Republicans pushed legislation through the Michigan Senate Thursday that would eliminate the taxes businesses pay on computers and equipment while strengthening promises that most of the lost revenue would be made up to local governments, school districts and libraries.
Supporters said the bills would remove a personal property tax that's not charged by neighboring states and make Michigan a more attractive place to do business. Democrats expressed concern they would further cut funding for already hurting school districts and local governments. The bills now go to the House.
Local jurisdictions would be reimbursed by the state as business tax credits for battery manufacturers and other companies expire. But none would be completely repaid, a fact that troubles advocates for the affected groups. They wanted a constitutional amendment guaranteeing the money would be replaced, but lawmakers declined.
"I'm afraid that it's going to hit some counties more than others," said Deena Bosworth, legislative coordinator for the Michigan Association of Counties. "It's a step in the right direction, but we still don't know what the financial impact is."
Under the revised bills, local governments would be reimbursed for any losses that amounted to more than 2 percent of their general fund revenue. The earlier threshold had been 2 percent of revenue from nearly all sources. Communities and school districts considered "distressed" would be reimbursed for any losses over 1 percent of general fund revenue.
If the state decides -- or is unable -- to make the promised reimbursements in future years, the personal property tax automatically would be put back in place.
School districts and local governments that have sold bonds to pay for new buildings or other improvements could have seen local millage rates increase to make up for the lost funds. But senators agreed to amend the bills to have the state cover any losses that would trigger higher taxes.
"It looks on the debt side of things, taxpayers should be OK," said Don Wotruba of the Michigan Association of School Boards. But he warned the same might not be true of school districts, which he said could be faced with losing between $60 million and $110 million.
The rollback of the tax is expected to amount to $600 million a year once it's fully phased in about a decade from now. Terry Conley, a partner in charge of state and local taxes in the Southfield offices of auditor Grant Thornton LLP, said the state thinks it will be able to make up most of that money to local jurisdictions once the battery credits and other tax credits expire.
But he warned a shortage of state funds may have lawmakers and administrators looking at that revenue to plug other holes.
"The potential for revenue costs to be understated is pretty significant," he said. "It's a very vulnerable time to be implementing tax relief."
Sen. Tupac Hunter of Detroit was one of several Democratic senators who said it was wrong for the state to continue to cut business taxes at the expense of school districts and local governments. A change in the corporate business tax that kicked in Jan. 1 already is expected to save businesses $1 billion this fiscal year and up to $1.8 billion next year.
"I can't believe you're again mortgaging our future to give more goodies to your business buddies," Hunter told Republican colleagues during debate. "These bills will not create jobs and are more likely to line CEOs' pockets."
Republicans countered that the bills give needed tax relief to businesses with equipment worth less than $40,000 starting in 2013 while phasing out the tax for industrial companies between 2016 and 2021. Many industrial companies are paying more under the business tax changes that took effect earlier this year.
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