Now that the Michigan Business Tax and related surcharges have been eliminated, some in the business community want the state to take what they see is the next step. This opinion piece by Steward Sandstrom, CCE, president and CEO of the
Kalamazoo Regional Chamber of Commerce details reasons for getting rid of Michigan's Personal Property Tax.
Eliminating the Personal Property Tax (PPT) would continue to improve Kalamazoo's economic climate and truly declare to the world that Michigan is once again open for business.
The Personal Property Tax is a form of taxation that is not easily understood by many community members outside of those directly impacted. Essentially, the state's Personal Property Tax is a tax on capital expenses such as new computers, machinery and hardware. It also applies to other improvements, such as new electrical wiring for your building or improvements made to the physical structure -- "bricks and mortar" so to speak.
The Chamber believes this is a tax structure based on the concept that businesses are to be taxed whenever they invest in new property improvements. Essentially, the reward for reinvesting in your business and our community is a tax hike.
I have had many conversations with our membership about how the Personal Property Tax has negatively impacted their decision to hire more workers or to buy new equipment. Overwhelmingly, I am hearing that PPT is a growth-inhibiting expense that counter-intuitively taxes investments. It essentially penalizes business for trying to grow.
I recently had a conversation with Jeff Hawkins, President of
Envirologic Technologies. Mr. Hawkins says a portion of his business requires the use of heavy drilling equipment. To purchase new drill rigs entails an investment on the order of about $350,000. In this example, first the equipment would be charged sales tax of 6 percent or $21,000; then the Personal Property Tax is applied based on a depreciated value, including the sales tax, over time which would account for approximately $23,000 in additional tax over the next five years. Although the Personal Property Tax goes down over time, the tax continues essentially forever until the piece of equipment is no longer in use.
In 1999 and 2000, Envirologic made these similar substantial business purchases. In 1999, it obtained a 50-percent tax abatement on one rig, but was unable to receive similar results the next year. This taxation, including essentially a tax on a tax, makes the hiring and reinvestment decisions much more challenging. In the next couple of years, Envirologic may have to make this purchase again, and according to Mr. Hawkins, Personal Property Tax will play a large factor in any purchasing and hiring decision.
Moreover, if a business buys a piece of equipment, the Personal Property Tax is applied to the transportation, associated delivery costs and on the sales tax it pays.
Granted, over time the tax goes down based on a depreciation rate, but unless you throw away the item it will continue to be taxed. Every year, companies large and small are required take inventory of all assets associated with the Personal Property Tax to see how much that investment can be taxed. It is important for businesses to re-evaluate items on an annual basis and throw away unused assets to avoid burdensome taxation rates.
Personal Property Tax does add up and is one more tax that discourages further investment and expansion.
This is a snapshot of many companies in Southwest Michigan facing similar uncertainties in their expansion plans. In addition to the financial burden, business owners are saddled with compliance paperwork, which takes time away from helping their business grow and prosper.
Eliminating the Personal Property Tax is going to be difficult to address. The main benefactors of the Personal Property Tax are local governments and the School Aid Fund. Certainly, businesses don't want to see school funding cut or public safety services eliminated due to lost revenue. But there must be some balance struck in an effort to make the property tax code as easy and fair as the new Corporate Income Tax.
Here are some considerations and possible solutions to be brought to the table:
• First and foremost, the personal property tax deters job and capital investments by companies. By removing this barrier, it lifts the tide on the entire economy allowing more growth through purchasing and hiring.
• Phase-out the tax over time for all taxpayers. Providing a planned phase-out of the tax would allow local governments to adjust resources, seek efficiencies and consolidation.
• Immediately implement a reasonable threshold exemption. Approximately 80 percent of taxpayers have property valued at less than $50,000 in taxable value. For relatively little cost (estimated $70 million) most paying the tax would be alleviated. In addition, local governments would be immediately relieved from administration of the tax.
• Make efforts to improve administration of the tax statewide. Providing clarity and consistency in assessing the tax would help reduce costly and time-consuming disputes and appeals.
• Allocate expiring tax credits as a source of revenue replacement. Efforts to rely less on targeted industry, and company, specific tax credits potentially affords an opportunity to re-direct those "unused" dollars towards general business tax relief to benefit a wide range of job providers.
If we want more jobs available in our region, we need Kalamazoo's businesses to succeed. If we want more jobs in the Kalamazoo area, we need to improve the path to employment by finding ways to spur job creation. And if we want area businesses to continue investing in our communities and hiring our residents, then we must find a way to compromise and tackle this onerous tax burden. This is a jobs issue.
Reforming PPT won't be easy and it may not be popular with everyone in the short term. But the long-term benefit of enabling business to invest in growth and expand their employee base is going to help everyone by improving Michigan's job climate.
We urge the state legislature and Gov. Rick Snyder to make 2012 another landmark-year in changing Michigan's tax structure. We are confident there is a way to work together on this issue. This is a discussion requiring businesses, schools and municipalities at the table to solve this dilemma and eliminate the business Personal Property Tax once and for all.
This opinion piece submitted by Steward Sandstrom, Kalamazoo Regional Chamber of Commerce.
Do you have an opinion regarding business growth and investment in Southwest Michigan? Tells us about it: feedback@secondwavemedia.com.