‘Taxing machinery and equipment discourages growth’
By TED O’NEIL
MIDLAND — Proposal 1 on the Aug. 5 primary ballot would cut personal property taxes — those taxes levied on businesses for equipment and machinery — by about $500 million a year while ensuring that local units of government are reimbursed for the entirety of revenue lost due to the cuts, according to a Mackinac Center for Public Policy policy brief.
“Voters are being asked to certify a $500 million reduction in an economically inefficient tax,” said James Hohman, assistant director of fiscal policy and author of the policy brief. “Taxing equipment and machinery discourages expansion and growth.”
If Proposal 1 passes, it would put in place legislation already approved by the Legislature that creates three new exemptions for certain businesses that currently pay personal property taxes. Those exemptions would free businesses with less than $80,000 of personal property from all PPT liability; phase in relief for manufacturing personal property that has been subjected to the tax for at least 10 years; and exempts all new manufacturing personal property.
Those exemptions would result in a tax cut of more than $600 million annually, but would be offset by a new, smaller tax on personal property that qualifies for either of the latter two exemptions. That is estimated to raise about $117.5 million annually. State and local governments receive about $1.3 billion in PPT revenue currently.
The bills that would become law should Proposal 1 pass would see the state set aside a portion of the Use tax revenue to reimburse local municipalities and school districts that experience a decrease in PPT revenue. The state will accomplish this through a new authority that will levy a Use tax and redistribute the money back to local governments. This “local” Use tax will decrease the state Use tax, leaving taxpayers unaffected. Although the package of bills has already been approved, the Headlee Amendment requires that the matter be put to a vote because it creates a new “local” tax.
“The state is going to absorb the revenue lost from these exemptions while cutting the personal property tax,” Hohman said. “It’s a hefty tax cut that should encourage job growth.”
The policy brief is available at www.mackinac.org/archives/2014/s2014-03.pdf.
(Ted O’Neil is Media Relations manager for the Mackinac Center for Public Policy, a research and educational institute based in Midland.)