax in a community like Ann Arbor is significant compared to the net proceeds.
Tony Dearing
Sun, Apr 29, 2012 : 3:51 p.m.
Your point is well-taken. Not only is compliance burdensome for business, but is complex and burdensome for local governments to administer this tax, and they openly admit that. In our earlier editorial on this topic, we expressed a willingness to see this tax phased out, as long as it was done in a way that's revenue-neutral for local government and schools. The harder stance of this editorial is directed at the current proposals, which don't meet that test. Here's a link to our earlier editorial, if you're interested in reading it: http://www.annarbor.com/news/opinion/cutting-business-taxes-will-only-hurt-michigan-not-bring-in-jobs/
hermhawk
Sun, Apr 29, 2012 : 1:13 p.m.
I have had enough of the government vs. business arguments. It seems conservative bloggers would just as soon eliminate or outsource government and let businesses have their way. This is the tea party's objective, to privatize everything. That is their vision of "limited government" and if that is the case, government will be nothing more than caretakers. Even the founders of the constitution did not mean for it to go that route. We are entering dangerous territory with this movement and mindset.
Mike K
Sun, Apr 29, 2012 : 3:38 p.m.
Herm - you miss one key point. Without business, there is no government. It isn't about "eliminating or outsourcing government and letting business have their way". Business (the act of commerce) is sole driver of government revenue. Clearly, the promotion of business and commerce within out state needs to be a priority. I'm not sure you are correct about our founders. They tried to create a government that couldn't abuse its ultimate power. Think about the phrase, "don't bit the hand that feeds you" then look at welfare, food stamps, housing subisidies, student loans, healthcare... All real issues, but also issues of "influence" on us.
joe.blow
Sun, Apr 29, 2012 : 12:38 p.m.
Why is it that now there is less of a budget crisis, we see the need to increase spending again? Why hire more police and fire? Let's continue to shrink the size of government, they produce nothing but cost and debt. (this relates to the first few paragraphs of the article). "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." - Thomas Jefferson
A2anon
Sun, Apr 29, 2012 : 6:50 p.m.
joe blow, I don't trust them. At all. They won't replace it, and they won't adequately fund public education. They've already proved that.
joe.blow
Sun, Apr 29, 2012 : 5:52 p.m.
A2anon, read the article above.
A2anon
Sun, Apr 29, 2012 : 1:30 p.m.
Less of a budget crisis???? Have you taken a look at the state of funding for our schools lately? Please.
Chase Ingersoll
Sun, Apr 29, 2012 : 12:36 p.m.
Tax it and it will build elsewhere. Please note that the author of this article is in a business that is in an industry, whose trajectory is a virtual information business that will have but a tiny fraction of the taxable property imprint that it once had, and that has available to it a wide array of outsourcing options. Further note that they have to do this in order to offer advertising prices that are competitive......or they can just go out of business. .....as many businesses have....
15crown00
Sun, Apr 29, 2012 : 11:06 a.m.
unless they are going to tax themselves for being less than smart they need to quit messing with propery taxes.
4Bells
Sun, Apr 29, 2012 : 10:38 a.m.
What a refreshing call for gubernatorial & legislative restraint on the bum's rush to create give aways to business and take aways from the rest of us. An attractive business climate in Michigan also involves the necessary state, county and municipal services for a safe, enriching quality of life for ALL citizens and their families. Cuts to public safety services, roads & other infrastructure, schools, assistance to the poor & disadvantaged and taxing retirees; amongst other sacrifices, to make Michigan a bargain for business relocation is short-sighted & narrow-minded. Good government takes the needs of all state citizens into account when enacting laws & legislation that has negative impact on our quality of life & well-being. Ethically correct government involves more than the numbers on a balance sheet. We are a government of ALL the people. Good politics involves understanding that burdening the majority of us, to benefit the privileged & chosen few, is ill-advised & morally wrong.