Michigan Commercial Tax Abatements 4 06 09


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Description of MIchigan PA 210 Commercial Tax Abatement Law

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Michigan Commercial Tax Abatements 4 06 09

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