Michigan Personal Property Tax Reform and Local Revenue Stabilization Package

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

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 [ ] 2

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: 3

4. Why are we doing this? Jobs 4

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

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

7. Drop in Industrial PPT Reliance Industrial PP SEV as a percentage of total SEV 1999 – 5.1 5 4 2011 – 3.1 3 39% 2 1 0 7

8. Local Reimbursement 8

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

10. Reimbursement After FY 2015 New GFRevenue Baseline GF State ESA StateUse Tax General Fund 100% Reimbursement LocalUse Tax StateUse Tax Expired Credits 10

11. Michigan Use Tax 11

12. Michigan Use Tax • Use tax enacted in 1937 Use tax is sales tax on: • remote purchases • Telecom • lodging • Combined state and local use tax cannot exceed 6% under the Constitution • 4¢ goes to the General Fund; 2¢ goes to the School Aid Fund • Reimbursement only uses General Fund portion 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 2023-2033 $600 M $400 M Projected growth in Use Tax revenue: $200 M $582 M 2023 2033 Projected growth in revenue from exempt PP, assuming no exemption: $30.3 M 14

15. Essential Services Assessment (ESA) 15

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

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

18. What’s Next? 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. 18

19. Questions? James McBryde MEDC McBrydeJ@michigan.org (517) 335-1847 Howard Ryan Michigan Dept. of Treasury RyanH1@michigan.gov (517) 335-1225 Lois Malhado MEDC MalhadoL@michigan.org (517) 335-0526 Howard Heideman Michigan Dept. of Treasury HeidemanH@michigan.gov (517) 373-9002 19

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