Anderson Economic Group Work

Personal Property Tax Reform in Michigan: The Fiscal and Economic Impact of SB 1065-SB 1072

The Michigan Personal Property Tax (PPT) has attracted consistent criticism from Michigan’s business community because it discourages business investment in equipment, puts Michigan at a competitive disadvantage in attracting manufacturing firms, and presents a particularly high compliance burden. An 8-bill package to significantly reform the personal property tax was introduced in the Senate on April 17, 2012.

This report, commissioned by the Michigan Manufacturers Association, presents the history and scope of the personal property tax in Michigan; evaluates the impact of the personal property tax on Michigan’s economy and the need for reform; summarizes the 8-bill legislative package currently before the Senate Finance Committee; and estimates the economic and fiscal impacts to state and local governments of the proposed personal property tax reform package, in combination with the corporate income tax (CIT) that went into effect at the beginning of this year.

The report’s findings include:

  1. The proposed reforms to the personal property tax would exempt around 60% of commercial and industrial parcels from the personal property tax starting in 2013. All eligible manufacturing personal property would be exempt by the year 2022.
  2. The industrial sector in Michigan is capital-intensive and becoming more so, resulting in higher PPT burdens on industry.
  3. Among all states bordering the Great Lakes, Michigan is the only state other than Indiana that continues to tax manufacturing equipment, putting the state at a competitive disadvantage.
  4. PPT reform, combined with business and individual income tax changes that went into effect this year, could result in a 1.5%-3.5% increase in investment and consumption by businesses and 20,000 to 45,000 additional jobs in the state.
  5. The overall combined fiscal impact on state and local governments of PPT reform, combined with business and individual income tax changes that went into effect this year, is approximately neutral when accounting for economic growth.
  6. To offset reduction in tax revenues for local units of government, the proposed PPT reforms would entail annual state appropriations into a state fund for local governments. Starting in 2016 and increasing each year afterward, the bills call for state appropriations to local governments that could exceed $200 million by the year 2022.

The complete report is available from the link below.

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