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Michigan eyes eliminating its tax on business equipment

by Brent Mead / /

Next week, the Michigan State Legislature reconvenes for itsfall session. Like all other states and Washington, D.C., job creation needs tobe job one for the politicians in Lansing. Lt.Governor Brian Colley is on the right track in his recent tour calling forthe elimination of the Personal Property Tax.

Michigan’s Personal Property Tax (PPT) is levied againstproperty not somehow bolted to the earth; so things like office furniture,equipment, and industrial machinery. Note that despite being called ‘Personal,’the PPT only applies to businesses as household property has been exempt fordecades. All told, the PPT costs manufacturers and small businesses around $1.2billion per year. No wonder FordMotor Co. called it, “the largest and most uncompetitive tax burden we andother manufacturers face in Michigan.”

What complicates thematter is that municipalities and county governments rely heavily on thisrevenue. Roughly 80% of the $1.2 billion Michigan collected went to localschool districts, cities, and counties. I appreciate the sentiment of theJackson Citizen Patriot Staff that the solution to the lost local revenue canbe found in government consolidation and budget efficiencies. However, I do notthink that is necessarily politically feasible nor is it necessarily possiblein areas such as River Rouge where 57% of general operating funds come fromthis tax.

At the risk of stoking collegiate rivalries, Ohio has beenahead of the curve on this issue. In 2005 the Buckeye State started to phaseout its personal property tax, realizing it was a hindrance on economic growth.The tax was reduced in gradual steps from 2005-2009 and is now completely offthe books. Ohio overcame the local political issue by imposing a new CommercialActivity Tax, which is a variation of a gross receipts tax to hold harmless education funding levels until at least 2013.

An alternate roadmap can be found out in Montana.Big Sky legislators cut their business equipment tax from 3% to 2%, whileadding triggers for further reductions pending economic growth. Like Michigan,the most vocal, and really only, opposition came from local governments worriedover the potential loss of revenue. Montana responded by backfilling most, notall, of the lost revenue by eliminating a host of tax credits including thefilm production and home energy efficiency incentives.

Ohio and Montana offer two possible fixes for the local revenue problem. Neither solution is perfect, but both states moved the ball in the right direction. Folks in Lansing should look and learn from other state's experience on this issue and then move forward to eliminate the personal property tax. Doing so will make the state more competitive in the region and globally, reduce administrative burdens, and create jobs.