In August, nearly 70 percent of Michigan voters cast their votes at the polls in support of Proposal 1, approving Michigan’s personal property tax (PPT) reform.

Boosting Michigan’s Economy

Designed to help Michigan’s communities and businesses create a more competitive environment for jobs and growth, the reform package includes an exemption for small businesses and manufacturers’ personal property, as well as a state-imposed essential services assessment.

The passage of this proposal will help boost Michigan’s economy in many ways, including:

  • Remove a competitive barrier for Michigan manufacturers against other local and national manufacturers.
  • Fund local municipalities’ services like police, fire ambulances, schools, roads, libraries and jails.
  • Minimize taxes for small businesses and manufactures, without raising taxes for other taxpayers.

With the exception of the small businesses, the phase-out of PPT is planned to take seven years beginning on Jan. 1, 2016.

Small Business Exemption

Small business exemption began for the 2014 tax year and allows 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.

Manufacturer Benefits

One of the biggest benefactors of the PPT reform is Michigan’s manufacturers, who will not only gain from a more competitive climate, but reap the benefit of saving hundreds of millions in taxes on an annual basis.

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. Proposal 1 was designed to phase out the tax on eligible manufacturing personal property by 2023. The exemption is segmented into two parts:

  1. New eligible manufacturing personal property: Property placed in service in 2013 or later is eligible for the new property exemption in 2016.
  2. Existing eligible manufacturing personal property: Existing property that was acquired in 2005 or earlier, is eligible for exemption in 2016. Each subsequent year, existing proper 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.

To claim the exemption the owner must file an affidavit for exemption on an annual basis by Feb.10 with local taxing agencies.

State Essential Services Assessment

Coming into effect on Jan. 1, 2016, there will be a new state tax referred to as the “State Essential Services Assessment” tailored to continue funding to local municipalities’ police, fire, schools, ambulances, jails, roads and libraries. This tax will be assessed to eligible manufacturing personal property exempt from PPT in order to replace funds that would previously be generated by PPT. Additionally the proposal prohibits authorities from increasing taxes and total use tax rate from exceeding existing constitutional 6 percent limitation.

Don’t Miss Out

Eliminating the annual PPT tax for small businesses and manufacturers will allow Michigan’s economy to increase investments in both products and people, while protecting municipalities from falling under. To ensure you take full advantage of this tax reform to reduce your tax liability, contact our Michigan tax advisors today.