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Personal Property Tax 2014 Reforms

Personal Property Tax 2014 Reforms

By Samantha Harkins

The Review
July-August 2014

Like football, advocacy is a contact sport. Yet there is rarely a tangible score. The League has worked extensively on personal property tax (PPT) reform for the last three years, but it’s been hard to follow the game. From our perspective, it was filled with penalties and false starts; it seems somewhat anticlimactic now that there is a proposal in front of us that fully reimburses communities for their PPT loss with a more stable reimbursement mechanism.

The League’s Message: Replace Don’t Erase
To understand better, we should start at the opening kickoff. In February of 2011, the Michigan Senate began holding hearings on eliminating PPT. The League formed a coalition with other local government and school groups, and we were off and running. Our response was clear and consistent—if you eliminate personal property tax, you have to replace the revenue stream with something else. PPT revenue is critical to many local communities. Our message on PPT was: Replace Don’t Erase.

It was more than a year before legislation actually passed the Senate in May of 2012, and when it did, it was fraught with problems. The bills would have gradually eliminated personal property tax, but they did not specify a stable reimbursement source.

The New Proposal
That legislation lingered on the House floor over the summer while the Legislature was in the district campaigning during the 2012 election year. Following the November election, the lawmakers were back and ready to conquer PPT during lame duck—the most terrifying and storied days of session where anything can happen.

A new proposal emerged just before Thanksgiving that would phase out PPT and allow local units of government to levy a special assessment to pay for essential services (police, fire, ambulance, and jails). The proposal also would have dedicated a portion of the state’s use tax to reimburse PPT loss for other, non-public safety services. The special assessment was intended to reimburse 100 percent of PPT revenues related to public safety. The use tax was intended to reimburse for 80 percent of all other loss. This was tied to an August 2014 statewide ballot proposal. If the proposal failed, PPT would remain in effect.

At the time this proposal was moving through the Legislature, there was an alternative proposal that would have eliminated all new PPT on January 1, 2013 without replacement. We dubbed this the “nuclear option” as it would have been devastating for communities who rely on PPT revenue. Given the two options, the League ultimately went neutral on the first proposal with the understanding that there was time to work out problems before the August 2014 ballot proposal.

Negotiations: A Convening of Stakeholders
The Legislature and administration immediately convened a group of all stakeholders in January 2013, and that large group met at least weekly to work on the proposal. A smaller drafting group then met throughout the summer of 2013. It became apparent to the League that there were legal problems with the local special assessment, and we also wanted full reimbursement of lost PPT revenues.

After months of negotiations, Lt. Governor Brian Calley approached the League Board in November of 2013 with an idea: to pass a statewide special assessment for public safety, thereby eliminating the problematic legal concerns of a local assessment. He also offered to reimburse local communities for 100 percent of PPT loss. The League Board voted to support the conceptual proposal (there was no legislative language written at that time).

On December 31, 2013, the first step of the PPT changes—the small parcel exemption—went into effect. Any commercial or industrial taxpayer, that has less than $80,000 true cash value of personal property in a taxing jurisdiction is exempt from PPT. The rest of the proposal needed fine-tuning.

100-Percent Replacement Revenue Locked In
After the first of the year, the League began participating in drafting groups in earnest to work through the specifics of the proposal. Through weekly meetings with all interested parties—local government, the business community, assessors, the House, Senate, and governor’s administration—the language was hammered out in painstaking detail. The final bills, as presented to the governor, were the result of a lot of work by the drafting group.

The League is encouraging members to join us in supporting the Aug. 5 ballot proposal that, if approved, would complete much-needed reform to the state’s personal property tax. The League drafted a proposed resolution that members can use in supporting the ballot proposal. Please visit strongandsafecommunities.com to get the sample Resolution and to support the campaign.

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