Since 1991, all of Michigan's major taxes have been altered. Taxes that have been cut include the property, income, single business, insurance, unemployment insurance, inheritance/estate, and intangibles taxes. Taxes that have been increased include the sales, use, tobacco, gasoline, motor carrier diesel fuel, and truck registration taxes, along with the State markup on liquor prices. In addition, two new taxes have been enacted-the State education property tax and the State real estate transfer tax. (A third new tax, the casino wagering tax, will not be discussed as it applies only to the three proposed casinos in Detroit, which have not yet opened.) A description of each of these tax changes is presented below. Further, Appendix A lists, by subject, the major tax changes that were enacted in 1991 through August 1998. Appendix B lists the changes in chronological order.
 
Property Tax

Of the numerous taxes that have been reduced since 1991, the property tax has experienced the most significant reductions. In 1992 property assessments were frozen at their 1991 level, adjusted only for additions, losses, splits, and combinations. Because of Headlee limitations on assessment increases the one-year freeze has had the effect, in each year since 1992, of restricting property taxes as a result of required rollbacks in millage rates. Assessments were restricted more significantly by the voters' approval of Proposal A, which placed in the Constitution a provision that limits annual assessment increases on each parcel of property to the lesser of 5% or the rate of inflation, until the ownership of a parcel of property is transferred, at which time the taxable value of the property reverts to 50% of the market value of the property. Approval of Proposal A also resulted in the establishment of a six-mill State property tax on all property subject to the property tax; and a levy of up to 18 mills imposed locally on nonhomestead property (for a total of 24 mills on nonhomestead property). Statewide, prior to the passage of Proposal A the average school operating millage was 36 mills. Thus, in many areas of the State the changes brought about by the passage of Proposal A represented substantial reductions in property taxes.
 
Income Tax

From 1991 through August 1998 the income tax burden has been reduced in several ways:

• The adoption of Proposal A included a reduction in the State income tax rate from 4.6% to 4.4%, effective May 1, 1994, and an increase in the homestead property tax credit available to renters.

• The personal exemption was increased from $2,100 to $2,400 in 1995 and 1996, and to $2,500 in 1997. In 1998, the personal exemption was increased by $200, plus it began to be indexed to inflation, which resulted in another $100 increase. As a result, the personal exemption was increased to $2,800 for the 1998 tax year. Another $100 increase is expected in 2000 due to indexing.

• The amount senior taxpayers may deduct from adjusted gross income for private pension and retirement benefits was increased substantially, to $30,000 per person ($60,000 for joint tax returns) as of September 30, 1994. In addition, seniors were allowed to deduct interest, dividend, and capital gains income of up to $3,500 per person, which will increase to $7,500 in 1998.

• A new income tax credit was enacted in 1995 for tuition and fees paid to a Michigan institution of higher learning. This credit was originally capped at 4% of tuition, not to exceed $250, but was subsequently increased in 1998 to 8% of tuition, not to exceed $375. In order to qualify for this credit in any particular year, the college or university to which the tuition is being paid must not have increased its tuition by more than inflation.

• A medical care credit was established, to allow a taxpayer to claim a credit equal to 3.3% of contributions made to a medical care savings account.

• The community foundation/food bank credit and the home heating credit were extended.

• For the 1995 tax year only, the Headlee Amendment Refund Credit allowed a taxpayer to claim a credit equal to 2% of his or her tax on income in 1995.

• Beginning in the 1998 tax year, a new deduction for dependents under 13 years of age will be available to taxpayers. The deduction equals $600 for dependents under seven years of age and $300 for dependents under 13 years of age.

