Michigan voters approve Proposal 1 tax change

By: Brian Louwers, Robert Guttersohn | C&G Newspapers | Published August 6, 2014

Voters overwhelmingly approved the statewide Proposal 1 Aug. 5, which aims to compensate local governments for the gradual loss of personal property tax revenue.

Nearly 70 percent of voters across Michigan voted in favor of the tax reform.

“We were thrilled it passed in particular with such high numbers,” said Samantha Harkins, the director of state affairs for the Michigan Municipal League.

Others, like Warren Mayor Jim Fouts, were less enthused. He called it a tax shift from large, industrial businesses to taxpayers and doubted Lansing would keep its end of the bargain.

 “It doesn’t work. It’s just a way to give big companies another tax break. Somebody has to pay for it. It’s the average taxpayer and the cities who service them,” Fouts said.

He also called the ballot language unclear and announced Aug. 7 that he would direct Warren’s city attorney to file a lawsuit in the Michigan Court of Claims to invalidate the proposal vote.

“Does anybody think the average person understood what that meant? No,” Fouts said Aug. 6. “Not only was it unclear, but it was biased.”

Proposal 1, which amended a state act from 2012, calls for a portion of revenue from the use tax to be diverted back to local governments.

The use tax is a 6 percent tax that the state already collects and that is similar to the sales tax.

Simultaneously, the collection of personal property taxes, which are an essential revenue stream for some municipalities across Michigan, will be phased out over the next 10 years.

Local governments collect personal property tax on a depreciating scale on businesses’ industrial and commercial equipment.

For some cities in Michigan, the collection of the personal property tax accounts for more than half of their property tax revenue, according to the Citizen’s Research Council of Michigan.

Businesses with less than $40,000 in taxable value assets became exempt Jan. 1, 2014. The rest will begin paying less of the tax in 2016.

Fouts said Warren stands to lose $400,000 in revenue from the loss of the tax this year and next year, and upward of $10 million in 2016.

In 2012, a law set into motion the eventual phasing out of the personal property tax throughout the next 10 years. Organizations like the Michigan Municipal League, which represent local governments in Lansing, pushed the Legislature to come up with a replacement revenue stream for municipalities.

At the beginning of this year, the Legislature amended the 2012 law with a series of bills that would divert a portion of the use tax back to local governments. Because it represents a significant change to tax law, the Michigan Constitution required voters to approve the change.

Harkins said personal property tax “stood in the way of a lot of good things.”

She said it hindered a local government’s ability to retain and attract businesses. The tax, she said, always was part of the conversation.

“I think (passage of Proposal 1) really will allow us to focus on those kind of issues instead of dealing with personal property tax,” Harkins said.

Harkins said she understands the lack of trust from local governments toward Lansing.

“Obviously, I understand that some of our members are skeptical,” Harkins said.

She said the state has not held up its end of the bargain when it comes to revenue sharing with municipalities and other issues.

“I think there’s a mistrust there that is going to be hard to overcome,” Harkins said.

She said MML worked hard to ensure Proposal 1 would not be part of the Legislature’s appropriations process. Instead, a stabilization authority will determine how much each city will receive.

“We didn’t want to have to go to the Appropriations Committee every year and deal with fighting for this money,” Harkins said. “That’s something that was very important for us.”

Fouts doesn’t trust that the state will come through each year to fully replace the lost tax revenue.

“I don’t trust Lansing politicians who created that fiasco with the fireworks, have taken millions away from us, demand that we do things and take money away from us,” Fouts said.