Statewide Ballot Issues: Proposal 2014-1
Voter Approval of a New Statewide Local Tax to Reimburse Local Governments for PPT Reforms
Memorandum 1126, July 2014
One of the long-standing goals of the state’s business community has been the exemption of personal property from the property tax base. Advocates of a personal property tax (PPT) repeal have pointed to what they see as the heavy disincentives on investment that arise from Michigan’s tax on commercial and industrial personal property. Because the tax is assessed on the taxable value of productive business assets such as business equipment and machinery, it is argued that the tax results in a decreased return on business investment, discouraging business expansions and the job creation that often comes with those expansions. Some have also argued that it is unfair to tax businesses both at the point of sale (through the sales tax) when new personal property is first purchased and then again on an annual basis through the personal property tax levy.
For state policymakers, efforts to enact PPT reforms have been hampered by the need to address a critical concern: the replacement of existing local government revenue generated by the tax. The PPT generates significant revenues for local governments, particularly those with a strong industrial and manufacturing base in their local economies. Crafting a solution to this revenue concern has been further complicated by the strained fiscal relationship between the state and local units of government.
Through two rounds of legislative decision-making in both 2012 and 2014, the state Legislature and Governor succeeded in enacting reforms that bring significant personal property tax relief to Michigan businesses. In an effort to allay concerns of local government officials regarding reimbursement for lost revenues, a compromise was reached among state policymakers, local government associations, and business representatives. As part of this agreement, Public Act 80 of 2014 redirects a portion of the state’s current use tax to create a new local tax. The revenues of this new tax would be distributed to local governments as reimbursement for lost PPT revenues. Both the levying of the new tax and the reimbursement of revenues to local governments would be the responsibility of a new special authority created under Public Act 86 of 2014. The special authority is ostensibly considered a local government under authority contained in Article VII, Section 27 of the 1963 Michigan Constitution.
Public Act 80 requires a statewide vote of the electorate to approve the conversion of a portion of the state’s use tax to this new local tax and includes the specific summary language to be used on the August ballot. While the legislature did not include any specific guidance as to why the statewide vote requirement was included, it is linked to requirements in Article IX, Section 31 of the Constitution, which requires voter approval for any new taxes levied by local units of government. Because the law creates a new local tax out of the state use tax, voter approval is required. This makes Proposal 2014-1 very unique when compared with prior statewide ballot questions as it derives not out of constitutional provisions related to state government, but out of constitutional provisions that relate to local governments.
On August 5, 2014, Michigan voters will be asked to approve the provisions of Public Act 80 that redirect part of the current state use tax to this new local tax. Because the remaining components of the PPT reform package were ‘tie-barred’ to Public Act 80, the August vote effectively becomes a referendum on the entire package of reforms. If the ballot question is approved by voters, the personal property tax reforms will go forward, with local revenue reimbursement implemented as prescribed in the 2014 legislation. If the measure fails, all provisions of the personal property tax reforms will be repealed effective for tax year 2015, meaning that all businesses would once again be subject to any relevant tax levies on personal property.