Property taxes actually increase with tax abatements

Setting the record straight, tax abatements have a net positive effect on the local and regional economy.

The term “tax abatement” can come with a negative connotation and a misconception that local and regional taxing authorities are eliminating tax liability for the applicant, most frequently a manufacturer with substantial assessed value. This misunderstanding can lead tax paying citizens to question why their local unit of government would grant an abatement to a company. First, you need to understand that tax abatements (aka Industrial Facilities Exception Certificates or IFEC) only reduce local property taxes on new real property. The current tax base remains the same while up to half of the taxes on new real property investment is abated for up to a total of 12 years. Tax abatements are a primary tool local units of government can offer as an incentive for manufacturing companies to locate, expand, or renovate facilities in Michigan.

Why would a local unit of government offer an industrial property tax abatement?

  1. To promote economic development.
  2. To preserve current local tax base and provide for future tax revenue increases.
  3. To attract new businesses, keep businesses and to target the type of businesses they want to attract.
  4. To compete for jobs with other states and countries that have lower taxes rates.
  5. To reward a company that has been a good corporate citizen.
  6. Annual salaries of the new and retained jobs flow into the local community.
  7. 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.

So to reiterate, tax abatements are a tool used by local units of government to encourage investment in their community. In additional to the net gain in taxes the local and regional taxing authorities experience, there are many other positive ripple effects. The reduction in overall project costs due to lower taxes for a short time following company investment may be enough to fill a gap they have in project funding. The growth of Michigan companies means potential for new jobs and new opportunities for local and regional residents. In Northern Lower Michigan, Michigan State University Extension partner Northern Lakes Economic Alliance (NLEA) helps companies and communities understand the tools available to grow and strengthen the economy. To learn more about tax abatements, the process, and the potential benefits to your company or community, visit the NLEA’s website at www.northernlakes.net.

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 statewide programs sponsored by MSU Extension.

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