The win-win of a tax abatement

Tax abatements actually increase taxes.

Abatement defined as reduction, decrease, suppression or termination, so when someone starts talking about “tax abatement” it can come with a negative connotation. The biggest misconception is that local taxing authorities are eliminating or reducing tax liability for the applicant, most frequently a manufacturer with substantial assessed value. This misunderstanding can have tax paying citizens question why their local unit of government would grant an abatement to a company.

To avoid confusion, you must understand what a tax abatement is: it is only a reduction of local property taxes owners pay on new construction, rehabilitation and/or major improvements to real property. The companies’ current tax base remains the same while up to half of the taxes on the new real property investment value are abated for a certain amount years depending on the abatement type. Tax abatements are an important and effective tool local units of government can offer as an incentive for manufacturing companies to locate, expand or renovate facilities in Michigan. Michigan offers many different types of tax abatements, click here to learn about the options.

What does a local unit of government receive by offering tax abatements?  

  1. The opportunity to promote economic development.
  2. Preservation of current local tax base and provision for future tax revenue increases.
  3. Ability to attract new businesses, keep businesses and to target the type of businesses they want to attract.
  4. Incentive for businesses to compete for jobs with other states and countries that have lower tax rates.
  5. Satisfaction to reward a company that has been a good corporate citizen.
  6. Flowing of annual salaries of the new and retained jobs into the local community.

Other business factors may dictate where a company locates, but tax incentives are one of the key considerations for a company to remain competitive, continue in business and maintain their local employment.

To recap, tax abatements are a positive tool used by local units of government to encourage investment in their community. A company may be facing a gap in project funding and the reduction in taxes for the new improvements following company investment may be enough to fill their need. The growth of Michigan companies means potential for new jobs and new opportunities for local and regional residents.

Michigan State University Extension Partner Northern Lakes Economic Alliance assists companies and communities within their four county service area work through the tax abatement process. In addition to assisting with the applications, etc. an important part of the process is providing educational sessions to the Local Unit of Government as to the process, time-line requirement and tax ramifications.

Michigan State University Extension has had a unique relationship with the regional economic development organization Northern Lakes Economic Alliance (NLEA) for more than 20 years. Recognizing the strength of combining resources, this partnership focuses on economic development, entrepreneurship growth and community infrastructure throughout a four-county region in the northwest Lower Peninsula, specifically Antrim, Charlevoix, Cheboygan and Emmet counties. As a result, the NLEA utilizes resources offered through MSU Extension as it provides leadership to state-wide programs sponsored by MSU Extension.”

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