The single business tax (SBT) has seen significant changes since 1991. As with the income tax, the SBT burden has been reduced in several ways:

• The apportionment of the SBT base has been revised twice. A company that does business in Michigan and elsewhere must apportion its tax base to determine how much of its business activity is attributable to Michigan. This is done by using a three-factor formula that requires the firm to calculate the ratio of its property, payroll, and sales in Michigan to its entire property, payroll, and sales, and apply the ratio to its nationwide (or worldwide) tax base. The three factors are weighted and these weights have been changed in recent years. Originally, these three factors were all weighted evenly at one-third each. In 1993 the formula was revised to give the sales factor a 50% weight, and the payroll and property factors 25% each. Subsequent legislation further increased the weight on the sales factor gradually over several years. Under this latest change, by 1999, the weight on the sales factor will increase to 90%, and the property and payroll factors will decline to 5% each. (For example, a Michigan-based company with significant property and payroll in Michigan must include those under the apportionment formula, while an outside company that sells products here but has no physical presence in Michigan can exclude property and payroll from the calculation. If the two companies have similar sales factors, the outside company pays less SBT. As a result of the amendments, the tax for both companies will be based substantially on the same factor-sales-regardless of the point of manufacture.)

• The gross receipts filing threshold was increased from $40,000 to $60,000 in 1991; $100,000 in 1992; $137,000 in 1993; and $250,000 in 1994 and beyond.

• The SBT rate was reduced from 2.35% to 2.3% on October 1, 1994.

• The small business credit was revised and expanded as a result of raising to $10 million (from $7.5 million) the ceiling on gross receipts.

• The small business alternative profits tax was decreased from 4% to 3%, and then from 3% to 2%.

• Employers' payments for Social Security, workers' compensation, and unemployment compensation were removed from the SBT base.

• The allowable compensation paid to an officer or shareholder of a firm, for purposes of qualifying for the small business credit, was increased.

• The community foundation and homeless shelter/food bank credits were extended twice: through the 1997 tax year, and then indefinitely. In addition, the aggregate cap on these credits was removed.

• New tax credits were created for taxpayers developing brownfield lands, and taxpayers hiring and training 16- to 19-year-old apprentices.

• Businesses operating in a renaissance zone are eligible for a complete exemption from the single business tax for the portion of their tax liability attributable to their business activity within the renaissance zone.

• By a vote of the people the sales and use taxes were increased from 4% to 6%, effective May 1, 1994.

• The use tax was imposed on interstate telephone calls.

• The sale of electricity, natural and artificial gas, steam, and home heating fuel was exempted from the 2% tax increase.

• When the cigarette excise tax was increased from 25 cents to 75 cents per pack in 1994, the excise tax was also included as part of the price of cigarettes on which the sales tax on cigarettes is based.

• Several sales and/or use tax exemptions were granted. Items exempted include live animals sold for human consumption; subsurface irrigation pipe used in the production of agricultural products; aircraft parts and materials affixed or to be affixed in Michigan; certain air cargo planes, including parts and materials; certain commercial advertising elements; specific telecommunications equipment; certain foods sold from a vending machine or mobile facility; and tangible materials used to construct, repair, or improve a church sanctuary. In addition, a partial exemption was granted for truck and trailer sales based on the percentage of their use in Michigan.

• Pursuant to voter approval of Proposal A, the State real estate transfer tax was created and imposed on the transfer of all real property not specifically exempted, at the rate of .75% of the value of the property being transferred.

• The tax on cigarettes was increased by 50 cents per pack, and a 16% tax on the wholesale price of noncigarette tobacco products was imposed, effective May 1, 1994, pursuant to voter approval of Proposal A.

• The inheritance tax was reduced, for deaths after 1992, as the result of increasing the exemptions for close relatives and exempting from the tax the transfer of property or ownership of a qualified business to a qualified heir, and the transfer of qualified farm property to a qualified heir.

• The inheritance tax was eliminated, for deaths after September 30, 1993, and replaced with an estate tax that is tied to the Federal credit permitted for death taxes paid to the State. The effect of this change has been to minimize the death tax liability of heirs.

• Michigan's estate tax was updated to reflect the latest changes made to the Federal estate tax in the Federal Taxpayer Relief Act of 1997. These changes include phased-in increases in the estate tax exemption, which will reduce Michigan's estate tax.

