Michigan residents will have the opportunity to vote Aug. 5 on a state ballot initiative that’s set to help small businesses. If passed, Proposal 1 will begin the elimination of Michigan’s personal property tax on business and commercial equipment. Most Midwestern states overturned personal property taxes due to various detrimental effects on state businesses. In 2012, Michigan followed the path of its surrounding states when the legislation voted to phase out most aspects of the personal property tax by 2023. Michigan voters should follow the legislation’s direction on this topic and vote yes on Prop. 1 in the coming fall elections.
Eliminating the personal property tax will help attract businesses to Michigan. The personal property tax ensures businesses must pay taxes on any business or office supplies. This ranges from computers to desks to land. Since businesses already pay the six percent Michigan sales tax on items when they’re originally purchased, businesses are essentially being double-taxed for items. Businesses will oftentimes take this cost into consideration when deciding where to start a company. Because Michigan is the only Midwest state using the property tax, startups may be deterred from coming to Michigan. Therefore, eliminating the tax effectively boosts our economy.
Though revenue is unstable, the personal property tax makes up large amounts of the tax revenue in industrial cities. To ensure municipalities still have access to revenue after the personal property tax on businesses is phased out, the initiative proposes using funds from the state use tax that will total about $600 million in 10 years. The state will allow for $600 million in business tax credits to expire during the same time period to make-up for the new cost to use tax revenues.
While incentivizing businesses is a persuasive reason to vote yes for Prop. 1, the property tax is inefficient for other reasons. Not only does it double-tax — an improper and unfair method of gaining revenue — but the property tax is also unreliable. Since the prices of goods fluctuate given the year, region and idiosyncratic sales, the money received from the tax is dependent on a variety of uncontrollable factors. The state cannot effectively predict the generated revenue. Michigan needs a system that allows for predictable taxes. This helps the state create a more reliable budget, and helps businesses better predict and plan for costs.
Prop. 1 includes an effective method to regain tax money. Allowing arbitrary and outdated business tax to expire is a commendable initiative. However, voters and the legislation must ensure that effective business tax credits that incentivize green energy and small business growth aren’t cut during the tax credit expiration period.