Personal property tax laws for manufacturers and industrial processors have changed for the filing period starting January 1, 2016.
Personal property located on “occupied” real property that qualifies as Eligible Manufacturing Personal Property (EMPP) is exempt from personal property tax.
To qualify for the exemption, eligible taxpayers must file the new Form 5278 - Affidavit and Statement for Eligible Manufacturing Personal Property and Essential Service Assessment by February 20, 2016.
For property to qualify as EMPP, the predominant use of the total personal property on the occupied real property must be for “industrial processing” and/or for “direct integrated support.” “Predominant use” means that utilizing a weighted average, the percent of use in industrial processing must exceed 50%.
Here is a simplified example on how the weighted average is calculated.
|Personal Property||Original Cost||Percent Industrial Use||Cost Value|
|Presses, Dies, Etc||$2,000,000||100%||$2,000,000|
|Forklift & Warehouse Equipment||650,000||60%||390,000|
|Office Furniture & Computers||125,000||0%||0|
Based on the weighted cost calculation, (2,390,000/2,775,000) the percentage is 86%. In this simplified example, the above parcel would qualify for the new EMPP exemption as the percentage is over 50%, provided the taxpayer timely files a complete Form 5278.
Although exempt from personal property tax, EMPP is now subject to the new Statewide Essential Services Assessment (ESA). The new ESA will apply the following millage rates to EMPP: 2.4 mills for property 1-5 years old; 1.25 mills for property 6-10 years old and .9 mills for property greater than 10 years old.
There are several other points industrial processors must be aware of.
- Industrial processors must file Form 5278 to qualify for the exemption. Local assessors are not mailing out this new form and are not classifying property as exempt without the taxpayer filing this form. Form 5278 must be filed and RECEIVED by the assessor by February 20, 2016, or the exemption will be lost for 2016 and the old Ad Valorem tax will apply.
- Not all personal property is exempt in 2016. Only the property that is “Qualified New Personal Property” or “Qualified Previously Existing Personal Property” is exempt. This is property that has been placed in service in 2013 or later and property that has been placed in service in 2005 or prior. The property placed in service within the 2006-2012 window will phase in one year at a time for the next seven years. The property that is not exempt is still subject to the full Ad Valorem tax.
- If the industrial processor has applied for and received an Industrial Facilities Exemption in the past, several unique qualifications apply. If the property was subject to a PA 198 exemption that expired on or after December 31, 2012, the certificate may be extended to provide Ad Valorem tax relief until the property is either Qualified New or Qualified Previously Existing Property. Property that is currently subject to a PA 198 certificate will be treated differently, depending on the date of application and the issuance of the certificate, as well as the date the property was placed in service. Property subject to a PA 328 exemption on or after December 31, 2012 is given the same relief of not being subject to the old Ad Valorem tax. Property under current PA 328 classifications are not subject to either the ESA or the old Ad Valorem tax until the classification expires.
- Form 5278 is NOT a replacement for Form 5076 - Affidavit to Claim Small Business Tax Exemption.
- The ESA is due in a single payment on or before August 15 of the tax year.
A timely and accurately filed Form 5278 should result in significant personal property tax relief.
By: Andrew Seiler
If you would like to discuss how this applies to your specific situation, please contact our office to meet with a professional. Request a complimentary accounting consultation or contact us at (616) 642-9467