Legislature repeals personal property tax

Cities struggle to understand terms of new law

By: Sara Kandel | C&G Newspapers | Published December 20, 2012

 The process of phasing out personal property taxes will begin in January, when all businesses valued at less than $40,000 will be considered exempt from the tax.

The process of phasing out personal property taxes will begin in January, when all businesses valued at less than $40,000 will be considered exempt from the tax.

Photo by Sara Kandel

MACOMB COUNTY — The state Legislature recently passed a bill that repeals personal property tax (PPT) in Michigan, and local municipalities are struggling to understand just what this new law will mean for them.

As legislators worked through the night on the last day of session before adjourning for winter recess at 4:30 a.m. Dec. 14, Senate bills 1065-1072 were amended multiple times and eventually passed the House with a 57-52 vote.

Many city officials expressed indignation for the way the Legislature handled the bill during a Macomb Area Communities for Regional Opportunities meeting Dec. 13.

“To me, this is political retribution,” said Utica Mayor Jacqueline Noonan. “It appears that they are asking us, in essence, ‘Which one of your children, your son or your daughter, do you want us to execute?’ That’s the kind of last-minute threat that putting this on the table in this form is. It’s not the kind of thoughtful study that the MAC Coalition has done in the past.

“I find this the most lacking in transparency of any actions done by this Legislature in the last two years,” Noonan added.

The law lacks the clarity needed to have a real understanding of the impact it will have on many local communities, leaving local officials trying to determine just what it entails before it goes into effect at the start of the year.

“We are doing the interpretive dance on this, all of us,” said Roseville City Manager Scott Adkins. “How do we respond to the changes in law? We have to first understand the changes and then be able to put a system in place to respond to those changes. We are all working diligently to try to find out what we have to do, at which date, which time, which step.”

The law outlines the gradual elimination of PPT, beginning in 2013, and phasing out through a three-year period, ending in 2016. It has provisions for a 100-percent reimbursement for PPT funds that support public safety and an 80-percent reimbursement of non-public safety losses through redistribution of the state’s Use Tax in regional essential assessment districts.

But Michigan voters have yet to decide on regional assessment districts, or as described on the state Legislature’s website, regions of the state composed of several counties, over which a regional marketing organization operates, and a statewide referendum on such districts isn’t slated to appear on ballots until August 2014.

So while the process of phasing out PPT begins in 2013, the reimbursement provisions are tie-barred to the passage of a statewide vote planned to take place a year-and-a-half after the law goes into effect.

According to Adkins, if that statewide referendum doesn’t pass, the law repealing PPT would be revoked, but at the MACRO meeting, Summer Minnick, a representative of the Michigan Municipal League, said that the language surrounding the reimbursement provision doesn’t actually guarantee the law will be revoked if the vote fails for reimbursement.  

“Don’t get lured into thinking, if it’s a statewide vote, that the money would be guaranteed,” Minnick said. “In fact, as soon as the vote was over, the legislature in place could change things around.”

Minnick also voiced additional concerns about the governor-appointed directors of such districts, saying that the bill lacked clarity on how local governments would be represented in the districts and how the money lost to the elimination of PPT would actually be returned to the communities.

MACRO is made up of 12 governing bodies: Center Line, Clinton Township, Eastpointe, Fraser, Mount Clemens, Roseville, Saint Clair Shores, Shelby Township, Sterling Heights, Utica, Warren and Macomb County. Many in attendance at the Dec. 13 meeting said they weren’t actually against the elimination of PPT.

“We’ve never been opposed, as a league, to getting rid of the personal property tax,” Minnick said. “We’ve been opposed to getting rid of it without a guaranteed replacement.”

“We are not opposed to this,” said Sterling Heights City Manager Mark Vanderpool. “Our only position on this right now is that we don’t want the state Legislature to take action in lame duck.”

“It’s not like we like administering personal property taxes to our taxpayers, but on the other hand, eliminating it creates these instant holes where we have no replacement,” said Eastpointe City Manager Steve Duchane. “We just want it to be replaced.”

While the replacement method remains uncertain, city officials are somewhat comforted by the fact that the elimination process will be gradual. Beginning in January, businesses valued at less than $40,000 will be exempt from PPT.

A clearer picture of the impact the $40,000 exemption will have on local municipalities will likely surface sometime after February, when PPT forms are sent out.

“We know we are better than being in the position of losing $2.2 million, but we don’t know where we are at,” Adkins said.

In Roseville, PPT generate about $2.2 million annually; in Eastpointe, $800,000; in Sterling Heights, $8 million; and in Warren, $12 million. Countywide, the taxes generate approximately $55 million annually.