Lansing — Lawmakers this week will propose and begin passing a deal to guarantee that local governments lose little to no revenue from a planned phase-out of taxes on industrial machinery and small businesses’ equipment.
The business tax cuts were enacted by Gov. Rick Snyder and legislators at the end of 2012 but will be halted if a statewide vote fails in August. The agreement reached among the administration, business interests and local officials would essentially make sure cities, counties and townships opposing a loss in revenue are mostly kept whole.
It would all but ensure that the ballot proposal faces no organized opposition.
“It’s far better,” Larry Merrill, executive director of the Michigan Townships Association, said of the 10-bill package to be introduced Tuesday in the Senate.
Under current law, local governments will be fully reimbursed for lost tax revenue that pays for police, fire, jail and ambulances. Yet 80 percent of revenue used for other services is expected to be replaced.
The legislation — which would compensate local communities in full beginning in 2016 — will be voted out of the Finance Committee on Wednesday, said Chairman Jack Brandenburg, a Republican from Macomb County’s Harrison Township. The bills must be done by the end of March because they would change the ballot question, he said.
When the tax cut won approval 14 months ago, Brandenburg said, there was concern in the business community and within Snyder’s administration that voters might reject eliminating what critics say is an onerous and obsolete tax on machinery and other business equipment because of worries about budget cuts. Local governments bore steep cuts in revenue-sharing payments from Michigan in the 2000s as sales tax collections lagged and legislators siphoned off money to deal with state deficits.
“We were put on notice by all the municipal groups that they would fight this thing tooth and nail,” Brandenburg said. “Now there should be no aggravation from anybody.”
For years, the business community has complained that Michigan’s personal property tax — applied to machines, equipment and other items — discourages business investment, is a compliance headache and is unique in the Great Lakes region.
The 2012 law will phase out the tax on manufacturing equipment between 2016 and 2023. Starting this year, it also removes the tax for smaller businesses owning commercial equipment with a cash value under $80,000.
Businesses will save $75 million initially and more than $630 million a decade from now, according to the nonpartisan Senate Fiscal Agency. Municipalities will see the revenue replaced with a portion of Michigan’s 6 percent tax on out-of-state purchases and a special assessment on businesses that benefit from the tax cut.
Supporters contend the move will boost the economy and that Michigan can afford the tax cut as generous economic development incentives and tax credits for advanced battery facilities expire in coming years. Though many municipal tax bases rely little on revenue from the equipment tax, it’s significant for some manufacturing-heavy communities.
Townships remain concerned they wouldn’t be reimbursed before 2016 for some lost revenue, but Merrill said his organization still supports the legislation. He credited Lt. Gov. Brian Calley and others for earlier agreeing to link the tax cut to a statewide vote, showing “some good-faith concern in ensuring it didn’t devastate the local governments financially.”
Details of the complex proposal won’t be released publicly until Tuesday.
“It’s something we believe will have and will earn strong bipartisan and broad-based support,” said Snyder spokesman Dave Murray.
Mike Johnston, vice president of government affairs for the Michigan Manufacturers Association, also said he expects the bills to win bipartisan backing from lawmakers and ultimately voters.
“It’s been an uncompetitive tax because it taxes what the economy wants most — investment in manufacturing equipment to make things,” he said. “We are a manufacturing state so we ought to make sure manufacturers are competitive with other states.”