By Pat Maurer
Former Senator Tony Stamas, Vice President of Government Relations at the Small Business Association of Michigan was at the Pere Marquette District Library with State Representative Joel Johnson Tuesday evening to explain Proposal 1 to community members.
Johnson said they were at the meeting to help explain the hard-to-understand proposal that will be on the Primary Ballot next Tuesday.
The ballot proposal will read:
“The proposal has a lot of pieces to it,” Johnson said at the start of the meeting. “We are here to answer your questions about it.”
He introduced Stamas, who called the Proposal a “win-win” for the State. “The reason for Proposal 1,” he said, “is to replace (re-appropriate) four percent, or two-thirds, of the State’s use tax that now goes into the general fund and redirect those funds back to local government units and the schools replacing what they would lose with the repeal of the Personal Property Tax.”
Eliminating the personal property tax and replacing it for local government and schools will increase investment and employment in the State, Stamas said. “It will encourage growth of employment through investments in equipment and encourage new manufacturing to come to Michigan. We will be able to compete better for new manufacturing with other states.”
Michigan is one of just two states in the Great Lakes region that still levies personal property taxes on industrial machinery, and it’s the only one where equipment — including furniture for small businesses – depreciates in value but never actually falls off the tax rolls.
According to Michigan Citizens for Strong and Safe Communities, Michigan communities have struggled for years to pay for important local services like police, fire, jails, ambulances, schools, libraries and roads because revenues from the Personal Property Tax (PPT) used to fund them are unstable and unreliable.
“I have only heard on one group in Michigan that is opposed to Proposal 1,” Stamas said. “Manufacturers, businesses, municipalities, the State Chamber of Commerce and many others are all in favor of the proposal.”
The governor has already signed a bill that eliminates the personal property tax, but if Proposal 1 does not pass, Stamas said, the personal property tax will be reinstated.
The PPT is an annual business tax levied by municipalities on property that is not part of a structure, such as machinery, equipment, and furniture. Proposal 1 would phase out the tax on all industrial personal property and a portion of commercial personal property by 2023. Businesses with total personal property valued at or below $80,000 would be able to file for exemption from the PPT immediately, rather than waiting for the phase out to be completed. “The tax will be phased out for the vast majority within ten years,” Stamas said.
Some municipalities rely heavily on revenue from the PPT for local school districts, community colleges, public libraries, transit authorities, police and firefighters. Proposal 1 would replace the revenue local governments would lose without the PPT with revenue from two sources: A new tax called the Essential Services Assessment (ESA) and four percent, or two-thirds of the use tax, known as the Local Community Stabilization Share Tax.
The ESA would be levied on “eligible personal property” – property that is exempted from the PPT. The tax would be calculated by multiplying the property’s acquisition cost by a millage rate based on how long the taxpayer has owned the property.
The Local Community Stabilization Share Tax would be created by splitting the state’s current use tax into two taxes – a Local Community Stabilization Share Tax and a State Share Tax. The use tax is levied on a person purchasing personal property or services on which sales tax has not been paid. Examples include goods purchased from out-of-state, rental properties, lodging and telecommunication services. The state use tax is levied at a rate of 6 percent and the two new share taxes would be levied at a combined rate of 6 percent. There would be no tax increase under Proposal 1, Johnson stressed.
The revenue from the use tax and the ESA, established by the State Treasury at 2013 levels, would be managed by a five-member Local Community Stabilization Authority, appointed by the governor.
“That Authority will be responsible for making sure the money comes to the local units,” Johnson said. “They will not be able to increase the use tax. The Authority provides certainty of funding for local units of government.”
The use tax is not the same as the sales tax we pay on purchases, Johnson said.
Of the six percent use tax, two percent is deposited into the state school fund, he said. The rest of the tax goes into the State’s general fund. Proposal 1 reorganizes the use tax into the State Share Tax and Local Community Stabilization Share Tax.
Michigan’s use tax was adopted in 1937 via Public Act 94 at a rate of 3 percent. The use tax rate was increased by law to 4 percent in 1960. In 1994, voters approved Proposal A, a legislatively-referred constitutional amendment which increased the use tax rate to 6 percent.