Tax abatements actually increase taxes

Tax abatements are a positive tool used by local units of government to encourage investment in their community.

Abatement defined as reduction, decrease, suppression or termination; therefore 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.

First things first, you need to understand what a tax abatement (aka Industrial Facilities Exception Certificates or IFEC) 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 property investment value is abated for up to 12 years. 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.

What does a local unit of government get out of offering industrial property tax abatements?

  1. The opportunity to promote economic development
  2. Preservation of current local tax base and provide 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 business to compete for jobs with other states and countries that have lower taxes rates
  5. Rewarding 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

To recap, tax abatements are a positive tool used by local units of government to encourage investment in the 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. In Northern Lower Michigan, Michigan State University Extension’s 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 state-wide programs sponsored by MSU Extension.” 

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