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
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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): Individual Income Tax $8,938.9
Sales Tax
$6,933.7
Use Tax
$1,396.4
State Education Tax
$1,861.9
Real Estate Transfer Tax
$268.4
Business taxes Corporate Income Tax (CIT) Michigan Business Tax (MBT) Single Business Tax (SBT) Insurance company taxes
$573.3
These account for almost 90% of all SAF and GF/GP tax revenue
House Fiscal Agency: June 2015
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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
House Fiscal Agency: June 2015
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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
House Fiscal Agency: June 2015
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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Corporate Income Tax (CIT) – Replaced MBT effective January 1, 2012; MBT will be repealed after all existing certificated credits have been claimed – Business income taxed at 6% – CIT only applies to C corporations – Certificated credits awarded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
House Fiscal Agency: June 2015
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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
House Fiscal Agency: June 2015
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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
House Fiscal Agency: June 2015
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Tax Revenue by Source As a Percent of Michigan Personal Income 3.0%
2.0%
1.0%
0.0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 (Est) (Est) (Est) Individual Income Tax Sales and Use Taxes Business Taxes State Property Taxes House Fiscal Agency: June 2015
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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.
House Fiscal Agency: June 2015
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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.
House Fiscal Agency: June 2015
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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
House Fiscal Agency: June 2015
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School Aid Fund Tax and Lottery Revenue Estimated FY 2015-16 Total = $12,242.9 million
State Education Tax $1,861.9 15.2%
Income Tax Earmarking $2,561.9 20.9%
Lottery Transfer $791.0 6.5% Use Tax $497.5 4.1% Cigarette Tax $341.6 2.8% Sales Tax $5,690.8 46.5%
Real Estate Transfer Tax $268.4 2.2% Casino Wagering Tax $112.7 0.9% Liquor Excise Tax $47.6 0.4%
House Fiscal Agency: June 2015
Other SAF Taxes $69.5 0.6%
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GF/GP Tax Revenue Estimated FY 2015-16 Total = $9,520.6 million* Sales Tax $1,242.9 13.1%
Use Tax $898.9 9.4%
Individual Income Tax $6,377.0 67.0%
* Does not include GF/GP non-tax revenue of $361.3 million. House Fiscal Agency: June 2015
Business Taxes $573.3 6.0% Tobacco Taxes $180.5 1.9% Other GF/GP Taxes $147.5 1.5% Liquor, Beer, & Wine Taxes $100.5 1.1%
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Combined GF/GP and School Aid Fund Tax and Lottery Revenue Estimated FY 2015-16 Total = $21,763.5 million* Sales Tax $6,933.7 31.9%
State Education Tax $1,861.9 8.6% Use Tax $1,396.4 6.4% Lottery $791.0 3.6%
Individual Income Tax $8,938.9 41.1%
* Does not include GF/GP non-tax revenue of $361.3 million. House Fiscal Agency: June 2015
Other GF/GP & SAF Taxes $746.2 3.4% Business Taxes $573.3 2.6% Tobacco Taxes $522.1 2.4%
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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%.
House Fiscal Agency: June 2015
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FY01 FY02 FY03 FY04 FY05
House Fiscal Agency: June 2015
FY06 FY07 FY08
SAF FY09 FY10
$432.7
FY13 FY14
$1,134.5
$1,072.8
$355.9 $239.6
FY15 (Est)
$359.7 $157.0
$362.6 $706.3
FY12
($543.9)
$250.9
-$369.4
-$106.6 ($608.7)
$359.9
$71.2 $32.4
$172.1
$294.6 $289.1
$72.8
$580.8
$139.9
$104.7
$390.9 $316.0
FY11
$433.4
($2,049.7)
-$590.9
($26.6)
-$99.4
($452.6)
($553.3)
($778.2)
Millions
Revenue Change From Previous Fiscal Year
FY16 (Est) FY17 (Est)
GF/GP
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SAF and GF/GP Revenue As a Percent of Michigan Personal Income
3.3%
3.3%
3.3%
3.4%
3.3%
3.3%
3.3%
3.2%
3.3%
3.2%
3.3%
3.1%
3.1% 2.9%
3.0% 2.8%
2.8% 2.5%
2.8%
2.9%
2.9%
2.8%
2.8%
2.3%
2.3%
2.2%
2.9% 2.7%
2.7% 2.4%
2.4% 2.2%
2.4%
2.5% 2.2%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 SAF House Fiscal Agency: June 2015
2.8%
FY15 FY16 FY17 (Est) (Est) (Est)
GF/GP 21
SAF and GF/GP Revenue
$10,681 $9,994 $10,134
$10,715 $10,615
$11,153 $10,910 $11,082
$11,513 $10,922 $10,816
$11,248
$10,879
$11,270
$11,521
$10,337
$9,889 $9,902 $9,349
$8,897 $8,969
$9,258 $9,232 $9,264
$8,813
$9,247
$11,883
$12,599 $12,243
$9,725 $9,882
$9,563
$10,122
$9,019
$8,287 $7,679
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 SAF
House Fiscal Agency: June 2015
FY15 FY16 FY17 (Est) (Est) (Est)
GF/GP
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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
House Fiscal Agency: June 2015
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For more information about Michigan Tax Revenue, contact: Jim Stansell, Senior Economist
[email protected] (517) 373-8080