August 5, 2014 at 1:00 am

Michigan voters pass Prop 1 to end personal property tax on business

Proposal 1 would gradually end the personal property tax on manufacturing machinery and business equipment like this automated body and paint shop at Chrysler's Sterling Heights Assembly Plant. (Daniel Mears / The Detroit News)

Lansing — A statewide ballot proposition to end a long-time tax on manufacturing machinery and business equipment passed Tuesday night, handing Gov. Rick Snyder another business-friendly reform he sought.

The proposal passed 69 percent to 31 percent with more than 769,000 yes votes compared to 341,000 no votes, according to unofficial results.

Strong voter endorsement was the payoff for a more than $8 million campaign funded by major state industries and other familiar corporate nameplates. It included TV ads, meetings and speeches as backers fanned out statewide.

“Michigan voters are intuitively smart,” declared Howard Edelson, who lead the campaign for the Michigan Citizens for Strong and Safe Communities coalition. “They understood that reforming the personal property tax was a win-win for their communities and Michigan businesses.”

Edelson said the proposition assures local governments and schools will be reimbursed for revenue lost as the tax is phased out. It also will end what the coalition termed an unfair “double tax.”

The proposal was endorsed by numerous organizations and state and local elected leaders, businesses and public safety officials.

Clawson resident Jason Anderson was among those who voted in favor of it.

“I heard about that doing good things for small business. I think it would help the economy quite a bit so I voted for that,” said the 36-year-old Beaumont Hospital billing employee.

Under the proposal, the personal property tax gradually will be eliminated by 2023, saving manufacturers and smaller businesses more than $500 million a year.

That will be a net loss to the General Fund, the main checkbook that funds state government and over which lawmakers have control.

While opponents speculated this could lead to budget cuts elsewhere, the Snyder administration expects to make up most of the difference as money flows to state government from business tax credits due to expire over the next several years.

The proposal won’t end personal property taxes paid by two other categories of businesses — major retailers and utilities. They’ll continue paying about $1 billion a year in taxes in their equipment, regardless of the outcome.

The initiative shifts state use tax revenue 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.

Most neighboring states have dumped the once-common tax, which businesses complain forces them to pay a tax year after year on machinery that, in some cases, was bought decades earlier and, in one case, 48 years ago.

The proposal faced pockets of resistance from opponents such as Warren Mayor Jim Fouts, the Wayne County Taxpayers Association leader and Michigan’s chapter of the National Organization for Women.

The womens group sees the measure 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.

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

To recoup some lost revenue, businesses alsowill pay a new state tax for police and fire coverage. But the businesses will get an 80-percent tax cut compared to what they now pay in personal property taxes.

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 stood to lose was replaced.

gheinlein@detroitnews.com
(517) 371-3660