Jason Long Wins $600,000 Personal Property Tax Exemption for Automotive Supplier Client
WWRP partner Jason Long recently secured a $600,000 property tax exemption after the Michigan Department of Treasury challenged his client, a tier-one automotive supplier, based on the tax payment date.
In Michigan, a business's personal property is generally subject to taxation unless the taxpayer qualifies for an exemption. Enacted in 2015, Michigan’s Manufacturing Personal Property Tax Exemption offers significant tax breaks for eligible businesses, including an exemption for Eligible Manufacturing Personal Property (EMPP).
Jason’s client qualified for the EMPP exemption for the $16 million it cost to install equipment in its new facility. Under this exemption, the client would pay a reduced tax of $100,000 rather than regular property tax totaling more than $700,000. The client submitted the $100,00 payment on Monday, August 17, 2020, instead of the deadline on Saturday, August 15, 2020. Because of the delay, the Department of Treasury directed that the client was no longer eligible for the exemption.
How is Eligibility for the Exemption Determined?
Under Michigan’s General Property Tax Act, there are a few steps to maneuver in the eligibility process, which can quickly get complicated.
The Department of Treasury considers only personal property that meets the definition of EMPP – any personal property on the manufacturer’s occupied real property and predominantly used in industrial processing or activity related to industrial processing. For the manufacturer to receive the exemption, all personal property assets must be used more than 50% of the time in industrial processing (or related activity). If not, none of the personal property is eligible, and the manufacturer must pay the full property tax rate.
The tax savings to a manufacturer can reach hundreds of thousands or even millions of dollars.
What EMPP Legal Challenges Look Like
Manufacturers may claim the exemption by timely filing Form 5278 with their state tax returns. If the exemption is received, the Michigan Department of Treasury may seek to rescind it and its benefit to the taxpayer.
Challenges to the exemption can be based on a variety of factors. The Department of Treasury may disagree that the taxpayer meets the required definitions, or it may seek to deny the exemption for perceived procedural missteps of the taxpayer. For example, the “predominant use in industrial processing” component of the determination can be tricky and is often the reason for disputes between taxpayers and the state. Or challenges are sometimes based on more technical grounds, such as the taxpayer missing a tax filing or payment deadline.
The result of a challenge can make or break a company. Manufacturers involved in industrial processing are wise to stay well ahead of tax filing and payment deadlines and seek advice from an experienced attorney knowledgeable about the nuances of the EMPP and other personal property tax exemptions.
The Final Outcome
Jason took his client’s case to the Michigan Tax Tribunal. Relying on a rarely cited statute, he convinced the tribunal that the deadline carried over to the day his client made the payment, saving the client more than $600,000 in taxes!
Jason Long has represented clients in complex property tax matters and other state and local tax disputes for more than 20 years. His track record of success ranges from the Michigan Tax Tribunal to the Michigan Supreme Court.