• Retroactive to January 1, 1991, an insurance company's tax base is a portion of its adjusted receipts, rather than its gross receipts as was required previously.

• The intangibles tax was reduced in two ways: increasing the allowable credit for tax years after 1993, and reducing the tax by 25% in 1994, 50% in 1995 and 1996, and 75% in 1997.

• The intangibles tax was repealed on January 1, 1998.

• The minimum tax rate was reduced in 1994 and 1995 from 1% to .5%, and to .4% in 1996.

• Employer contribution tax rates were reduced by 10% beginning in 1996 which, combined with other changes to the unemployment compensation system, will result in significant savings to employers over the next five years.

• The motor carrier diesel fuel tax was increased from 9 cents to 21 cents per gallon, effective April 1, 1997. In addition, a new credit against this tax was created equal to 6 cents for each gallon purchased in Michigan, and an annual per-vehicle decal fee was eliminated.

• The gasoline tax was increased four cents per gallon, from 15 cents to 19 cents, beginning August 1, 1997.

• Registration fees for large trucks were increased 30%, and registration fees on commercial pickups and vans were increased by switching from a fee based on vehicle weight to an ad valorem tax, beginning October 1997.

The estimates of the impact of the numerous tax changes in this report do not include the impacts of the tax credits granted by the Michigan Economic Growth Authority (MEGA). Under MEGA, which was enacted in 1995, companies that make substantial investment and create a certain level of new jobs in Michigan, and would have otherwise located in another state, may be granted, at the discretion of the MEGA Board, tax credits against the single business tax for up to 20 years. While many tax credits have been granted to selected companies under MEGA, the cost of these tax credits is not included in this report because without the credits, these businesses would have reportedly located in another state and would not have paid any Michigan taxes. Therefore, the tax cuts granted under MEGA do not represent a cut in existing taxes, as do all the other tax cuts contained in this report.
 
Renaissance Zones

The creation of renaissance zones is limited to a small number of areas statewide. The Renaissance Zone Act, enacted in 1996 and effective for 1997 and thereafter, provides for the designation of renaissance zones in which businesses and residents receive tax exemptions and credits, and property is exempt from property taxes, for up to 15 years. The Act allows for the designation of up to nine renaissance zones, plus additional zones in qualified local units that contain a closed military installation. The zones were chosen by the State Administrative Board as recommended by the Governor.

The designated zones include six urban areas, three rural areas, and two former military installations. The urban areas are: 1) Benton Harbor/St. Joseph/Benton Township (120 acres, 10 years); 2) Detroit (1,345 acres, 12 years); 3) Flint (836 acres, 15 years); 4) Grand Rapids (536 acres, 15 years); 5) Lansing (110 acres, 12 years); and 6) Saginaw (743 acres, 12 years).

The designated rural areas are: 1) Gogebic/Ontonagon/Houghton Counties (2,917 acres, 15 years); 2) Manistee County (556 acres, 15 years); and 3) Montcalm/Gratiot Counties (1,870 acres, 15 years). The military installations are Warren Tank (153 acres, 15 years), and Wurtsmith Air Force Base (2,202 acres, 15 years).

Except as otherwise provided for ineligible individuals or businesses, a person who is a resident of a renaissance zone, or a business that is located and conducts business activity within a renaissance zone, will receive for up to a designated number of years an exemption, deduction, or credit as provided under the following Acts: the Single Business Tax Act, the Income Tax Act, the City Income Tax Act, and the City Utility Users Tax Act. Except as otherwise provided for ineligible individuals or businesses, property located in a renaissance zone is exempt from the collection of taxes under all of the following: the General Property Tax Act, the Plant Rehabilitation and Industrial Development Districts Act, the Commercial Redevelopment Act, the Enterprise Zone Act, Public 189 of 1953 (which provides for the taxation of lessees or users of tax-exempt property), the Technology Park Development Act, Section 51105 of the Natural Resources and Environmental Protection Act (which provides for an annual specific tax on commercial forests), and the Neighborhood Enterprise Zone Act.