Written by: Keith Frame, CPA
In late 2012, Governor Snyder signed legislation which begins the phase-out of Michigan’s Personal Property Tax. This is the tax businesses have historically paid on the cost of equipment and other personal property used in their business. This tax is considered a tax on investment and thus tends to reduce the amount of investment. In addition, since many surrounding States have already reduced or eliminated their personal property taxes, the change in the law has been seen as necessary for competitive purposes.
Beginning January 1, 2014, Public Act 402 exempts all commercial and industrial personal property owned by a single taxpayer and contained within a local tax collecting unit, if the true cash value is less than $80,000 or the total taxable value of the industrial and commercial personal property is less than $40,000. The exemption is not based on the value of each individual piece of personal property, nor is it based on the total value of all personal property within the State. As a result, a taxpayer could have a chain of 10 stores, each with $35,000 of taxable value at each location, but located in 10 different tax collecting units. Although the taxpayer’s total personal property would have a taxable value of $350,000, all of the property would be exempt because within each tax collecting unit, the taxable value of the property is less than $40,000. Taxpayers must file Form 5076 – Affidavit of Exemption each year by February 20, in order to receive the exemption. It appears that if a business qualifies for the exemption but does not file the Affidavit, the business will still be subject to the tax. It is imperative that the exemption form is filed timely.
Beginning January 1, 2016, all new business personal property, all personal property purchased between 2013 and 2015, and all personal property purchased before 2006 will be exempt from the personal property tax. Any personal property purchased between 2006 and 2012 will become exempt from the personal property tax once the property is 10 years old (i.e. equipment purchased in 2006 will be tax exempt in 2017).
These changes in the law still require business owners to record, classify and categorize assets for purposes of determining if they do, in fact, qualify for the exemption. A business that qualifies for the exemption in one year, may not qualify in a subsequent year if additional personal property is placed in service.
The Professionals at Robert F. Murray & Co. CPAs can help with any questions you have.