UHY LLP Reports: New Changes Coming to Michigan Personal Propery Tax Exemptions

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Michigan's personal property tax reform continues Jan 1. 2016 with the most significant changes for taxpayers with eligible manufacturing property

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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.”

  •     Qualified New Personal Property is defined as:

o    Property that was initially placed in service in this state or outside of the state after Dec. 31, 2012, or
o    Property that was construction in progress on or after Dec. 31, 2012 that had not been placed in service in this state or outside of this state before 2013 and is eligible manufacturing personal property.

  •     Qualified Previously Existing Personal Property is defined as:

o    Personal property that was first placed in service within this state or outside of this state more than 10 years before the current calendar year and is eligible manufacturing personal property. (Note that personal property tax will still be assessed on EMPP that was first placed in service in 2006 through 2012.)

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 http://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:

  •     If the true cash value of the personal property held in a taxing jurisdiction is less than $80,000 at Dec. 31, 2015, file Form 5076 by Feb. 10, 2016, to claim an exemption from personal property tax, or
  •     If you are a manufacturer and hold EMPP, file Form 5278 by Feb. 20, 2016. You will then be assessed property tax on the non-exempt EMPP and assessed the ESA on the exempt EMPP, or
  •     If you are a non-manufacturer, file Form 632 (Personal Property Statement) by Feb. 20, 2016.

For more information regarding the personal property tax exemptions, please contact your professional at UHY LLP in Detroit 313 964 1040, Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at http://www.uhy-us.com.

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Chris Clark
UHY LLP
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