In August 2014, Michigan voters approved changes to the state’s Personal Property Tax law. This tax applies to businesses and not to individuals. The changes that were approved are misunderstood by many businesses. The Michigan Personal Property Tax has NOT BEEN REPEALED.
1) an $80,000 exemption, first applicable for 2014 was made permanent, however businesses that qualify for this exemption must file the exemption affidavit every year, not later than February 10. Failure to file the exemption affidavit timely results in the business having to pay personal property tax in July and December based to “true cash value” on the prior December 31.
2) A new exemption for “Eligible Manufacturing Property” begins a multi-year phase-in beginning in 2016. The rules for applying this exemption are complex and won’t be discussed here. Businesses who are primarily involved in manufacturing will ultimately see an exemption from the personal property tax for all qualified property by 2023 – however non-exempt property remains subject to the tax.
3) for 2015 every business that does not qualify for the small taxpayer exemption ($80,001) of value – or fails to timely file for the exemption will continue to file and pay personal property taxes just as in prior years.
4) for 2016 and subsequent years, any business that does not qualify for the small taxpayer exemption and which also does not meet the rules for the new manufacturing property exemption will continue to file and pay personal property taxes just as in prior years. Businesses that do meet the new qualified manufacturing property exclusion will begin to see some of their qualified and previously taxable property drop off of the tax rolls; more each year through 2022.
A quick example: On December 31, 2013 a dentist’s office had total property with a (depreciated) true cash value of $70,000. That dentist filed a small taxpayer exemption affidavit with their local assessor before February 10, 2014. The dentist owed no personal property tax in 2014. However, during 2014, that same dentist acquires several new chairs and equipment at a financed cost of $140,000. As of 12/31/2014 the (depreciated) true cash value of all property is greater than $80,001 and the dentist will not qualify for the small taxpayer exemption for 2015. The dentist must file a personal property tax return and pay personal property taxes in 2015 Beginning in 2016, the true cash value remains well above $80,001 and also does not qualify as manufacturing property. No property is exempt for 2016 or any future year, and the dentist will pay personal property taxes on the true cash value of business property determined on 12/31 of the each prior year. Replace the dentist with an insurance agency or a retail store — or any other business not principally engaged in manufacturing and you’ll get the same result.