Tax News Highlights: Michigan Voters Approve Phaseout of Personal Property Tax on Small Taxpayers and Manufacturing Property

| 8/14/2014

In 2012, Michigan’s legislature and governor enacted a package of bills (Proposal 1) that aimed to phase out the personal property tax on small taxpayers and manufacturing property. The bills stipulated they would take effect only if approved by Michigan voters. On Aug. 5, 2014, the state’s voters overwhelmingly approved Proposal 1.

Since the legislation passed, the amount eligible for the exemption for businesses with small amounts of property increased from $40,000 to $80,000 and was made permanent. To claim the exemption, a taxpayer must file on an annual basis Michigan Form 5076, “Affidavit of Owner of Eligible Personal Property Claiming Exemption From Collection of Taxes,” with the assessor of each district in which the business has property. Taxpayers must file the form by Feb. 10 of each calendar year to be exempt from assessment for that year.

There are two components to the phaseout of personal property tax on manufacturing property beginning in 2016:

  • Eligible manufacturing property purchased on or after Jan. 1, 2013, will be exempt from property tax.
  • Starting in 2016, eligible manufacturing property that is at least 10 years old will be exempt. Therefore, each year through 2022 an additional year of property will become eligible for the exemption until 2023, when all manufacturing property is exempt.

Property qualifying for the exemption will be subject to a state essential-services assessment beginning in 2016. The assessment’s rate depends on the length of time the taxpayer has owned the eligible property. The exempt property will be assessed based on its acquisition cost and taxed at a rate of 2.4 mills in the first five years after it is acquired, 1.25 mills for the next five years, and 0.9 mills thereafter.

Proposal 1 also provides for an alternative assessment on eligible property that is specifically exempted from the state essential-services assessment by the Michigan Strategic Fund board. The alternative assessment is 50 percent of the state essential-services assessment.

It is important to note that Proposal 1 does not completely eliminate the tax on personal property. Commercial and utility property not otherwise exempt will remain taxable.

In the coming months the state will provide additional guidance on how specifically to claim the exemptions.


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