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Industry Insider

BBy Mike Johnston
VP of Government Affairs
Michigan Manufacturers Association
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The reinvention of Michigan’s business tax in 2011 did not include elimination of the Personal Property Tax (PPT).

However, this top legislative priority for the Michigan Manufacturers Association (MMA) is now shared by the Snyder Administration and the Senate and the House leadership, creating tremendous momentum to make it happen.

The PPT stands as the greatest barrier to manufacturing investment in Michigan. Most other states recognized the problem years ago. Specifically, if a state taxes the industrial equipment that produces products, investors are less likely to locate industrial equipment in those states. Now that most states have eliminated the tax, Michigan’s tax stands out as a significant competitive barrier. The quicker it is eliminated, the better.

The revenue from the PPT totaled about $1.2 billion in 2010. That is a substantial revenue stream with the utility, commercial business and the manufacturing sectors each paying about a third of the overall amount collected. This tax impact is greater on individual manufacturing companies for two reasons.

First, manufacturing is a capital-intensive business. The assets of production are dramatically more expensive for a manufacturer as compared to a retail store. Think of the value of the equipment to make steel or cement, produce chemicals or assemble automobiles, compared to the display racks in a clothing store.

Second, there are many more commercial operations that pay relatively small amounts of PPT, compared to relatively fewer manufacturers paying large amounts of PPT on a per-company basis.

MMA is eager to work with the governor and legislative leaders who are now focusing on eliminating PPT specifically for manufacturers first. The contribution of Michigan manufacturers to the revenue generated by the PPT is about $395 million, a much smaller hurdle than the total $1.2 billion hole that would be created by total elimination of the tax.

As of this writing, the administration has not proposed the specifics of its plan, but we believe the elimination — for manufacturers and of the entire tax — will be phased in over time. A phased approach will help local units of government, which are the largest beneficiaries of the current PPT revenue stream.

Local communities have expressed concern about a loss of revenues in the transition away from the personal property tax. MMA believes elimination of the tax is good for the state and will be good for communities, especially manufacturing communities, because industrial investments made in communities bring jobs and people that buy homes and spend their income in those communities.

We do, however, understand their legitimate concerns. We are consumers of the services provided by local units of government, including police and fire protection, quality roads and education systems for our employees and their families. We view communities as partners in our efforts to be competitive in the global economy and believe there will be replacement revenues to support them.

MMA looks forward to working directly with Gov. Snyder, Lt. Gov. Calley and the legislative leaders in moving quickly to complete the reinvention of Michigan’s business tax system by eliminating the burdensome PPT.

When Michigan’s business tax policy fully recognizes the importance of manufacturing as the largest sector of the state’s economy, Michigan will become much more attractive for industrial investment and will increase prosperity in Michigan.

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