November 23, 2014

Deadline nearing for small businesses to file for personal property tax exemption

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ARENAC COUNTY — Many business owners in the county may qualify for relief from personal property tax, but the cutoff date to file for the exemption, Feb. 10, is quickly approaching.

Kristine Haines, an accountant at Smith & Associates CPA office in Standish, explained who can qualify for the exemption.

“In 2014, this applies to taxpayers owning less than $80,000 of true cash value on personal property tax, or $40,000 of taxable value,” she said.

The personal property tax change for this year does not affect residential property taxes, Haines said.

“Personal property taxes are strictly for businesses,” she said. “They are assessed on furniture, fixtures, machinery, video and testing equipment, coin-operated equipment, computer-operated equipment.”

“They are also assessed on what they call lease hold improvements, which would be improvements to your property — not necessarily your building,” Haines said. “But if you’re putting in new garage doors, they will be assessed for personal property taxes. Personal property taxes aren’t assessed for anything that’s licensed, like a vehicle.”

Haines said affidavits of personal property exemption claims were sent out with personal property tax statements, and both have to be submitted to local assessors by Feb. 10.

Rhonda Mrock-Parks, the assessor for the city of Au Gres, said the small, independent businesses will be the ones to benefit from the exemption. She said industrial buildings with a large inventory of heavy machinery and corporations with local interests would most likely not qualify for the exemption.

“I think the main body of personal property will be exempted,” she said. “The ones that I know for sure offhand that will not be are Consumers Power, the telephone companies, the pipelines.”

Mrock-Parks said about $430,000 in taxable value on personal property assessed in 2012 could be off the tax rolls in Au Gres this year. The total personal property taxable value in 2012 was $2,816,900, she said.

“This will help the small business owners,” she said. “I think the cities and villages will lose out the most.”

Standish City Manager Curt Hillman said the city is planning to lose out on some revenue with the exemption in place, but said there is some confusion about the changes.

“We’re estimating our loss of revenue to the city of Standish at $60,000,” he said. “We haven’t put any hard numbers on it. We’re not positive if we’re going to lose that revenue in the 2014 tax year or the 2015 tax year.”

Au Gres City Manager Pat Killingbeck said city officials are anticipating a loss of about $30,000 this year. Like Hillman, she said there is some confusion about the exact impact the city might face, because there has been talk about the personal property issue going before voters in August.

“It’s very confusing. I believe the whole law is very confusing,” she said. “For one thing, it’s in effect for the taxpayers, unless, when the voters go to the ballot in August, it’s overruled.”

In a Jan. 10 article on the National Federation of Independent Business’ website, nfib.com, supporting the exemption, Charles Owens said if voters reject the proposal in August, the personal property reform is thrown out the window.

“In order to pass the bills, a mechanism was established in the law that would provide for reimbursement of lost revenue to local governments. To implement the structure for reimbursement, a statewide vote of the people will be required in order to allow an override of constitutional Headlee limits. All of the Personal Property Tax reform bills in the entire package were tie-barred to this voter approval at the August 2014 election. If voters reject the proposal, then the entire Personal Property Tax reform fails and we get to start over,” Owens said.

While the NFIB and other business groups hope the change is permanent, the Michigan Association of Counties, the Michigan Municipal League and the Michigan Association of School Boards — all organizations representing board or councils that would lose revenue, are opposed to the reforms and have formed a “Replace don’t Erase” coalition. On the municipal league’ website, the coalition said property taxes would likely increase and several cuts could be made.

“If the Legislature eliminates PPT revenues without assuring full replacement of the funds: Homeowners in more than 400 local Michigan school districts face automatic property tax increases. Hundreds of local communities face more cuts to police and fire protection, safe drinking water, libraries, parks, road repairs, and more,” the coalition said.

State Rep. Joel Johnson said the legislature passed the personal property reforms to help Michigan stay competitive in attracting and keeping businesses in the state. Eventually, the plan is to phase out personal property taxes altogether, and to include manufacturing companies, he said.

“Most of the time what they’re doing is they’re investing in equipment that usually puts people to work,” he said. “So our concern is, especially when you look at manufacturing — well manufacturing is the one you look at as the big one — and say if we continue to charge this personal property tax and other states do not, you have an issue.”

A disadvantage for businesses incurred from personal property taxes could cause job loss, Johnson said.

“If they look at this and say, ‘You know, the climate’s not that great for me in Michigan, I would just as soon move across the state line or move somewhere else,’ we’re afraid we’d lose jobs because of that,” he said.

For the first year, Johnson said the $80,000 true cash value threshold was established to minimize losses for local governments and school districts, and to give the legislature time to figure out how to replace the lost revenue.

“I think some of the reason they’re putting a threshold in there is to phase it in over time and not have too detrimental of an effect on the state and local governments,” he said. “They’re also looking for a replacement for local governments.”

Potential replacements, such as using some unused tax credit funds that the state had on hand, have been discussed, Johnson said. According to Johnson, the state will also lose revenue due to the personal property tax reforms.

David Zin, chief economist for the state’s Senate Fiscal Agency, said in a bill analysis that the reforms would reduce the state’s general fund revenue by $3.2 million in 2013-14, by $12.6 million in 2014-15 and eventually cause a loss of $410.1 million by 2022-23. The general fund revenue losses are expected to continue to rise as the threshold is raised over time and reimbursements are made to schools to keep funding levels consistent.

“Assuming the ballot measure passes and both the exemption provisions and reimbursement mechanisms are effective, the legislation is likely to have a significant impact on the state budget. With the exception of replacement revenue generated from the essential services assessment, all other revenue associated with reimbursing either the School Aid Fund or distributions to local units (including the local use tax revenue received by the MAMA) will reduce State General Fund revenue,” Zin wrote.

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