Michigan voters to decide fate of business tax cut

Associated PressJuly 19, 2014 

— An effort to end a state tax on manufacturing and small business equipment that is years in the making will be decided by Michigan voters during the upcoming primary.

Proposal 1, the only statewide question on the Aug. 5 ballot, would reimburse local governments for their lost personal property tax revenue by sharing a portion of the state's use tax.

The personal property tax is paid by businesses and particularly manufacturers and is based on the value of their machinery, office furniture and other equipment. Some Michigan communities rely on the tax revenues to pay for basic services.

State lawmakers already have voted to repeal the tax on small businesses and manufacturers, but the issue still needs voter approval. The measure has no organized opposition.

A closer look at the ballot measure:

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QUESTION: Why do proponents think it's necessary?

ANSWER: Michigan's business community never was a fan of the personal property tax, which applied to machines, office furniture and other equipment.

Business owners said it discouraged investment and was a compliance headache.

Gov. Rick Snyder called the tax "dumb" and said it was a disincentive for businesses to come to the state.

Q: If passed, what would be the impact of the proposal?

A: Job growth for one, according to an analysis by the Mackinac Center for Public Policy.

If Proposal 1 passes, three new exemptions would eventually go into effect for certain businesses that currently pay personal property taxes, according to James Hohman, who wrote the policy brief for the Midland-based free-market think tank.

Those exemptions would result in a tax cut of more than $600 million annually, the analysis found.

"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."

Q: Would local governments make out OK?

A: That is the key.

Counties, cities and townships rely on revenue generated by the personal property tax.

But under a deal reached by Gov. Rick Snyder's administration, lawmakers, municipalities and businesses, local governments would see the lost money fully replaced by a portion of Michigan's 6 percent tax on out-of-state purchases, lodging assessments and telecommunications.

Supporters call it a win-win.

"It solves two major problems without raising taxes," AARP Michigan President Thomas Kimble said. "It eliminates a non-competitive tax on local small businesses and keeps local communities whole so they can continue to provide vital services."

Q: Why is Proposal 1 on the ballot if the Legislature already approved it?

A: Michigan requires voters to approve certain changes to the way taxes are distributed.

A phase-out of taxes on industrial machinery starts in 2016, and small businesses already have gotten a 100 percent exemption.

If voters do not approve the proposal, the laws enacted by Snyder and the Legislature will be halted.

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