Impact of Proposal 1 debated at council meeting

By: Eric Czarnik | Sterling Heights Sentry | Published July 30, 2014

STERLING HEIGHTS — The impact of an upcoming state use tax ballot issue, Proposal 1, was singled out for discussion at a July 15 Sterling Heights City Council meeting.

During the meeting, resident Geoff Gariepy asked City Manager Mark Vanderpool about the city’s position regarding the proposal.

The proposal asks voters Aug. 5 to approve a plan to reform Michigan’s taxation system by carrying through with a plan to phase out Michigan’s personal property tax for businesses while offering a plan to replace the revenues that communities received from it.

In his response, Vanderpool warned that the proposal, if it passes, would be protected by state statute and would not be as stable as an amendment to the state constitution. But he said he believes the city would benefit from its passage if revenue is not reduced through future legislative action.

“It’s hard to say with any great certainty that the replacement revenue is a guarantee,” he said. “But we are in a much better position with Proposal 1 and the current legislation than we were a year ago.”

The personal property tax had originally helped communities get revenues for essential services, including public safety. But critics say the tax, which applies to businesses’ machinery and equipment, is onerous and unfair because it applies year after year to property already purchased, even if it’s old.

In 2012, Lansing approved bills that changed how the personal property tax functioned as part of a planned phase-out. Those changes created exceptions to the tax, and it let municipalities collect a special assessment on businesses to replace lost revenue.

Also, a use tax was attached to things like hotel accommodations and telecommunications services in order to repay cities.

At the July 15 meeting, Vanderpool said the most recent setup has only provided about 80 percent reimbursement for the personal property tax loss caused by the 2012 changes. That meant, for the city, a $2 million loss every year, he said.

As a result, the city lobbied along with the Michigan Municipal League for a change, Vanderpool explained.

“The new legislation contained in Proposal 1 does provide a 100 percent reimbursement for our personal property tax losses,” Vanderpool said. “So, I would say that’s a significant accomplishment from where we were at a year ago.”

Vanderpool said Proposal 1 would put into place two sources of replacement revenue. He said about 60 percent of the replacement revenue comes from a state re-allocation of the use tax to municipalities to fill the void. The second revenue source would be a special services assessment against companies that do qualify for personal property tax exemptions, he said. The assessment would be handled at the state level, he said.

In terms of stability of the revenue source, Vanderpool said, the personal property tax was a declining resource mainly because personal property depreciates rather quickly.

“In the case of Sterling Heights, some of those losses were absorbed because we had significant manufacturing investments from Ford, thankfully, and Chrysler and others to help absorb some of those losses,” he said.

Charlie Pride from Ford Motor Co. publicly supported Proposal 1 at the meeting and said it addressed longstanding problems for Michigan small businesses and manufacturers without raising anyone’s taxes.

Pride said Michigan is critical to Ford, and the company employs thousands of people locally. But he said 80 percent of Ford’s property taxes in North America are paid in Michigan, and only 50 percent of its property is in the state.

“This tax on manufacturing equipment is the biggest driver of this disparity,” he said. “We are not burdened with this tax in surrounding states and the province of Ontario.”

He added that recent changes to Michigan’s business taxes have increased Ford’s costs of doing business, adding that the company’s taxes are higher than they were in 2011.

In an email after the meeting, former Sterling Heights Councilman Paul Smith said a “big loud no” concerning Proposal 1 and vowed “no more votes for those who support it.”

He said it’s good that the proposal promises large tax relief to industrial taxpayers on their production equipment, but he said the proposal’s downside has to do with revenue replacement. He said taxpayers would end up having to make up  the lost revenue.

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