MICHIGAN TAX REVENUE...$2,561.9 20.9% State Education Tax $1,861.9 15.2% Lottery Transfer $791.0...

Background Briefing

MICHIGAN TAX REVENUE

Jim Stansell, Senior Economist

June 2015

Fiscal information in this briefing is based on May 2015 Consensus Revenue Estimates.

MAJOR STATE TAXES

Major State Taxes

Individual Income Tax

Sales and Use taxes

Business taxes– Corporate Income Tax (CIT)– Michigan Business Tax (MBT)– Single Business Tax (SBT)– Insurance company taxes

State property taxes– State Education Tax (SET)– Real Estate Transfer Tax (RET)

House Fiscal Agency: June 2015 3


Major State Taxes

Total combined FY 2015-16 School Aid Fund (SAF) and General Fund/General Purpose (GF/GP) tax revenue is estimated to be $20,972.5 million

The largest sources of revenue are (in millions):

These account for almost 90% of all SAF and GF/GP tax revenue

Individual Income Tax $8,938.9Sales Tax $6,933.7Use Tax $1,396.4State Education Tax $1,861.9Real Estate Transfer Tax $268.4Business taxes

Corporate Income Tax (CIT)Michigan Business Tax (MBT)Single Business Tax (SBT)Insurance company taxes

$573.3

Individual Income Tax

Base starts with federal adjusted gross income

TY 2014 Rate = 4.25%

$4,000 personal exemption

Retirement income taxable for most filers born after 1946

Refundable property tax credit for homeowners and renters

Estimated Distribution in FY 2015-16– Approximately 28.7% to SAF– Approximately 71.3% to GF/GP


Sales and Use Taxes

Sales Tax– 6% levied on retail sale of tangible personal property for use or

consumption– Major Exemptions: food, prescription drugs– Estimated Distribution in FY 2015-16

72.8% to SAF 15.9% to GF/GP 10.1% to local units (Constitutional revenue sharing) 1.2% to the Comprehensive Transportation Fund

Use Tax– 6% levied on some services, telephone/utility services, motor

vehicle leases and private sales, hotels/motels– Complements sales tax– Estimated Distribution in FY 2015-16

35.6% to SAF 64.4% to GF/GP


Business Taxes

Corporate Income Tax (CIT)– Replaced MBT effective January 1, 2012; MBT will be repealed

after all existing certificated credits have been claimed– Business income taxed at 6%– CIT only applies to C corporations– Certificated credits awarded under the MBT will be retained for

the duration of the agreements provided a taxpayer continues to file under the MBT

– No CIT credits, except for the small business credit

Disposition of CIT:– 100% to GF/GP


Business Taxes

Michigan Business Tax (MBT)– Although the CIT has replaced the MBT as the primary tax on

business activity, taxpayers that have outstanding certificated credits may still file under the MBT until the credits have expired

– Existing credits are anticipated to extend through at least 2030, and could reduce GF/GP revenue by as much as $900 million annually.

– Disposition of MBT: 100% to GF/GP

Insurance Company Taxes– Levied on gross premiums of out-of-state insurance companies– Effective tax rate 1.25%– Disposition of Insurance taxes: 100% to GF/GP


State Property Taxes

State Education Tax (SET):6-mill levy on taxable value of real and some personal property

Real Estate Transfer Tax (RET):0.75% of fair market value of real property

Disposition of SET and RET: 100% to SAF


0.0%

1.0%

2.0%

3.0%

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15(Est)

FY16(Est)

FY17(Est)

Individual Income Tax Sales and Use Taxes Business Taxes State Property Taxes

Tax Revenue by Source

As a Percent of Michigan Personal Income


RECENTLY ENACTED TAX CHANGES

Personal Property Tax Changes

Public Acts 397-404 and 406-408, of 2012.

Exempts all commercial and industrial personal property owned by a single taxpayer in a local unit provided the combined market value is $80,000 or less, effective January 1, 2014.

Eliminates personal property taxes on “eligible manufacturing personal property” (a new definition within the legislation) acquired before 2006 or after 2012, effective January 1, 2016.

Eligible manufacturing personal property (EMPP) acquired between 2006 and 2012 will be exempted one year at a time so that by 2023, all eligible manufacturing personal property will be exempt.


Personal Property Tax Changes

In August 2014, a statewide election approved a use tax levy by the Metropolitan Areas Metropolitan Authority (MAMA) created by the legislation.

Beginning in FY 2015-16, the MAMA will levy a portion of the 6% statewide use tax to reimburse local units of government for the revenue loss based on formulas contained within the legislation.

Beginning January 1, 2016, the state will levy a special assessment against taxpayers benefitting from the PPT elimination to help offset some of the revenue loss.

The net reduction in GF/GP revenue is estimated to be about $125.0 million in FY 2015-16 and $350.0 million in FY 2016-17. When fully implemented, the annual GF/GP revenue reduction will be about $500.0 million.


