"It's complicated." No, it's not a Facebook relationship status update, it's the response that many Michigan CPAs provide when explaining the new Essential Services Assessment (ESA) to their manufacturing clients. Vince Mattina says the changes to Michigan's Business Personal Property Taxes, phased in this year with a quickly approaching Feb. 22 filing deadline for eligible manufacturers, are vexing even for CPAs.
"The new Form 5278 is significantly different from previous personal property tax forms and can only be accessed online," Mattina said. "The ESA isn't due until Aug. 15, 2016 but eligible manufacturers need to file the form by Feb. 22 at the local assessor's office rather than via postmarked mail to claim the exemption. Interestingly, the State of Michigan Treasury website specifically says it will not give advice on whether a specific business qualifies for the exemption. Even they must believe it's too complicated."
The ESA was borne from a 2014 ballot proposal approved by Michigan voters and aimed at increasing - and bringing back - manufacturing jobs to Michigan. Mattina explains that in order to qualify for the new ESA, companies must be engaged in "industrial processing" and/or "direct integrated support." The exemption applies to ALL personal property on occupied real property as long as 50 percent of the personal property is used in the industrial processing or direct integrated support of manufacturing. However, adding to the confusion, there are some non-manufacturers that may qualify for the exemption.
"The full ESA will be phased in over the next seven years. Assets placed in service prior to 2005 and between 2013 and 2015 are eligible for the exemption with returns filed in 2016. Assets placed in service between 2006 and 2012 will phase in between 2017 and 2023, " Mattina said. "It's rules like this that give tax professionals the nickname of "code head" - which was coined long before computer codes were!"
Still, Mattina says the ESA is worth pursuing for qualifying companies.
"The new ESA can reduce the personal property tax between 60 to 85 percent, depending on the year the assets where purchased," Mattina said. "Companies missing the Feb. 22 filing deadline will not be able to take advantage of the significantly reduced personal property tax benefit and will instead be assessed based on the previous, less tax favorable law."