Opinions differ on benefits, drawbacks of axing personal property tax
August 31, 2011 - Should Michigan leaders push to eliminate the tax on industrial and commercial personal property, which includes everything from office equipment and furniture to manufacturing machinery?
The answer to this question largely depends on who's being asked – government officials or businessmen.
"I've not seen anything (such as studies or examples in other states) that says if you cut the personal property taxes, the investment will start flooding in," said Oxford Township Treasurer Joe Ferrari. "Show me the proof – don't just tell me."
"I think people are expecting that once you eliminate the personal property tax (and) Michigan Business Tax, people are going to flock here and all of the sudden want to do all this investing. I don't see that happening," the treasurer added.
"I'm pretty excited about anything that helps take some of the tax burden off of the small businesses," said Bobby T. Cox, owner of Acorn Stamping, located at 600 S. Glaspie St. in the village. "We're paying probably somewhere in the neighborhood of $50,000 to $70,000 annually in personal property taxes. If you can translate that into additional profitability for the business, it certainly gives us a huge additional impetus to reinvest that money in the company."
"I understand the premise behind it and I certainly understand how it could have a positive impact on business, perhaps," explained Bryan Cloutier, director of the Oxford Public Library. "I'm not completely opposed to it, but there definitely has to be a mechanism in place to replace the lost revenue before we can say let's get rid of it."
"I'm all for it," said Mark Young, owner of Mark A. Young Jewelers, located at 31 N. Washington St. "(The personal property tax) stifles investment in the community. It inhibits growth because they're taking money away that someone could use to better themselves or better the (business) environment."
Michigan Gov. Rick Snyder's administration is currently working on a proposal to eliminate the personal property tax, which is also assessed on utility property. Its impact on local governments, like Oxford Village and Township, could be considerable.
In the village alone, personal property taxes amount to $121,230 in revenue for the 2011-12 fiscal year. The village's total taxable value is $114 million, $11.4 million (or 10 percent) of which is derived from personal property.
"That's what our (general fund) fund balance is – 10 percent," said village Manager Joe Young. "So, basically we'd (have) no reserves, no cushion. Then, of course, there's the loss of future revenue. We'd have to (come up) with other means to generate more revenue or cut costs even further. It would be a significant impact, obviously."
In the township, the elimination of the personal property tax, based on 2011 taxable values and 2010 millage rates, would cost a combined $576,277 in revenue for the following funds, each of which has its own separate millage rate – township operating, police, fire and emergency medical services, public library, parks and recreation, and the library/fire bond debt.
"It's only (about) 8 percent of our total (tax) roll. Most of our roll is real property," Ferrari explained. "It would affect each millage rate differently."
Of all the township millages, the police tax would be the most severely affected. If the personal property tax was eliminated, the police budget would lose $170,217 in revenue.
Fire and emergency medical services would lose the second highest amount at $141,346.
The township's parks and recreation dept. would be the least affected, losing $48,273.
The Oxford Public Library would lose $79,052 and that "would have a significant impact," according to Cloutier.
"We've cut as much as we can with the economy the way it is. Our local tax revenues have been steadily declining over the past three years," he explained. "So, another $80,000 would certainly be hard to swallow."
"At this point, it would affect people; it would affect books; it would affect programming; it would affect hours (of operation). Another $80,000 would certainly affect our total overall operations," Cloutier noted. "In 2012, we're already estimating a need to borrow around $40,000 from the fund balance in order to balance the books."
If the personal property tax were eliminated, Ferrari believes these losses would have to be made up either through cuts in services or by increasing millage rates on real property, which would greatly impact homeowners.
"Basically, the residents pay more. I'm not in favor of that at all," the treasurer said. "It can't always be a shift to the residential. There's got to be a balance. Right now, it's becoming extremely skewed in favor of business."
Ferrari explained "somebody has to pay for" government services and if businesses don't pay their share, residential property owners will end up paying it.
The treasurer noted he's "not crazy about the (personal property) tax itself – what it stands for and how it's done."
"But I don't think the reason to get rid of it is justified," he said. "It's not going to do what people think it's going to do. It's just going to basically make the corporate pocketbook a little bit deeper."
Ferrari believes the argument that eliminating the personal property tax will increase business investment has as little validity as the argument that granting tax abatements spurs economic development.
"There's no factual basis," he said. "It's all estimations."
But Young viewed things quite differently than Ferrari. He believes the personal property tax is "overreaching."
"It's not like a business doesn't already pay enough taxes," he said. "I think if you actually added it up, you'd probably be somewhere in the 50 percent range."
Young disagreed that the tax burden would have to shift to residential property owners if the personal property tax was abolished.
"I think most government officials have this – and I don't know where this came from – sense of entitlement that they are due this money," he said. "It's time for them to start really thinking about where they're going to start cutting. They don't need everything . . This sense of entitlement cannot be sustained – not if they want growth in the economy, growth in the county, growth in the state, growth in the country."
Cloutier pointed out that not all businessmen are supportive of eliminating the tax if it means sacrificing services.
"I just had a conversation with a friend of mine who's in business and he said that he might be opposed to it because it would affect all the units of government and our quality of life," he said. "It depends on who you talk to, really."
Cox views the elimination of the personal property tax as a way to help business generate more jobs.
"This state needs jobs so badly," he said. "Anything that we can do to make this a more business-friendly climate has got to be beneficial for us."
If Michigan can make its business climate more inviting than surrounding states, Cox indicated that "would encourage businesses to expand in Michigan and/or relocate to Michigan."
With regard to his own manufacturing company, Cox has experienced firsthand the impact the personal property tax has on the equipment purchases he makes.
"We try to avoid buying new equipment partly because of that issue," he explained. "If we can purchase used equipment and do some of the repairs ourselves, the value of it is less and therefore you don't have to pay quite as much in tax on it."
Ferrari agreed with Cox about the need for more jobs in the state, but he believes the answer is to recover the jobs lost to foreign countries.
"The first thing you need to do is get the jobs back from overseas," the treasurer said. "Before any jobs are created, you have to bring them back from . . . over in India and China.
"You've got to bring that work back to Michigan in terms of having Michigan create things. Everything we have is made in China. It is what it is. What we need to do is have that stuff here and then that will start spurring development."
Ferrari said he'd like to see some sort of break on personal property taxes given as an incentive to companies who keep their facilities and jobs on U.S. soil.
CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.