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Personal Property Tax and the New Statewide Essential Services Assesment for Manufacturers

Is the PPT really gone for manufacturing? Yes...but it's complicated.

Personal property tax (PPT) has been a major source of contention for manufacturers. The PPT law was changed in 2014 in an effort to keep Michigan manufacturers globally competitive and incent investment in Michigan property and equipment.

Beginning in 2016, manufacturers with eligible manufacturing personal property can benefit from the phase-out of the PPT; however concurrent with the phase-out is the imposition of a new tax referred to as the Statewide Essential Services Assessment (ESA).   In addition to the manufacturing exemption a “small taxpayer exemption” is also available to taxpayers having less than $80,000 of true cash value personal property within a taxing unit.
 
Following is a summary of how to qualify for this “manufacturing exemption” which includes the phase-out of the ad valorem system and assessment of the new ESA.
 
Eligible Manufacturing Personal Property
 
Eligible manufacturing personal property (EMPP) is personal property that is predominately used in industrial processing or direct integrated support. Predominant use means that 50% or greater of the value of all personal property located on a given parcel is EMPP. If this 50% test is met, then all personal property at that location is eligible for the PPT exemption.
 
Phase-In
 
The exemption from PPT will be phased in over ten years. For returns filed in February 2016, EMPP put into service prior to 2006 and after December 31, 2012 is exempt. Personal property put into service from 2006 to 2012 is still subject to the ad valorem PPT. For each subsequent filing year, the earliest year drops out of the calculation until ad valorem PPT is fully eliminated for manufacturers in 2023.
 
Statewide Essential Services Assessment
 
EMPP that has become exempt from personal property tax will be subject to the new Statewide Essential Services Assessment (ESA). The ESA is assessed by the State of Michigan rather than the local assessing unit. The tax is based on the true cost of the EMPP at the time of acquisition by the first owner and is assessed at the following rates:
 
Year of acquisition
Tax rate
1-5 years prior to current tax year
2.4 mills
6-10 years prior to current tax year
1.25 mills
More than 10 years prior to current tax year
0.9 mills
 
Manufacturers with existing or extended industrial facilities tax exemptions (IFT) will see the IFT phased out over time and replaced by the ESA depending on the effective start and ending date of the original IFT.
 
Filing for the PPT exemption and the ESA
 
Taxpayers will need to complete one form: The ESA Affidavit and Statement (Form 5278) on an annual basis for each parcel or IFT for which an exemption is being claimed. Form 5278 will be available on the State of Michigan website and the completed form is due to the local assessing unit who will then forward it to the State of Michigan.
 
Important Dates
 
Form 5278 must be physically received by the local assessor no later than February 20th. This date is crucial as forms received after February 20th will not be accepted and will result in the loss of the exemption for the year.
 
A statement with the ESA calculations should be available for review via the Michigan Treasury Online service after May 1st and taxpayers will be responsible for reviewing and final submission of this statement.   Payment of the ESA is due without penalty by August 15th and can only be made electronically.
 
Actions to take now
 
1.      Contact your tax advisor regarding the upcoming filing due February 20th
2.      Review your personal property and determine if you have qualifying EMPP
3.      Review IFTs and other tax incentives
4.      Update fixed asset reports and plan to file Form 5278 in January or early February
5.      Visit the State of Michigan website, www.michigan.gov/esa, for further updates and forms
 
Jim Taylor, CPA, CFP, is a partner at Dennis, Gartland & Niergarth in Traverse City. Jenifer Carmody, CPA, is a staff accountant and the personal property tax/ESA coordinator at Dennis, Gartland & Niergarth.


James M. Taylor, CPA, CFP®

Jenifer Carmody, CPA