County governments across Michigan are keeping a close eye on Lansing as lawmakers zero in on the possible repeal of the personal property tax.
Personal property tax in Michigan is paid by businesses on property not permanently affixed to land, such as furniture, tools and computers. Michigan counties’ reliance on personal property tax has increased in recent years as revenue from other sources has plummeted. The state is one of 43 that implement some form of a personal property tax.
Michigan Gov. Rick Snyder’s (R) tax reform plan calls for eliminating personal property taxes. To ease the impact, alternatives have been rumored — including the state’s taking over court costs. These costs represent one of the largest expenditures for counties in Michigan. Snyder favors a “revenue-neutral” elimination of the tax, but hasn’t announced any proposal to replace the tax with another funding source.
About 8.5 percent of Michigan’s tax base comes from personal property taxes, according to the Michigan Senate Fiscal Agency. The tax generates about $1 billion a year with close to 80 percent going to local governments, with most of the remainder going to local school districts. About 5 percent of personal property taxes end up in the state’s general fund.
If the personal property tax is repealed, it could cost county schools $300 million or more, $60 million of which would be funding for special education services. It could also harm a county’s ability to provide services, such as police and fire, to the public. Counties could not continue to operate if the revenue is not fully replaced with a constitutionally guaranteed revenue source.
The tax repeal would mark the second budget hit this year for most municipalities because of the decline in property tax receipts. However, elected officials have only talked about getting rid of the tax. No legislation has been proposed yet.
Recently, the Michigan Association of Counties joined the Michigan Municipal League at a press conference to launch the “Replace Don’t Erase” campaign related to the personal property tax at www.replacedonterase.com. The site was created to show that if the personal property tax is repealed, lawmakers will need to have an alternative in place to make up the lost funding.
Even if the repeal of the personal property tax passes, Snyder says it may take five to 10 years to fully take effect — to help counties ready themselves for budget shortfalls.
Michigan is not the only state considering a possible repeal of the personal property tax. A constitutional amendment is being proposed by a citizen petition to abolish the North Dakota personal property tax. The measure will appear on the June 2012 election ballot. Illinois and Missouri are also looking into repealing their personal property taxes, but no legislation has been put forward.