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January Alert - Topics include: Personal Property Tax Reform, Penalties Rise for Failure to Report Property Transfers and Some Transfers to Family will not Cause TV Uncapping

January 7, 2013

Governor Snyder recently signed legislation enacting a long awaited personal property tax reform plan. Disagreement over the manner of reimbursement to local government of a portion of the resulting reduced property tax revenues almost derailed the effort at the last minute. As it is, the final version is linked to an August 2014 statewide referendum on dedicating a portion of the state’s use tax to reimburse the local units of government. If the voters reject the use tax referendum, the whole plan will be repealed.

The plan does not eliminate all personal property taxes but instead would provide relief as follows:

  • Beginning in 2014, small commercial and industrial personal property parcels will be exempt. If a taxpayer’s commercial or industrial personal property in a given assessing jurisdiction is less than $40,000 of taxable value, the parcel is exempt. If the taxable value exceeds $40,000, tax is owed on the full amount. Taxpayers will have to file an annual affidavit with the local government unit and the Department of Treasury to claim this exemption.  
  • Starting in 2016, any Eligible Manufacturing Personal Property (EMPP) that was purchased new after December 31, 2012 will become exempt. EMPP is property that is used more than 50% of the time for industrial processing or in “Direct Integrated Support.” Aside from traditional manufacturing and processing equipment, the EMPP definition includes equipment used in research and development, quality control, engineering and warehousing functions that are necessary as a result of industrial processing. Taxpayers will have to file an affidavit in 2016 only to claim this exemption.
  • Starting in 2016, any EMPP that is at least 10 years old will be exempt. In each year after 2016, an additional oldest year of EMPP will become exempt so that all EMPP will be exempt by 2023. For example, EMPP purchased in 2006 will become exempt for the 2017 and later tax years.
  • EMPP that is currently subject to tax abatements and/or specific taxes will continue to be exempt from the General Property Tax Act and subject to the specific tax until the time when that EMPP would be exempt under the new law.
  • The existing 12 and 24 mill property tax exemption for commercial and industrial classed property will remain in place (although most industrial personal property will eventually be completely exempt).
  • A new statewide Metropolitan Authority will be created that will levy a portion of the current state use tax for purposes of reimbursing qualified local units for up to 80% of their estimated loss in revenue from personal property used for non-police, fire and ambulance service. The amount of the use tax dedicated to the Authority would be adjusted each year and the State portion of the tax would be reduced accordingly so that the overall rate remains at 6%.
  • Local governments also will be authorized to levy an “Essential Services Assessment” (ESA), which will be a special assessment levied on the real property of taxpayers that benefit from the EMPP exemption. Since the ESA funds only essential services, the rate is expected to be smaller than the current personal property tax rate. In addition, the ESA is capped on a per parcel basis so that it should not exceed the benefit that a parcel receives from the EMPP exemption.

Penalties Rise for Failure to Report Property Transfers

Michigan Public Act 382 of 2012 increases the penalty for failure to notify the local assessor of a transfer of ownership of industrial or commercial property. This changes the prior law which required buyers or other transferees to notify the assessor within 45 days of a transfer by filing the state authorized property transfer affidavit. The penalty for not filing had been a fine of $5/day up to $200. PA 382 increases the penalty to $20/day, up to $1,000 for property selling for $100 million or less. In the case of property that sells for more than $100 million, the fine will be $20,000 after the 45 days have elapsed unless the assessor determines the failure is due to reasonable cause and not willful neglect, in which case the lesser fine is imposed. The buyer or other transferee may appeal the determination to the Michigan Tax Tribunal.

Some Transfers to Family Will Not Cause TV Uncapping

Public Act 497 of 2012 has been enacted as a result of the Governor’s December 31, 2012 approval. This legislation provides that beginning December 31, 2013, which is the valuation date for the 2014 tax year, transfers of residential real property will not cause an uncapping if the parties are related by blood or affinity to the first degree and the use of the property does not change following the transfer.