The personal property tax is levied on the value of property not tied to land or buildings, such as equipment, machinery or furniture. The tax is paid in addition to “real” property taxes, those levied on land and buildings.

Most states levy taxes on personal property — only 10 do not. Generally, only businesses pay personal property taxes,[*] but there are some differences among the states as to which firms pay the tax. For instance, Minnesota exempts from personal property taxes all but utilities, North Dakota only taxes utilities and oil and gas refineries, and Wisconsin exempts most personal property from taxation.[2] Only Virginia and Oklahoma allow for local governments to tax the personal property of households, but only a handful of counties among those two states assess it.[3]

For the purposes of levying this tax, Michigan classifies all businesses into three types: industrial, commercial and utility.[4] Taxes are assessed based on the value of the personal property on Dec. 31.[5]

Local taxing authorities — cities, villages, townships, counties, school districts, intermediate school districts, community colleges and other authorities — levy taxes on personal property at the same rates as those for real property.[†] The state also levies a six-mill property tax to fund public schools, and a utility property tax.[‡],[6]

Unfortunately, the state does not report personal property tax revenue specifically — most state reports on property taxes aggregate both real and personal property tax revenues. A 2010 Treasury Department report finds that Michigan’s personal property tax raised $1.1 billion in 2008.[7] A 2011 Senate Fiscal Agency report lists total state and local revenue from the personal property taxes at $1.286 billion in 2010.[8] Graphic 1 lists these revenues by recipient:

Graphic 1: Personal Property Tax
Revenues, 2010 (in millions)

Municipality

2010

County/City/Township

$490.2

School District

$366.7

State

$250.5

Intermediate School District

$98.2

Community College

$49.0

Other

$31.2

Total:

$1,285.8

Source: Author’s calculations based on data from David Zin, “The State and Local Impact of Property Taxes Levied on Michigan Personal Property” (Michigan Senate Fiscal Agency, 2011), 10, http://goo.gl/WLc2i (accessed May 22, 2014). Only county, cities and townships report taxable values for utility personal property, so values had to be imputed for school district, community college and ISD. Likewise, villages do not report taxable values by class of property and are not included in this table.

Business property values vary greatly by location, so local units of government face vastly different exposure to changes in personal property taxes. For instance, 62 percent of the property tax revenue for Clare County’s Winterfield Township comes from personal property taxes, whereas some small rural townships and school districts report not having any personal property tax revenue.[9]

Personal property tax rates also differ substantially from one place to another. These differences, in fact, provide an opportunity for businesses to relocate their mobile personal property to areas with lower rates and reduce their tax liability. For instance, one contractor mentioned in a legislative committee hearing that he could pay double his tax rates depending on where his equipment resided at the end of the year.[10] Not every kind of business equipment is easily moved, however, and this opportunity is not available to all businesses equally.

Personal property taxes are often targeted for elimination due to their negative economic effects.[11] Delaware, Hawaii, Iowa, Illinois, New York, Ohio and Pennsylvania have repealed their personal property taxes.[12] A general economic understanding of tax policy is that taxes on capital have a dollar-for-dollar greater impact on the economy.

Taxing an item generally discourages its use. For instance, one intended consequence of a tobacco tax is to get people to stop smoking.[§] Taxing income provides less of an incentive to work. The same applies with personal property — taxes on these capital goods discourage businesses to invest in tools, machinery and other equipment. Since businesses typically invest in these goods with the intention of expanding or becoming more efficient, these taxes may have a disproportionately negative impact on economic growth.

State policy has attempted to mitigate some of these economic effects. A 1974 law established the ability of Michigan local governments to award special reductions in real and personal property taxes to companies that were expanding.[13] Over time, additional property tax abatements have been made available to other growing businesses and to other firms that develop certain kinds of properties. On top of these, there has also been an increase in other types of property tax abatements for altogether different purposes.[14]

In addition to these targeted tax abatements and exemptions, Michigan also offers broader exemptions for certain kinds of personal property for some portions of property taxes.[15] For example, industrial personal property is exempt from the six-mill State Education Tax and the 18-mill local school operating levies.[16]

The Michigan Business Tax, before it was ended in 2011, also provided some tax credits based on the amount of personal property tax businesses paid. Companies could take a credit worth 35 percent of their industrial personal property taxes, 13.5 percent of telephone personal property taxes and 10 percent of eligible utility property taxes.[17]


[*] Note that this is a simple distinction about which entity turns over the revenue from the tax. Taxes can influence prices and behavior, and the party that ultimately bears the burden of the tax can be different from the party that pays the tax.

[†] Personal property is exempt from special assessments levied by cities, villages and townships. Industrial personal property is exempt from the 18-mill local school district operating millage and commercial personal property is exempt from 12 of those 18 mills. David Zin, “The State and Local Impact of Property Taxes Levied on Michigan Personal Property” (Michigan Senate Fiscal Agency, 2011), 3–4, http://goo.gl/WLc2i (accessed May 22, 2014).

[‡] After 2007, the state exempted industrial personal property from the 6-mill state education tax. “Public Act 40 of 2007” (State of Michigan, July 12, 2007), http://goo.gl/AM8rk4 (accessed June 16, 2014).

[§] One of the unintended consequences of tobacco taxes is to encourage people to smuggle cigarettes, as shown in Michael D. LaFaive and Todd Nesbit, “Cigarette Taxes and Smuggling 2010” (Mackinac Center for Public Policy, 2010), http://goo.gl/CtXSnA (accessed May 22, 2014).