Local governments wary of Michigan personal property tax plan

Tue Nov 27, 2012 5:01pm EST

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Nov 27 (Reuters) - A coalition of Michigan cities, counties and school districts on Tuesday raised red flags over a proposal by state officials to reduce drastically over 10 years the personal property tax revenue they collect from certain businesses.

Republican Governor Rick Snyder's administration unveiled a plan to exempt manufacturers' personal property, such as machinery, gradually from the tax, while allowing for the replacement of some of the lost revenue for local governments.

The aim is to make Michigan more hospitable to industrial companies so they will create jobs in the state.

"Reducing this unfair burden on job providers will attract investment and expand local tax bases," said Michigan Lieutenant Governor Brian Calley in a statement.

The tax raises about $470 million a year for members of the "Replace Don't Erase" coalition, made up of the Michigan Municipal League, along with county, school board and other groups, according to Samantha Harkins, state affairs director at the municipal league.

Under the governor's plan, the state would tap its 6 percent use tax to make up for some of the lost revenue, while local governments could also levy a so-called essential services assessment on manufacturers that were subject to the personal property tax to pay for police, fire and ambulance services that had been funded by the tax. Lost revenue for the state's school aid fund and for school debt payments would be fully reimbursed, according to the statement.

But channeling use tax revenue to local governments would have to be approved by voters in a state-wide election, possibly in 2014, state officials said. Local voters would have to approve the essential services assessments, according to Harkins.

In a letter on Tuesday to Calley, the coalition said it wants "replacement revenue by a consistent, reliable source."

Specifically, the coalition said if voters reject the plan for replacement revenue from the use tax, the reduction in personal property tax revenue should be shelved.

While the Snyder administration is pushing to get the tax plan passed during the current lame-duck legislative session, which ends next month, Harkins said the coalition wants more time, noting the plan would not take effect until January 2014.

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