Sen. Caswell discusses tax proposals 2013.02.20

Posted in 2013 February

By DAVID GREEN

Michigan's personal property tax for businesses is scheduled to disappear, but it's not that simple. State senator Bruce Caswell spoke to the Morenci city council last week about some details of the plan, and also about proposals to change the gasoline tax.

The personal property tax is paid by businesses for a range of items including machinery, furniture and computers. Caswell characterized the tax as "a barrier to business investment and expansion" in Michigan.

Beginning in January 2014, the tax will end for businesses that have personal property valued at $40,000 or less. That will account for about 75 percent of tax returns filed each year.

For firms with personal property values exceeding $40,000, the tax will be eliminated in two phases.

Removing the tax will result in losses to city and county government units, but legislators created two ways to cover a portion of the shortfall.

First, local government units will have to take the initiative to place a special assessment on local business above the $40,000 value level. The assessment can be large enough to recoup the cost of the "essential services" of police, fire, ambulance and jails.

Voters would have to approve a second mechanism that would allow municipalities to recover an estimated 80 percent of lost revenue.

In August 2014, Caswell said, voters will be asked to approve a measure that would take 1.5 percent of the existing 6.0 percent use tax and give that to local government units. Governments could use those funds for services other than the essential services listed above. Caswell said this should replace about 80 percent of lost revenue.

If voters approve the change, the process of eliminating the personal property tax moves forward. If the measure is turned down, then everything goes back to the way it is now.

Caswell advised council members to make their local business leaders well aware of the consequences of a "no" vote.

Caswell said the 6.0 percent use tax is like a sales tax for items moved between businesses. The state treasury office defines the use tax as a "remote sales tax" for taxes owed on items purchased outside the state.

Michigan residents are required to pay a 6.0 percent tax on items purchased by catalog, telephone or the internet from out-of-state sellers, as well as purchases made while traveling in foreign countries and then brought back to Michigan.

One-third of the revenue from the use tax goes to schools, Caswell said, and that won't change. The other two-thirds goes to the state treasury. Tax credits given to businesses in recent years will be expiring, he said.

"We hope that will equal the one and a half percent we're setting aside," Caswell said. He said it's a risk the state is willing to take.

GASOLINE TAX—Caswell told council members about three proposals for raising revenue to pay for road and bridge maintenance.

"We can either keep doing what we're doing with the money we've got and get by the best we can," he said, "or the other option is to raise revenue."

Gov. Rick Snyder proposed last year an increase in the fuel tax from 19 cents a gallon (15 cents for diesel fuel) to 33 cents a gallon. There would an inflation increase of about one cent a year. The proposal includes an increase of about 80 percent a year on vehicle registration fees.

The rationale behind the governor's plan is that those who use the roads the most would pay the most for maintenance.

It's not a popular choice, Caswell said, and he favors a plan that would require all state residents to pay in the form of a sales tax increase. A one-cent increase would bring in $1.2 billion which is about what's needed for repair work, he said.

The vast majority of constituents he's spoken with favor the sales tax increase because their costs would come in small increments rather than with every gasoline fill-up.

He's been told it's a much fairer way than the fuel tax increase, although critics look at the sales tax as a regressive tax, meaning that it affects lower income residents much more than high income people since it takes a larger percentage of their income.

Caswell said a third alternative is to raise the sales tax by two cents and eliminate the fuel tax.

"The money would be constitutionally dedicated to transportation," Caswell said. "It would be similar to Proposal A that dedicated two cents of the tax to schools."

Caswell wants voters to decide on the sales tax increase, noting that if it doesn't pass, then the governor's fuel tax increase would take effect.

"The gas tax is no longer an effective tax for paying for roads," he said, because people aren't buying as much fuel.

Caswell said it's a similar situation to the increase in the cigarette tax that resulted in less smoking.

"Any time you tax something more, you're going to use less of it," he said.

The cost of gasoline led to his decision to buy a smaller, more fuel-efficient vehicle.

"That makes a whole lot more sense than driving around in a Chrysler 500," Caswell said. "I can look like a big shot, but I'm only going to get 20 miles per gallon. People are making these decisions every day."

With the rise of hybrids and electric cars, even less fuel will be sold.

The gas tax is the same for every gallon of fuel sold, regardless of the cost of gasoline, he said. With a sales tax, the higher cost of gasoline brings in more tax revenue.

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