Creating exemptions creates problems

A few years ago, the Michigan Legislature attempted to tackle the issue to eliminate the dreaded Single Business Tax. While working on that issue, they also tried to deal with the other bane to the business community, personal property taxes. The legislative response was to exempt industrial personal property from paying the 18-mill local school operating tax as well as the 6-mill State Education Tax. They also specified in law that wind turbines were to be classified as industrial personal property. The changes reduced property taxes, but not to local governments, which can be extremely dependant on personal property tax revenue.

This exemption was followed with a series of appeals from the business community to somehow get their personal property classified as industrial in order to reduce their tax liability. While this alone caused huge problems for administering the system, one particular group of appeals was successful in changing classifications. Independent power generators used language designed to benefit wind turbines and argued that the exemption should be applied to the turbines in their power plants. The courts agreed with the independent power companies, which created a huge potential loss of revenue for school operations in the state.

The Legislature reacted to the court ruling by specifying in Public Acts 318 and 319 that facilities such as the Midland cogeneration plant were not to receive the industrial personal property tax exemption, thus saving a very large reduction in the state's school aid fund. However, while this legislation was being considered, the issue of wind turbines came back into focus. The administration suggested that all new wind turbines be subject to all taxes, including the school operational taxes. Of course, those who were building new wind turbines were concerned because they were being built on a financial model that included the current exemption. During the last day of session, the bills were passed that continued to exempt wind turbines from the 24 mills, but required steam, coal and gas turbine plants to pay the full millage rate.

This story does not end with the new laws. It is generally accepted that the administration and the Legislature will be taking up the issue of exempting personal property from taxation this spring. Most discussion is focused on exempting industrial personal property, which would include current and new wind turbines. MTA has focused on the issue of wind turbines in the personal property tax discussions. Many have expressed concern about further tax exemptions for wind turbines.  However, the current exemption means that if they are categorized differently, they would see a tax increase. The taxes could go up or they could go down, but it will be very difficult to keep them at their current level.

It is likely that when the personal property tax debate begins in earnest, the issue of taxation of wind turbines will need special attention. Again, that special attention will be necessary, because in the past they were given special attention. This is just one more example where a lack of uniformity makes for interesting tax policy.