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Industry Insider

By Mike Johnston
VP of Government Affairs
Michigan Manufacturers Association
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During the spring session, Gov. Rick Snyder and the Michigan Legislature took steps to make Michigan’s businesses more competitive through the elimination of the Michigan Business Tax (MBT). Further action needs to be taken to ensure that the state is able to attract and retain high value industrial investment, and Gov. Snyder is leading the charge for reform.

The Personal Property Tax (PPT), which was first enacted in 1893, represents a significantly uncompetitive tax burden for many Michigan businesses, particularly manufacturers. The tax is imposed on business equipment, ranging from office equipment to industrial production equipment and is a disincentive to invest in production assets in Michigan because many states have eliminated the PPT. Locating the same equipment in a state like Ohio that has eliminated the tax would exempt that investment from this burden and, therefore, yield a greater rate of return on the capital investment.

The goal for manufacturers is to determine the most cost-effective location to get the greatest return on investment. Manufacturers evaluate the lowest cost location not just in Michigan, or the country but across the world. Unlike other businesses, manufacturers don’t just compete locally with other businesses that are facing the same taxes and cost structures, but against any location across the globe.

Manufacturing is, by its very nature a capital intensive activity and is, therefore, more heavily impacted by Michigan’s Personal Property Tax on a per company basis. Manufacturing is not a simple industry. A large number of tools, equipment and machinery are a necessary part of business. It takes resources to convert raw materials to saleable goods. Under the PPT, all of the necessary tools for manufacturers to do business are taxable, bringing in revenue for local government but also making Michigan a relatively less attractive place to manufacture products.

The ability to attract business to any location has long-term benefits for the overall economy. Manufacturing provides a larger than average economic multiplier, meaning that for every manufacturing job that exists, numerous jobs throughout the supply chain, local retail and service economy are created. One manufacturing job brings about multiple other jobs in the same geographic area. While other business sectors bring some multiplier effect, manufacturing generally brings a much higher job multiplier effect.

The governor has delivered a strong message that Michigan will be competitive for jobs and investment. MMA is very pleased that he has identified that the Personal Property Tax needs to be eliminated to help accomplish this goal and has made it a priority for his fall agenda. We look forward to working with Gov. Snyder to remove this barrier to industrial investment and put Michigan on the competitive playing field.

For Michigan to be successful the total tax burden on manufacturers must be competitive with total taxes in other states and nations. Eliminating personal property taxes, especially on industrial machinery and equipment investments is critical to Michigan’s ability to retain existing and lure new businesses.

Over the past few decades, there have been several unsuccessful efforts to eliminate Michigan’s personal property tax. This fall, the legislature will again review the PPT. The Michigan Manufacturers Association is looking forward to working with our local partners to find solutions that make Michigan a competitive option based on “rate of return” on manufacturing capital investments in comparison to other states.