Michigan Commercial Tax Abatements 4 06 09

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Description of MIchigan PA 210 Commercial Tax Abatement Law

Description of MIchigan PA 210 Commercial Tax Abatement Law

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  • 1. MICHIGAN COMMERCIAL TAX ABATEMENTS “A PRIMER” Chuck Eckenstahler 219-861-2077
  • 2. HISTORY – Original Act
    • Commercial Rehabilitation Act, P.A. 255 of 1978
      • 50% tax beak for up 12 years on taxable rehabilitation investment
      • Legislation terminated in 1988
      • “ Commercial Tax Abatements are nothing new…
      • we just have not been able to use them in a while”
  • 3. History – Replacement Act
    • Commercial Rehabilitation Act, P.A. 210 of 2005
      • 100% tax beak for up to 10 years on taxable rehabilitation investment
      • Legislation terminates in 2015
      • Property must meet definition of “obsolete property”
        • Blighted
        • Functionally obsolete
        • A MEDQ designated “facility” (building with hazardous substances)
      • “ Commercial Tax Abatements
      • limited to a very select number of buildings”
  • 4. History - New and Improved Act
    • Commercial Rehabilitation Act Amendment,
    • P.A. 8 of 2008
      • Removed definition of “obsolete property”
      • New standards for Commercial Tax Abatement Rehabilitation Districts -
        • Commercial property, a building or group of buildings at least 15 years old
        • A group of buildings allocated New Market Tax Credits under IRS provisions
        • A district of 3 acres is size
        • Buildings located with a a downtown or business area (no size reqmt.)
      • “ Commercial Tax Abatement Districts
      • now available for most older buildings “
  • 5. Rehabilitation
    • Is included for new construction on vacant property from which a previous structure has been demolished and if the new construction is an economic benefit to the local community as determined by the local government unit .
    • Section 2 (k)
    • Underline added for emphasis
  • 6. Example - Bridgman
  • 7. Example - Baroda
  • 8. Case Study
    • State Equalized Value - $50,000
    • Taxable Value - $50,000
    • 2008 Taxes - $ 2,012
      • County - $ 239 *
      • City - $ 735 *
      • Library - $ 87 *
      • School Operating $ 744
      • LMC - $ 89 *
      • ISD - $ 118
      • * Abatable
  • 9. Building Rehabilitation
    • Facade and other improvements - $50,000
    • Taxable valuation of improvements - $25,000
    • Increase in annual taxes w/o abatement $ 2,012 + $1,006 $ 3,018
    • Commercial Tax Abatement - $ 575
    • % savings in annual taxes - 19%
    • % saving on increased taxes 57%
  • 10. Tax Abatements Benefit
    • How much bank financing can the tax abatement support?
      • Assume an 80% loan ($40,000) at 7% annual interest for a 20 year term
      • Annual interest cost for loan= $2,800
      • $575 tax abatement equals 21 % of annual interest payment for up to 10 years
  • 11. Cautionary Note – No Simple Rule
    • Actual abatement savings are variable
      • Based on
        • The increased value determined by the assessor
        • Millage rates established by taxing bodies
        • Best guidance –
        • between 20% to 33% overall tax savings
  • 12. The “Pro & Con” View Points
    • ABATEMENT
    • DDA/”LUG” leaves funds that would be used for taxes with the business/property owner
    • NO ABATEMENT
    • DDA collects taxes and spends them for benefit of businesses in the DDA District
    • REMEMBER
    • Not all DDA’s etc., or “LUG’s” will want to part with the possible loss of future tax revenue
  • 13. The Bridgman Policy
    • We in Bridgman feel a tax break is an economic development tool necessary to redevelop our downtown and we are willing to forgo taxes to encourage new businesses to locate …
    Kathy Ramso, Realtor and Councilperson.
  • 14. Forming a CTA District
    • Legislative body can set up district by their own action
    • Owners of 50% of the taxable value of a proposed district can petition the legislative
  • 15. Setting Up a CTA District
    • Legislative body approves resolution to form district containing:
      • Legal description of the property in the district
      • Statement of findings and determination the district is composed of a “qualified facility (ies)” that being a commercial building (s) 15+ years old in DDA or in a 3 acre district)
    • Public hearing – notification to county, college, etc. and property owners in proposed district
    • Public hearing adoption of resolution by legislative body
    • County notification of adoption – 28-day “opt out” period
  • 16. State Tax Commission Application
    • Application contents containing a general description of:
      • The qualified facility
      • Proposed use of the facility
      • Nature & extent
      • of the proposed rehabilitation
      • Fixed building equipment
      • Schedule for starting and completion
      • The economic advantages expected
      • Number of jobs to be created
      • – permanent and construction Treasury Form 4507
  • 17. Proposed Changes
    • City of Bridgman (among others) requesting changes to current law –
    • Allow tax abatements in DDA’s etc. for –
      • “ vacant but previously occupied’
  • 18. Thank You
    • Contact information –
    • Email -
    • [email_address]
    • [email_address]
    • Phone –
    • 219 - 861- 2077