MAJOR STATE FUNDS

Major State Funds

Earmarking: dedication or restriction of an amount or percentage of revenue from a source to a specific fund or purpose

School Aid Fund (SAF)– Used primarily for K-12 education– Major sources include sales and use taxes, individual income

tax, 6-mill state education tax, tobacco taxes, the real estate transfer tax, and state lottery revenue

General Fund/General Purpose (GF/GP)– Appropriated for any/all budget area(s)– Major sources include individual income tax, sales and use

taxes, and net business taxes


Sales Tax$5,690.846.5%

Income Tax Earmarking$2,561.920.9%

State Education Tax$1,861.915.2%

Lottery Transfer$791.06.5%

Use Tax$497.54.1%

Cigarette Tax$341.62.8%

Real Estate Transfer Tax$268.42.2%

Casino Wagering Tax$112.70.9%

Other SAF Taxes$69.50.6%

Liquor Excise Tax$47.60.4%

School Aid Fund Tax and Lottery RevenueEstimated FY 2015-16 Total = $12,242.9 million


Individual Income Tax$6,377.067.0%

Sales Tax$1,242.913.1%

Use Tax$898.99.4%

Business Taxes$573.36.0%

Tobacco Taxes$180.51.9%

Other GF/GP Taxes$147.51.5%

Liquor, Beer, & Wine Taxes$100.51.1%

Estimated FY 2015-16 Total = $9,520.6 million*

GF/GP Tax Revenue


* Does not include GF/GP non-tax revenue of $361.3 million.

Individual Income Tax$8,938.941.1%

Sales Tax$6,933.731.9% State Education Tax

$1,861.98.6%

Use Tax$1,396.4

6.4%

Lottery$791.03.6%

Other GF/GP & SAF Taxes$746.23.4%

Business Taxes$573.32.6%

Tobacco Taxes$522.12.4%

Estimated FY 2015-16 Total = $21,763.5 million*

Combined GF/GP and School Aid FundTax and Lottery Revenue


* Does not include GF/GP non-tax revenue of $361.3 million.

Trends in GF/GP and SAF Revenue

Change in SAF and GF/GP revenue from previous fiscal year:– FY 2007-08 saw increases due primarily to tax changes– Great recession reduced FY 2008-09 and FY 2009-10 revenue– Economic recovery increased FY 2010-11 revenue– Projected increases in FY 2014-15 and FY 2015-16 due to

economic gains largely offset by business tax cuts

As a % of Michigan personal income (relative to Michigan’s economy):

– SAF revenue estimated to decline from 3.3% in FY 2000-01 to 2.8% in FY 2016-17

– GF/GP revenue is estimated to decline from 3.3% in FY 2000-01 to 2.2% in FY 2016-17

SAF and GF/GP Revenue– Between FY 2000-01 and FY 2015-16, average annual SAF

growth is expected to be 1.4%– Between FY 2000-01 and FY 2015-16, average annual GF/GP

growth is expected to be 0.0%.


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FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15(Est)

FY16(Est)

FY17(Est)

Milli

ons

SAF GF/GP

Revenue Change From Previous Fiscal Year


3.3% 3.3% 3.3% 3.4%3.3% 3.3% 3.3% 3.2% 3.3% 3.2%

3.1% 3.1%

2.9% 2.9% 2.9% 2.8% 2.8% 2.8%

3.3%

3.0%

2.8%

2.5%

2.8% 2.8% 2.7% 2.7%

2.9%

2.4%

2.2%2.4% 2.4% 2.5%

2.2% 2.3% 2.3% 2.2%


FY16(Est)

FY17(Est)

SAF GF/GP

SAF and GF/GP RevenueAs a Percent of Michigan Personal Income


$9,889

$9,994 $10,134$10,715$10,615$10,910$11,082$11,153

$11,513$10,922$10,816

$11,248$10,879

$11,270$11,521$11,883

$12,243$12,599

$10,681

$9,902$9,349

$8,897 $8,969 $9,258 $9,232 $9,264

$10,337

$8,287$7,679

$8,813$9,247

$9,563$9,019

$9,725 $9,882 $10,122


FY16(Est)

FY17(Est)

SAF GF/GP

SAF and GF/GP Revenue


Revenue: House Fiscal Agency Role

Prepare House Fiscal Agency forecast as part of consensus estimates

– National and state economic forecast– GF/GP and SAF forecast

Review and estimate fiscal impact of bills discussed in Tax Policy, Commerce, and other standing committees

Prepare documents for House members– Revenue Source and Distribution: June– Revenue Review: Quarterly


For more information about Michigan Tax Revenue, contact:

Jim Stansell, Senior [email protected]

(517) 373-8080

MICHIGAN TAX REVENUE...$2,561.9 20.9% State Education Tax $1,861.9 15.2% Lottery Transfer $791.0...

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