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James McBryde, Vice President and Senior Advisor Michigan Economic Development Corporation Michigan Personal Property Tax Reform and Local Revenue Stabilization.

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Presentation on theme: "James McBryde, Vice President and Senior Advisor Michigan Economic Development Corporation Michigan Personal Property Tax Reform and Local Revenue Stabilization."— Presentation transcript:

1 James McBryde, Vice President and Senior Advisor Michigan Economic Development Corporation Michigan Personal Property Tax Reform and Local Revenue Stabilization Package 1

2 2 What is the Proposal? APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL BUSINESSES GROW AND CREATE JOBS The amendatory act adopted by the Legislature would: 1. Reduce the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan. 2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services. 3. Increase portion of state use tax dedicated for aid to local school districts. 4. Prohibit Authority from increasing taxes. 5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation. Should this law be approved? YES [ ] NO [ ]

3 3 What is the Proposal? In 2014, taxpayers’ property valued at less than $80,000 is eligible for exemption. Eligible Manufacturing Personal Property phased off tax rolls over 10 years:

4 Jobs Why are we doing this? 4

5 Harmed manufacturers Before: An obsolete, burdensome tax Overwhelming compliance costs for small businesses Businesses hesitant to purchase new equipment Little to no CIT tax relief for large manufacturers 5

6 Discouraged businesses from expanding or relocating Before: Disincentivized business investment Michigan’s competitors already eliminated the tax Complicated and confusing for businesses – account for property and revalue based on formulas annually 6

7 % 1999 – – 3.1 Drop in Industrial PPT Reliance Industrial PP SEV as a percentage of total SEV 7

8 Local Reimbursement 8

9 Police, Fire Ambulance and Jails 100% Use Tax Reimbursement After FY 2015 K-12 / ISD Operating & Debt Loss 100% Use Tax Lost TIF Capture100% Use Tax Everything Else Est. 100% Use Tax 9

10 Expired Baseline GF Credits General Fund 100% Reimbursement New GF Revenue State Use Tax Local Use Tax State Use Tax State ESA Reimbursement After FY

11 11 Michigan Use Tax

12 Use tax enacted in 1937 Combined state and local use tax cannot exceed 6% under the Constitution Michigan Use Tax remote purchases Telecom lodging Use tax is sales tax on: Reimbursement only uses General Fund portion 4¢ goes to the General Fund; 2¢ goes to the School Aid Fund 12

13 Michigan Use Tax Proposal would give local governments title to a share of the state’s use tax revenue. It would not increase use tax revenue. 13

14 Projected Growth of Exempt PP Revenue vs. Use Tax Revenue $600 M $400 M $200 M Projected growth in Use Tax revenue: 2023 $582 M Projected growth in revenue from exempt PP, assuming no exemption: $30.3 M

15 15 Essential Services Assessment (ESA)

16 Small assessment that provides continued funding for local government essential services, like police and fire Only assessed to businesses claiming the manufacturing exemptions State ESA 16

17 No need to levy, collect or administer Better for local governments because: State ESA 17 Better for manufacturers because: >80% tax reduction, on average No litigation risk – locals get guaranteed revenue through the use tax No need to continue granting PPT abatements and forgo revenue One return, submitted to the state Simple statewide calculation based on acquisition cost Three-tier rate structure provides simple depreciation and is fixed in statute

18 The August 5, 2014 statewide vote to dedicate a portion of the existing state use tax as a local tax levied by a new statewide authority. If voters reject the proposal, the small parcel exemption will end after 2014 and the Eligible Manufacturing Personal Property exemptions will not take effect. What’s Next? 18

19 Questions? Howard Heideman Michigan Dept. of Treasury (517) Howard Ryan Michigan Dept. of Treasury (517) James McBryde MEDC (517) Lois Malhado MEDC (517)

20 Ballot Proposal Language APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL BUSINESSES GROW AND CREATE JOBS The amendatory act adopted by the Legislature would: 1. Reduce the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan. 2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services. 3. Increase portion of state use tax dedicated for aid to local school districts. 4. Prohibit Authority from increasing taxes. 5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation. Should this law be approved? YES [ ] NO [ ] 20


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