Do You Qualify for a Property Tax Abatement?

By Dale R. Manske, CPA

Many business owners do not have the time to identify and research all the opportunities that they encounter in running their organizations. That’s when business advisors can be a valuable part of the company’s team. One of the biggest challenges business owners face at one time or another is the start-up or expansion of operations. Communicating with your business advisor about your business opportunities and challenges on a regular basis can prove to be a very wise investment.

Recently a manufacturing customer told me of a decision to expand their facilities and operations. The first step was to brainstorm with them to determine the opportunities and challenges they would be facing if they decided to go forward with their expansion. During this brainstorming session, I recalled a previous discussion about a property tax abatement for manufacturers, so I made a note. After the session, I did some research and discovered the customer was eligible to obtain a property tax abatement for their expansion. This was just one of the opportunities we explored that made the facilities expansion possible because it reduced the fixed cost of expanding the plant and purchasing the additional equipment.

The State of Michigan wants to assist existing manufacturers in expanding current facilities, rehabilitating obsolete facilities and/or promoting out-of-state manufacturers to bring their manufacturing plants to Michigan. Michigan established the "Plant Rehabilitation and Industrial Development Act" of 1974. This Act gives local governments an additional selling point to attract companies moving into or expanding within their communities. Since the world is becoming more of a global marketplace, it is vital that local communities attract good employers to make Michigan’s local communities successful.

Industrial manufacturers qualify for this Act. The property tax abatement covers a variety of industrial properties. Industrial properties consist of real property improvements, buildings, structures and personal property (i.e. furniture, fixtures, manufacturing equipment, etc.); this property can be either be owned or leased. For leased property to qualify for the property tax abatement, the lessee must be responsible for paying the property taxes under the terms of its lease.

Normally to obtain a property tax abatement under the Act, you must request from the local government unit the establishment of what is called an "Industrial Development District". The Industrial Development District must be established before any property tax abatement is obtained. In addition, the request for the Industrial Development District must be submitted to the local government unit before construction or acquisition of the facility occurs. The actual application for the property tax abatement must be submitted to the local government unit at least six months prior to the date the actual construction begins on the property.

The local government unit has the discretion to approve the property tax abatement from one to twelve years. If the local government unit approves the application for property tax abatement, it forwards the application and the resolution approving the application to the State Tax Commission. The State Tax Commission reviews the documentation submitted, and if the State Tax Commission believes the Act’s requirements have been satisfied, they will issue an Industrial Facilities Exemption Certificate. The certificate exempts the facility from the regular property tax roles for the period granted by the property tax abatement, and the company then pays a tax called the "Industrial Facility Tax". The Industrial Facility Tax is 50% of the normal property tax roles.

This example illustrates just how cost effective it can be to involve your business advisors in all stages of your business planning. Keeping your business advisors current on what is going on in your business may provide you with opportunities and solutions you may not have previously considered. Utilize one of your most valuable resources; your business advisor.

Dale R. Manske, CPA is the Area Manager of the Accounting and Auditing Department of Echelbarger, Himebaugh, Tamm & Co., P.C. (EHTC) serving closely-held businesses. Dale Manske may be contacted at 616.575.3482 or dalem@ehtc.com