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Kalamazoo Regional Chamber of Commerce - Business Personal Property Tax | Business

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Kalamazoo Regional Chamber of Commerce - Business Personal Property Tax

By Steward Sandstrom, CCE, president and CEO

The Kalamazoo Regional Chamber of Commerce and our members took bold steps in 2011 to eliminate the onerous Michigan Business Tax and related surcharge. In 2012, there is another important step that we need to take as well. Eliminating the Personal Property Tax (PPT) would continue to improve Kalamazoo's economic climate and truly declare to the world that Michigan is once again open for business.

PPT is a form of taxation that is not easily understood by many community members outside of those directly impacted. Essentially, the state's PPT is a tax on capital expenses such as new computers, machinery and hardware. It also applies to other improvements, such as new electrical wiring for your building or improvements made to the physical structure - 'bricks and mortar' so to speak. The Chamber believes this is a tax structure based on a concept that you should tax businesses whenever they invest in new property improvements. Essentially, the reward for reinvesting in your business and our community is a tax hike.

I have had many conversations with our membership about how the PPT has negatively impacted their decision to hire more workers or to buy new equipment. Overwhelmingly, I am hearing that PPT is a growth-inhibiting expense that counter-intuitively taxes investments and essentially penalizes business for trying to grow. I recently had a conversation with Jeff Hawkins, President of Envirologic Technologies. He provided me an example of how PPT effects his personal growth decisions.

According to Jeff, his business requires the use of heavy drilling equipment. To purchase new drill rigs entails an investment on the order of about $350,000. In 1999 and 2000, Envirologic made these substantial business purchases. In 1999, they were able to obtain a 50-percent tax abatement on one rig, but were unable to receive similar results the next year. This taxation makes the hiring and reinvestment decisions much more challenging. In the next couple of years, Envirologic may have to make this purchase again and according to Mr. Hawkins, PPT will play a large factor in any purchasing and hiring decision.

Moreover, if a business buys a piece of equipment, PPT is applied to the transportation, associated delivery costs and on the sales tax it pays. Granted, over time the tax narrows based on a "depreciation" rate, but unless you throw away the item it will continue to be taxed. Every year, companies large and small are required take inventory of all assets associated with the PPT to see how much that investment can be taxed. It is important for businesses to re-evaluate items on an annual basis and throw away unused assets to avoid burdensome taxation rates. PPT does add up and is one more tax that discourages further investment and expansion.

This is a snapshot of many companies in southwest Michigan similarly facing uncertainty with expansion plans. In addition to the financial burden, there are issues with business owners being saddled with compliance paperwork, which takes their time away from helping their business grow and prosper.

Eliminating the PPT is going to be difficult to address. The main benefactors of the PPT are local governments and the School Aid Fund. Certainly, businesses don't want to see school funding cut or public safety services eliminated due to lost revenue. But there must be some balance struck in an effort to make the property tax code as easy and fair as the new Corporate Income Tax.

If we want more jobs available in our region, we need Kalamazoo's businesses to succeed. If we want more jobs in the Kalamazoo area, we need to improve the path to employment by finding ways to spur job creation. And if we want area businesses to continue investing in our communities and hiring our residents, then we must find a way to compromise and tackle this onerous tax burden. This is a jobs issue.

Reforming PPT won't be easy and it may not be popular with everyone in the short term. But the long-term benefit of enabling business to invest in growth and expand their employee base is going to help everyone by improving Michigan's job climate. We urge the state legislature and Gov. Rick Snyder to make 2012 another landmark-year in changing Michigan's tax structure. We are confident there is a way to work together on this issue. This is a discussion requiring businesses, schools and municipalities at the table to solve this dilemma and eliminate the business Personal Property Tax once and for all.