Taking effect this year is a set of new personal property tax (PPT) amendments stemming from the reform movement Michigan voters put into motion in 2014. The reform includes two major provisions shifting small taxpayer exemption measurements and updating the definition of eligible manufacturing personal property. Beginning the phase-in period in 2014, the provisions will be fully implemented on this year’s PPT returns due on Feb. 20.

Small Business Exemption

Small business exemption began for the 2014 tax year and allowed businesses that have industrial and personal property with a true cash value of less than $80,000 as of Dec. 31 of the preceding year in a particular assessing unit to be exempt from PPT. In order to claim the exemption, the business must file an affidavit for exemption on an annual basis by Feb. 10 with local taxing agencies.

Manufacturing Exemption

The PPT on industrial and commercial property originally acted as an annual business tax imposed by municipalities on property that was not part of a structure, including machinery, equipment and furniture. The reform’s seven-year phase-out of taxable property includes two segments:

  • New eligible manufacturing personal property: Property placed in service in 2013 or later is eligible for the new property exemption in 2016.
  • Existing eligible manufacturing personal property: Existing property acquired in 2005 or earlier, is eligible for exemption in 2016. Each subsequent year, existing property that becomes at least 10 years old as of Dec. 31 of the prior year is exempt, resulting in all property being exempt by 2023.

Manufacturers are not the only ones that can benefit from this exemption. Construction contractors can qualify if they have greater than 50 percent industrial processing components (crushers, recycling equipment, etc.) in their operations.

To claim the exemption the owner must file a Form 5278, Affidavit and Statement for Eligible Manufacturing Personal Property and Essential Services Assessment, on an annual basis by Feb. 20 with local taxing agencies.

Don’t Miss the Deadlines

As the February filing deadlines quickly approach, it’s important to talk with your CPA to provide appropriate information needed to file your PPT return and determine what, if any, exemptions your business qualifies for.

Not filing your PPT return or affidavit on a timely basis, can result in unwanted consequences, such as:

  • The assessment of your property can be determined by the city, often resulting in higher assessment values and taxes.
  • Losing your right to file for an appeal with the State Tax Commission if you do not agree with their final assessment or audit changes.
  • Receiving fines up to, but not exceeding, $1,000.
  • Forfeiting your ability to qualify for the small business exemption, subjecting you to ordinary personal property tax.
  • Being disqualified for the manufacturing personal property exemption, potentially resulting in thousands of dollars, depending on your business size.

Contact Doeren Mayhew’s tax advisors to help you navigate Michigan’s PPT requirements and provide a timely, accurate property assessment to help minimize your tax liability this year.