Michigan's personal property tax reform continues Jan. 1, 2016, with the most significant changes for taxpayers with eligible manufacturing property.
As of Dec. 31, 2015, the General Property Tax Act provides an exemption from tax for qualified new personal property and qualified previously existing personal property for eligible manufacturing personal property (EMPP). EMPP is defined as "...all personal property located on occupied real property if that personal property is predominantly (greater than 50 percent) used in industrial processing or direct integrated support."
While the property may be exempt from "property tax", exempt EMPP will now be subject to the Essential Services Assessment (ESA). The ESA is a specific assessment that replaces the personal property tax that helps reimburse lost revenue to local units.
Taxpayers whose property qualifies as EMPP will be able to significantly reduce their tax liability by annually filing Form 5278 by Feb. 20, 2016 to claim the exemption under the law. Taxpayers must also electronically pay the new ESA by Aug. 15, 2016 through Michigan Treasury Online. The new assessment is calculated on Form 5278 and is determined by the property listed on the form. Please note that EMPP that was first placed in service in 2006 through 2012 will still be reported as ad valorem personal property on Form 5278.
As 2016 marks the beginning of the seven-year phase-in of the new property tax exemptions, nearly all taxpayers with eligible manufacturing personal property will have both personal property tax and ESA payments due throughout the duration of the transition. This will continue through 2023 when the transition will have concluded and the taxpayer will be fully exempted from paying personal property tax on property placed into service before the General Property Tax Act was enacted and only be responsible for ESA.
It is important to note that Form 5278 will not be mailed to taxpayers but can be found at www.michigan.gov/esa.
The Small Business Taxpayer Exemption (as introduced on Dec. 31, 2013) will still provide a complete exemption from personal property tax for industrial or commercial personal property when the combined true cash value of all industrial personal property and commercial personal property owned by, leased by or in the possession of the owner or a related entity claiming the exemption is less than $80,000 in the local tax collecting unit. Form 5076 must be received at the assessor's office by Feb. 10th (not postmarked the 10th).
In summary, one of three options exist for all businesses that have personal property: