In 2014, Michigan voters approved a ballot initiative that eliminated or reduced personal property taxes (PPT) for small businesses and manufacturers. Here’s an overview of the current PPT exemption laws for both.
Eligible Manufacturing PPT Exemption
Michigan law exempts eligible manufacturing personal property (EMPP) from PPT with a full phase-out by 2023. In 2023, all EMPP will be exempt from PPT.
EMPP is any personal property located on occupied real property and predominantly used in industrial processing or direct integrated support. It’s measured asset by asset, so if all the assets are used more than 50% of the time in industrial processing or direct integrated support, then the parcel qualifies for the manufacturing exemption.
EMPP can include commercial personal property and industrial personal property. The asset is used in industrial processing if it qualifies for the industrial processing exemption under the Michigan Sales and Use Tax Acts. Learn more about industrial processing activities here.
What’s direct integrated support?
According to the Assessor Guide to Eligible Manufacturing Personal Property Tax Exemption and ESA, direct integrated support is defined as:
- Research and development related to goods produced in industrial processing and conducted in furtherance of that industrial processing.
- Testing and quality control functions related to goods produced in industrial processing and conducted in furtherance of that industrial processing.
- Engineering related to goods produced in industrial processing and conducted in furtherance of that industrial processing.
- Receiving or storing equipment, materials, supplies, parts, or components for industrial processing, or scrap materials or waste resulting from industrial processing, at the industrial processing site or at another site owned or leased by the owner or the lessee of the industrial processing site.
- Storing of finished goods inventory if the inventory was produced by a business engaged primarily in industrial processing and if the inventory is stored either at the site where it was produced or at another site owned or leased by the business that
produced the inventory.
- Sorting, distributing, or sequencing functions that optimize transportation and just-in-time inventory management and material handling for inputs to industrial processing.
If your parcel qualifies for the exemption, you must complete Form 5278 – Eligible Manufacturing Personal Property Tax Affidavit – and file it with your local assessor’s office by Feb. 21, 2023.
Small Business Taxpayer PPT Exemption
The small business exemption applies to parcels of industrial personal property or commercial personal property. You qualify for the exemption if the true cash value (TCV) of these properties is less than $180,000 in a local taxing jurisdiction (city or township). If you qualify for the exemption, you don’t pay any PPT in that taxing jurisdiction for the year. You’ll still pay real property taxes if you own real estate.
If you have personal property on more than one parcel within a single taxing jurisdiction, the total TCV for all parcels must be less than $180,000. If you have multiple entities that are related to each other, the combined TCV in the taxing jurisdiction must be less than $180,000.
However, if you have personal property in more than one taxing jurisdiction, the $180,000 limitation applies separately to each jurisdiction. You could qualify for the exemption in some jurisdictions, but not in others.
You must calculate your TCV as of Dec. 31 each year. The TCV calculation depends on the year when you first acquired the property, its cost, and the type of asset. Form 632 – Personal Property Statement – walks you through calculating your TCV.
If I do qualify, how do I claim the small business exemption?
If it’s your first time claiming the exemption, and your TCV is under $80,000, file Form 5076 – Small Business Property Tax Exemption Claim – with your local assessor(s) by Feb. 21, 2023. This form doesn’t require you to disclose your TCV on the form, but you should maintain the TCV calculation for your books and records in case of an audit. If you qualified for the small business exemption in the prior year, and your TCV is less than $80,000 for the current year, you don’t have to file anything this year with the local taxing jurisdiction. However, you must maintain TCV calculations for each year for your books and records.
If your TCV is greater than $80,000 but less than $180,000, you will file both Form 5278 and Form 632 with your local assessor(s) by Feb. 21, 2023.
Qualified Heavy Equipment Rental Personal Property Exemption
Beginning December 31, 2022 qualified heavy equipment rental personal property may by exempt from personal property tax. To claim this exemption you must file Form 5819 – Qualified Heavy Equipment Rental Personal Property Tax Exemption Claim.
with the local assessor’s office by Feb. 21, 2023. This exemption applies to individuals and businesses who rent certain construction, earth moving, and industrial equipment to the public. The exemption applies only to the tax year in which Form 5819 is filed.
Starting January 1, 2023 a new 2% excise tax will apply to the rental of property covered by this exemption. Check out our discussion here.
What Type Of Property Qualifies?
- Construction, earthmoving, or industrial equipment that is mobile, including attachments or other ancillary equipment for that equipment.
- A self-propelled vehicle not designed for highway use
- Industrial electrical generation
- Lift equipment
- Material handling equipment
- Heading ventilation or air conditioning equipment
- Compressors, generators, or pumps
- Equipment for shoring, shielding, or ground trenching
- Other equipment not licensed with the Michigan Secretary of State
- Portable containers, office trailers
- Other equipment used to support a construction or industrial jobsite
Should I Do Anything Other Than File Form 5819?
Yes! If you meet all the qualifications for the exemption you will need to make sure your equipment is permanently labeled with your business’s information. You’ll also need to know where the equipment was located on December 31 so you can report it correctly on Form 5819.
Originally published 1/5/16. Updated 01/09/23.
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