10 Jul / Personal Property Tax Michigan
Personal Property Taxes on Michigan Businesses
On the August 2014 Michigan ballot, voters will be asked to repeal the personal property tax. Rather than attempt to persuade you one way or another on the issue, I will provide you with some perspective.
Current Michigan Tax Landscape
With the “Great Recession” coming to an end we see the Michigan auto industry recovering. And with these profits from the autos and their suppliers comes the increase in tax revenue to the State. This is coupled with Michigan tax reform that occurred in 2011 and 2012. That reform came in the form of taxes on pensions and other retirement vehicles, a significant reduction in homeowners who are eligible for the residential property tax credit, and finally the elimination of tax credits for contributing to State universities, community foundations and food banks.
What is the Michigan Personal Property Tax
Annually businesses with equipment in the State of Michigan are required to file an Personal Property Tax Return. The form lists the price and purchase date of all Michigan equipment. Different types of equipment are taxed at different rates and the older a piece of equipment is the less it is taxed. The equipment is however taxed as some amount every year until it is disposed.
What is the Current State of the Personal Property Tax
The personal property tax has already been diminished over the last few years. Currently many small businesses that were paying the tax currently fall under the new threshold for the tax and now do not pay the tax. Those business are required to file an annual affidavit stating they are exempt from the tax.
How is the Tax Collected
The annual personal property tax returns are filed with the local municipality in which the business operates. Businesses with multiple locations file multiple returns reporting the personal property in each of the cities they operate in.
These forms are processed by the Assessors office in each municipality. The Assessor then uses this information to calculate the amount of personal property tax the business owes. Then the Assessor issues a tax bill to the business. It is a very time intensive activity.
What Happens if the Ballet Proposal Passes
If the proposal passes the State is promising that the local municipalities lost personal property tax revenue will be replaced. The State plans to distribute the money from the collection of State Use Tax to the municipalities. However the funds will be ear marked for certain types of expenditures (mainly fire and safety). Currently local municipalities do not have spending restriction on personal property tax revenue.
In the long run the State believes that the elimination of the personal property tax will reduce the size of local governments and promote responsible spending at the local level. Time will tell if this desired outcome occurs.
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Tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.