Proposal 1 helps Michigan’s local small businesses, saving $507M in tax and compliance costs
July 30, 2014
53,000 Michigan small businesses get $76M tax cut and save about $1200 each in tax and accounting costs this year.
Michigan’s local small businesses are already on their way to saving $507 million in tax and compliance costs, savings that will be confirmed with the passage of Proposal 1 on the August 5th statewide primary ballot, according to a new study by the Anderson Economic Group (AEG).
“Tens of thousands of local small businesses across the state began saving this year when the legislature eliminated their Personal Property Tax, getting rid of an unfair, antiquated double tax on their businesses,” said Rob Fowler, president and CEO of the Small Business Association of Michigan and president of Small Business for Michigan. “A ‘yes’ vote on Proposal 1 will not only protect those savings but will also make sure communities across the state are reimbursed for that lost PPT revenue. The best part about Proposal 1 is that it does all of that without raising anyone’s taxes.
“This study not only confirms the tax savings for small business: $76 million,” said Fowler, “but actually quantifies the tax and compliance cost savings for small business – averaging another $1200 in savings per business per year. That’s a big deal to small business owners and will definitely mean more jobs on the horizon.”
Small Business for Michigan commissioned the AEG study in June to determine how Proposal 1 would impact local small businesses. The analysis includes an exhaustive review of multiple state and local taxes, along with both new and existing statutes, and constitutional tax limits and voting requirements; as well as two rounds of reviews with outside experts from a variety of institutions. AEG previously studied the personal property tax in 1999, 2006, and 2012.
“The personal property tax has been a job-killer in Michigan for decades,” said Patrick L. Anderson, the lead author of the study. “Proposal 1 has already eliminated the PPT for 53,000 small businesses, and will sharply reduce costs for manufacturers and many high-tech employers in Michigan.”
The failure of Proposal 1 could have immediate and dire consequences, with local small businesses and manufacturers once again paying the unfair double tax on equipment and leaving communities reliant on an unstable, unpredictable and unreliable source of funding.
“It is clear that reforming the personal property tax would dramatically improve Michigan’s business climate,” Anderson said, noting that many states no longer impose a personal property tax. “We would no longer be losing manufacturing employers to states like Ohio, Wisconsin, and Minnesota due to this outdated tax. Proposal 1 locks in the tax cut for small businesses that went into effect this year.”
The AEG report also found that by 2017, local governments would be fully reimbursed for any lost personal property tax revenue. The need to reimburse local governments that relied heavily on the PPT has been a sticking point in previous efforts to reform this tax, and Proposal 1 has a workable mechanism to do so.
The AEG report, co-authored by Alex Rosaen and Jason Horwitz, also noted: “The state legislature explicitly stated in statute its commitment to replace any state revenue lost due to reimbursing local government with expiring business tax credits.” The report found that once the reforms are fully phased in, new state revenue would include an additional $40-94M due to increased economic activity in the state.
Finally, the report confirmed that passage of Proposal 1 would lead to the creation of thousands of new jobs across the state –without increasing anyone’s taxes.
“After both tax and compliance cost savings, Michigan businesses would pay $506.9 million less by 2025, leading to the creation of thousands of new jobs for Michigan – without raising anyone’s taxes,” said Anderson.
The 61-page report includes detailed fiscal and economic estimates, discussion of various tax changes and reimbursement revenue streams, as well as constitutional and implementation issues, and a set of appendices with additional information. It is available on the Anderson Economic Group website.
A selection of the report’s findings is below:
- Michigan’s personal property tax has long been considered a barrier to business activity because it discourages investment and has high compliance costs for both business and government. Proposal 14-1 would substantially reduce the personal property tax burdens on small businesses, and on owners of eligible manufacturing personal property.
- In 2014, the passage of Proposal 14-1 would maintain a $76 million tax reduction for small businesses. By 2020, the tax reduction would extend to owners of eligible manufacturing personal property and would total $372 million. Once fully phased in by 2025, these tax changes would result in $203 million to $474 million in additional business investment and up to 11,700 more private-sector jobs in the state.
- The state legislature explicitly stated in statute its commitment to replace any state revenue lost due to reimbursing local government with expiring business tax credits. Municipal governments as a group would not see significant changes, as payments would exceed PPT revenue losses. Once the reforms are fully phased in, new state revenue would also include an additional $40-94M due to increased economic activity in the state.
- Consistent with the Headlee Amendment to the Michigan Constitution, the vote on Proposal 1 properly allows “local” voters the chance to approve the portion of the existing state use tax that would be made into a local use tax by Proposal 1. Furthermore, this use tax, which consumers pay on certain transactions, would remain subject to the existing 6 percent limit.