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Future Of Michigan's Personal Property Tax To Be Decided Tuesday

Aug 1, 2014

Proposal One is a solution born of suspicion

Until recently, businesses in Michigan had to pay taxes on almost all their equipment. Not surprisingly, they didn't like this tax - the personal property tax.

Jerry Grubb says his Waterford child daycare center has to pay the personal property tax every year on all the playground equipment, changing tables, desks and computers, and high-powered dishwasher.
Credit Jake Neher

Businesses pay the personal property tax on everything from the factory machines that build cars and trucks to desks and computers -- or, in the case of the Wee Discover child daycare center in Waterford, playground equipment and changing tables.

“16 years we've had those tables and changing tables and 16 years I've been paying personal property tax,” says owner Jerry Grubb. He says that's also true for the high-powered dishwasher he uses to keep plates, spoons and bottles clean.

“I pay tax when I buy it and I pay tax on it every year,” he says.
Grubb and other Michigan business owners say the personal property tax is not only unfair, and cumbersome and expensive to comply with, but it also discourages investment -- buying new equipment and hiring more employees.

The loudest complaints have come from Michigan manufacturers, who have a lot of expensive, heavy machinery -- and big tax bills to go along with that.

Irritated business owners got their wish when the Legislature adopted a plan to phase out the personal property tax. Now that the Legislature has done its part, the rest is up to voters when they decide the fate of Proposal One on Tuesday's ballot. It's essentially a vote to ratify or reject the work of the Legislature and Governor Rick Snyder.
But Proposal One is a solution borne of suspicion.

The personal property tax is a state tax, but it's levied by local governments. And a lot of local governments, especially those with big factories, rely on the revenue from the tax to balance their budgets.

“We're trying to keep our fire engines running and trying to keep police on the street,” says Lansing Mayor Virg Bernero, who supports the proposal. He says public safety eats up more than half of his city's budget.

“That's why when we evaluate Proposal One, we think about in terms of replacement revenue. We don't want to sound grabby, but the fact is we perform vital services. We have to answer 911 calls, and fill potholes, and have some parks and recreation for kids to keep them off the street.”

When Governor Snyder and the Legislature put eliminating the personal property tax in their sights, local officials said their communities had to break even on the deal. But here's the other part: Local officials don't trust the state to keep its promises when it comes to money for local governments. That's because for years, the Legislature cut state revenue sharing payments to local governments by billions of dollars.

So state lawmakers said, “You don't trust us? We'll take ourselves out of equation.” Which they did by creating a new unit of government. It's a virtual local government with no specific boundaries, no mayor, and no police or fire department.

It exists solely to collect revenue from the state's use tax and a few other dedicated sources to guarantee locals don't lose money. The money bypasses the Legislature altogether, and gets distributed to actual local governments.  

Business groups have put millions of dollars into the campaign backing Proposal One. The Michigan Municipal League and a lot of local leaders have endorsed it - although a few have not. And it has no organized opposition.
But there are still plenty of people from across the political spectrum who think Proposal One is a bad idea.

“I think it's a shell game,” writer and progressive activist David Holtz. He says there's no reason for the state to give another tax break to businesses.

“The money has to come from somewhere and if it's not coming from companies that are not paying the personal property tax now, eventually it's going to have to come from somewhere else, and this Legislature has a track record of that 'someone else' being people like me.”

And it's true that the money to reimburse local governments for their lost revenue would otherwise go the state's General Fund to help pay for things like roads, prisons, universities, and community colleges. In a decade, that foregone revenue could be about $500 million.

And it's true, the Legislature can go back and change the law if lawmakers decide sometime down the road they need that money for something else. So Proposal One is not an ironclad guarantee.

If Proposal One fails, the phaseout ends, the old personal property tax system is restored, and the Legislature goes back to the drawing board. But legislative leaders say that would not be the end of the matter. They'd likely re-visit the issue of the personal property tax, maybe after the November elections in the Legislature's “lame duck” session.