Personal Property Tax
[APRIL 1, 1998] The property tax is Michigans oldest form of
taxation, dating back to at least 1893. Two types of property are taxedreal
and personaland both by state and local government. The tax rate on
property in Michigan is determined by the number of mills levied, which is identical for
real and personal property. For all jurisdictions in 1998, taxes on real property will
generate approximately $9 billion and taxes on personal property about $1.4 billion.
Real property generally is interpreted to include land plus the buildings and fixtures
permanently attached to it. With Proposal As passage in 1994, reliance on property
taxes (for personal as well as real) was reduced for local governments and increased for
state government (which now uses the revenue as a K12 funding source).
Personal property generally is interpreted to be that not permanently affixed to land:
e.g., equipment, furniture, tools, computers. In Michigan, only businesses pay the
personal property tax (PPT); items for household use have been exempt since the 1930s. The
exhibit shows that from 1985 to 1996 personal property taxes grew
from $668 million to $1.2 billionan 80 percent rise (24 percent when adjusted for
state levies 6 mills on personal property, which is the level established
for real property by Proposal A. In addition, there are state and
local taxes that are tied to the PPT (i.e., state utilities tax and
industrial facilities tax).
local levy varies from place to place, depending on what has been
approved by local voters. Thus, if, in City A, 12 mills are levied
on real property, 12 mills also are levied on the personal property
of those who must pay it.
Reliance on personal property tax
collections varies across the state. Some smaller rural counties raise less than $10
million in total annually from it, while in some larger counties it totals more than $5
billion annually. In some counties, the PPT represents less than 5 percent of total
property value; in others it is significantin Kalkaska and Midland counties, 59
percent and 63 percent, respectively (1996).
Cost to Business
Businesses pay both personal and real property taxes; of total business property taxes,
nearly 38 percent is levied on personal property.
Proposal A substantially reduced the
PPT. The average nonhomestead (includes business property) rate fell from 56.6 to 48.17
mills, about a 15 percent decline. Nevertheless, most statewide business associations list
PPT repeal as a major legislative goal.
Thirty-five states levy a PPT, and in most the levy is similar to Michigans. Ten,
including Illinois, New York, and Pennsylvania, have no PPT. The remaining five levy a PPT
but allow specific exemptions (e.g., for manufacturing equipment).
Opponents of the PPT argue that it is a major reason
that the cost to locate or expand a business in Michigan is higher than in competing
states. Many surveys reveal that business leaders see the tax as one of the top five
anti-competitive provisions of Michigan law. Some analysts argue that since the nontax
costs of production sometimes are higher in Michigan than elsewhere (labor costs usually
are mentioned), to attract new jobs the tax burden for business actually should be lower
than in competing states.
Opponents also argue that
administrating the PPT is burdensome and unfair. Unlike the tax on real property, personal
property is self-reported by firms. Each year, every business must provide the local
assessor with a form itemizing each piece of personal property and its age. The assessor
then assigns a value, using depreciation schedules published by the state, to each item.
This self-reporting of taxable property, opponents argue, is time-consuming for businesses
and leads to substantial underreporting.
Some analysts point out, however,
that eliminating, reducing, or reforming the personal property tax is easier said than
done, and they point to several difficulties.
or eliminating the tax would affect the revenue stream to all types
of Michigan governments: city, county, township, school, and state.
the PPT base varies widely across the state, the effect of reducing
or eliminating the tax would be much greater in some places than in
tax is, in large part, a local tax that would be changed
or eliminated by state law. This fact usually leads to discussion
about state reimbursement to locals for lost revenue, but short of
a constitutional amendment, it is not possible to guarantee
such in future years.
is very difficult to quantify the economic effect of reducing the
PPT. Opponents and proponents of changing or eliminating the tax agree
that taxes negatively affect economic development, but they disagree
on how much and when. Opponents of changing the
PPT do not believe that a reduction/elimination will lead to economic
activity increases sufficient to offset the direct revenue loss.
also is a long list of technical questions involved in reform. For
example, personal property never has been tightly defined in state
law. Although some categories of personal property are mentioned in
statute, in general, personal property simply is defined as all
property that is not "real." Since in Michigan the
tax rates on real and personal property always have been identical,
this vagueness has not been too troublesome. But the statutory distinction
between the two will become very important if personal property comes
to be taxed at a lower rate than real property.
Current Reform Proposals
There are many proposals to reduce or eliminate the personal property tax in Michigan.
Some have been introduced as legislation, some offered informally by policymakers and
Each year an increasing proportion of personal property would be exempt from taxation,
starting at 10 percent and increasing by 10 percent every year, until the tax is
eliminated in year ten. Such a phaseout could be adjusted to fit any proportion or time
Reverse New Jersey Plan
This too gradually would reduce the personal property tax, but the phaseout would be based
on the propertys age. For example, in year one, property ten years or older could be
exempt; in year two, property nine years and older; and so on. Although the tax would
continue, it ultimately would apply only to personal property in the year in which it is
New Jersey Plan
The personal property tax gradually would be phased out by exempting all newly
acquired property. Ultimately, as existing property is scrapped, the tax would be
Because of the perceived administrative burden of the PPT, some call for keeping it but
allowing an exemption for property of value below a certain threshold. For example, all
property valued at less than $10,000 could be exempt.
The personal property tax would be eliminated immediately and the revenue replaced or
partially replaced by increasing another tax, for example, the single business tax.
Each local government could exempt from tax all or a portion of personal property within
its jurisdiction; the revenue lost would not be replaced by the state.
Revised Depreciation Schedules
Finally, many analysts and policymakers argue that the taxs administration should be
improved. The state publishes the depreciation schedules that local assessors use to
calculate tax liability. Based on the propertys age and useful life, these schedules
determine depreciation factors that then are multiplied by the propertys original
cost; this calculation establishes the items taxable value. The depreciation
schedules have not undergone major revision since 1964more than 30 years.
Furthermore, many observers argue that the states use of only a few schedules
results in the actual value of personal property being misrepresented for many business.
The state has hired outside consultants to review the current depreciation schedules;
recommendations for change may be presented in early 1999. While schedule revisions
probably will lead to an overall reduction in tax collections, some individual companies
could see a tax increase.
Business Taxes; Economic
Development: State Financial Incentives.
Citizens Research Council of Michigan
38200 West Ten Mile Road, Suite 200
Farmington Hills, MI 48335-2806
(248) 474-0090 FAX
Michigan Association of Counties
935 North Washington
Lansing, MI 48906
(517) 482-4599 FAX
Michigan Chamber of Commerce
600 South Walnut Street
Lansing, MI 48933
(517) 371 2100
(517) 371 7224 FAX
Michigan Department of Treasury
430 West Allegan Street
Lansing, MI 48922
Michigan Municipal League
320 North Washington Square
Lansing, MI 48813
(517) 372-7476 FAX
P.O. Box 80078
Lansing, MI 48908-0078
(517) 321-8908 FAX