What This Means for You and Your Business:
The exemption is not a complete exemption; 2016 is the first year of the phase out of the personal property tax on Eligible Manufacturing Personal Property or EMPP. Property purchased between 2006 and 2012 will still be subject to assessment in 2016. However, beginning in 2017 any EMPP in place for at least 10 years will become exempt, with full phase out by 2023.
The phase out of personal property tax applies to all personal property located on occupied real property if that personal property is predominantly used in industrial processing or direct integrated support. So EMPP could include both commercial personal property as well as industrial personal property.
However, the term “use in industrial processing” is determined by whether the asset would qualify for the industrial processing exemption under the Michigan Sales and Use Tax Acts. “Direct integrated support” services or functions such as R&D, quality control and product testing, engineering, and possibly some storage and distribution functions also qualify if directly associated with industrial processing.
“Predominant use” in industrial processing or direct integrated support is defined as greater than 50%. The exemption may be determined on a parcel-by-parcel basis, or a group of contiguous parcels. If over 50% of the original cost of the personal property on a parcel or group of contiguous parcels is used in industrial processing or direct integrated support, then the whole parcel or group is exempt.
Taxpayers believing they qualify for the exemption are required to determine whether they have met the “greater than 50% test” and complete the Eligible Manufacturing Personal Property Tax Affidavit (Form 5278) and submit it to the local assessor for the location of the parcel, no later than February 20, 2016. The State Tax Commission has also determined that late filed affidavits or affidavits that are not complete should not be accepted by the local jurisdiction.
Businesses claiming the eligible manufacturing PPT exemption will, however, be subject to a statewide special assessment to ensure essential services are funded at the local level. The Essential Services Assessment (ESA) will be levied on all exempt EMPP beginning in 2016. A subsequent filing and payment of the ESA will be due on August 15 of each year for qualifying businesses. There is currently no extension allowed for the ESA filing and payment.
Note: The Michigan Department of Treasury is estimating that the online filing system for the ESA will be available in May of 2016.
An explanation of how to calculate the predominant use percentage and other helpful information regarding this new exemption and the Essential Services Assessment may be found on the Michigan Department of Treasury website or by calling Beene Garter's SALT Group.