Friday, July 25, 2014

Proposal 1 aims to update tax code and lift tax burden on businesses

On August 5 with Proposal 1 voters will have a chance to modify in small part the current state tax code and replace income generated by the Personal Property Tax with monies collected from industrial property owners under an Essential Services Assessment (ESA) as well as the statewide use tax known as the Local Community Stabilization Share. These monies will be disbursed by a newly created Local Community Stabilization Authority. Taxpayers will not be required to pay any new taxes under this new proposal.

As the tax code is written now, businesses must pay taxes annually on equipment they purchased, no matter if the equipment is a decade, or four, old, and regardless of what sales tax they paid on it at the time of purchase. Business owners feel that this is an unfair, punitive tax, and some economists have asserted that it is this kind of disincentive that drives businesses from Michigan to states with less of a tax and regulatory burden.

The difficulty with simply eliminating this tax is that so many Michigan municipalities rely on that income in order to be able to provide critical services. If the tax is eliminated and not replaced with anything, citizens will suffer a significant loss of services such as city police, fire, libraries, schools, roads and jails throughout Michigan. Proposal 1 was crafted with the input of both businesses and city governments and is widely supported by both.

Unfortunately for a measure that is intended to eliminate the double tax burden on small businesses and stabilize funding for city services, the language of the bill itself is dense and, for many, indecipherable. In response, Michigan Citizens for Strong and Safe Communities has launched a $5.6 million marketing campaign to educate the public and eliminate confusion about this ballot issue. The funding for the campaign was donated in large part by businesses, including Ford Motor Company and Dow Chemical. The Michigan Manufacturing Association also contributed $1.6 million.

In Grand Rapids the City Commission is strongly urging voters to support Proposal 1 with a yes vote as is Mayor George Heartwell and the Grand Rapids Area Chamber of Commerce. State House Candidate Cindy Duran, however, feels that the passage of Proposal 1 will have a number of unintended consequences. The Wayne County Taxpayers Association is also urging a no vote for a number of reasons, asserting that the complex ballot language will lead to misinterpretation of the passed proposal in the future and abuse by the newly created Local Community Stabilization Authority.