July 31, 2014 at 1:00 am

Ballot bid to phase out Michigan business tax raises questions

Lansing— Manufacturers and other businesses have raised more than $8 million for a statewide broadcast campaign urging voters to approve eliminating what they consider a burdensome tax.

Business heads, local government leaders and state elected officials are nearly unanimous in their support of Proposition 1-14 on Tuesday’s statewide ballot.

But the complicated Proposition 1 — which would gradually end the tax by 2023 — faces some skepticism heading into a primary election that traditionally draws sparse voter participation. Most neighboring states have dumped the once-common tax on manufacturing machinery and business equipment.

While no well-funded opposition has surfaced, there are opponents such as Warren Mayor Jim Fouts and Wayne County Taxpayers Association leader Rose Bogaert, who calls the measure “deceptive.” She suspects a hidden tax increase is folded into it.

Michigan’s chapter of the National Organization for Women sees it as a funds shift in which the state forgoes a big chunk of annual revenue that it inevitably will have to replace — or cut important services to make up for it.

A no vote would keep the existing tax intact.

“It is not the easiest proposition to understand,” admitted Michigan Chamber of Commerce tax policy specialist Tricia Kinley. “But the good news is that voters are really paying attention.”

“There’s misinformation and skepticism,” said Michigan Manufacturers Association President and CEO Chuck Hadden. “We know we have a ways to go.”

Hadden also is treasurer of Citizens for Strong and Safe Communities, a coalition that has pooled contributions from his association, General Motors Co., Chrysler, Kellogg Co. and other familiar Michigan corporate nameplates to back the measure.

He said he feels good “but not overly confident” about the prospects for approval.

It’s not mentioned in the ballot language, but Prop 1 aims to do away with the state’s personal property tax on manufacturers and smaller businesses, saving them more than $500 million a year.

The proposal doesn’t apply to large retailers, such as Meijer stores, or to utilities, such as Consumers Energy. They will continue paying a combined amount just under $1 billion a year in personal property tax on their equipment, regardless of Tuesday’s outcome.

State use tax revenue would be shifted to local governments and schools to prevent their budgets from being hard hit. Personal property taxes are a main revenue source for many municipalities and school districts.

The 6 percent use tax is a companion to the state sales tax that applies to taxable items brought to Michigan and to services such as telecommunications and hotel bookings.

As the personal property tax is gradually phased out beginning in 2016, an increasing amount of use tax revenue would flow to local governments through a new authority headed by gubernatorial appointees.

To recoup some lost revenue, benefited businesses also would pay a new state tax to cover necessities such as police and fire coverage. But Hadden said the businesses still would get an 80-percent tax cut compared with what they now pay in personal property taxes.

Only 2 Great Lakes levy tax

Michigan is one of two Great Lakes states still to levy this tax, making it harder for the state to attract businesses, according to Gov. Rick Snyder, who backs the proposal.

The personal property tax is not only onerous to pay, Kinley said, but also complicated for businesses to figure out and municipalities to administer.

Wayne Taxpayers’ Bogaert remains skeptical. Part of the pro-Prop 1 campaign has local leaders, firefighters and police officers telling TV and YouTube viewers the proposal ensures continued funding of education and police and fire protection.

“When they use that, I really know they’re up to something,” Bogaert said. “Even if they really do need this, they need to do a better job of explaining how it works.”

State stands to lose $50M

An analysis by the nonpartisan Citizens Research Council of Michigan partly parallels the contentions of Michigan’s NOW chapter.

Proposal backers are banking on new revenue for the state from expiring business tax credits over the next few years to help make up for the $500 million loss in use tax revenue. By one estimate, the ultimate loss to the state budget would be about $50 million.

But the Citizens Research Council noted the income from expiring tax credits could be used to cover the growing cost of existing state services or to fund new services — instead of making up for lost General Fund revenue.

“The way we looked at it, they were going to have that money anyway,” said Citizens Research Council government affairs director Robert Schneider.

Much of the complex plan was crafted by Lt. Gov. Brian Calley working with local leaders, who opposed elimination of the tax unless the revenue they stand to lose was replaced.

Arguments for the initiative are illustrated by an ad bankrolled by Citizens for Strong and Safe Communities. It features third-generation family business leader Patrick Curry, who’s still paying personal property tax on a Landis grinder his grandfather bought in 1966 to expand his fledgling company into what is now Endurance Carbide in Saginaw County’s Bridgeport Township.

“Forty-eight years!” the narrator says. “Now his grandson who runs the business is still paying tax on it every year. That’s crazy!”

Kinley hopes voters will understand the change would lead to new jobs without raising anyone’s taxes.

“And we know we need this to improve Michigan’s competitiveness — there’s no way to get around that,” she said.

GHeinlein@detroitnews.com