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Tangible Personal Property Tax Reform on the Ballot in Michigan in August

2 min readBy: Courtney Michaluk

Yesterday, the Mackinac Center for Public Policy released a great new policy brief outlining the effects of Proposal 1, a Michigan initiative that would significantly decrease personal property taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burdens. The proposal will be put to a vote on August 5th.

According to the report, personal property taxes currently raise nearly $1.3 billion in tax revenue for Michigan. As we’ve written previously, personal property taxes are damaging to economic growth and distort economic decisions. Thankfully, the trend in recent years has been to move away from using personal property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es as a source of revenue, with per capita collections falling 20 percent over 2000-2009.

Proposal 1 would create three new exemptions for personal property:

  1. Businesses with less than $80,000 in personal property would be exempt.
  2. Manufacturing equipment will see phased-in relief if it has been subject to personal property taxes for at least ten years.
  3. All new manufacturing equipment would be exempt from personal property tax.

These cuts mostly affect manufacturing firms, but in 2011, Michigan enacted corporate tax reform that mostly benefited non-manufacturing firms. A new, smaller tax on manufacturing personal property would be introduced—but on net, the tax cut is estimated to be about $500 million.

The state also has a plan to offset the decrease in local tax revenue without increasing tax burdens on individuals elsewhere: a portion of the statewide Use tax would go toward reimbursing local governments. The state also expects to see an increase in tax revenue due to the expiration of several tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s.

Indiana was successful in achieving business personal property tax reform this legislative session, but settled on a first step that was not as substantial as what is being considered in Michigan. The hope is that more US manufacturing hub states will take cues from Michigan and Indiana this year, and limit these taxes on capital improvements.

Read the whole report here.

More on Michigan here.