On a daily basis, we travel down streets filled with testaments to the economic success of our communities. These monuments come in the form of towering office buildings, versatile commercial centers, vast manufacturing facilities and spacious business parks. However, as a result of recent economic difficulties, some of these structures have begun to look more like tombstones of the past, rather than beacons for the future. How can we cultivate these landscapes to generate new growth for our neighborhoods and cities? The Michigan Legislature has recently sharpened a tool to help Michigan business leaders plant the seeds of future success.
The Commercial Rehabilitation Act
The Commercial Rehabilitation Act allows local units of government to provide property tax abatements on eligible commercial properties known as “qualified facilities”. Originally, the Act was designed to apply to the modification of existing business structures to restore or change the property to an economically efficient condition. However, in 2008, the scope of eligible properties was expanded to include vacant properties, where new commercial structures would be constructed, in cities with a population of more than 36,000 and less than 37,000. The property had to be vacant as a result of the demolition of a previous structure. Although this was an important expansion of the qualified facilities, it offered little assistance to the majority of Michigan communities due to its narrow restrictions.
Late last summer, the definition of a “qualified facility” was expanded again so that vacant property in all Michigan communities would be eligible for tax abatement under the program. Now, the Act applies to:
A building or a group of contiguous buildings (or a portion of those buildings) previously used for commercial or industrial purposes, obsolete industrial property and vacant property which, within the immediately preceding 15 years, was commercial property.
The revised law incentivizes business leaders to rebuild commercial structures throughout Michigan and develop new commercial centers. It does so by exempting vacant property from standard property taxes. Instead, the qualified facility is subject to the commercial rehabilitation tax, which is based on the value of the facility prior to its rehabilitation. The qualified facility would be eligible for the fixed, pre-improvement real property taxes on the structure for a period of 1 to 10 years. The abatement does not apply to land taxes, personal property taxes, local school operation taxes or the State Education Tax.
Obtaining the Tax Abatement
There are a number of requirements that must be satisfied before a qualified facility is eligible to receive the tax abatement under the Commercial Rehabilitation Act. First, the facility involved must be devoted to commercial activities such as retail sales, office, engineering, research and development, warehousing and/or parts distribution. It can also include land previously used for industrial purposes that will be converted to commercial business operations.
Second, the facility owner must petition the legislative body of a city, village or township to create a Commercial Rehabilitation District. This petition must be endorsed by property owners that collectively own more than 50% of the taxable value of the property within the proposed district. The rehabilitation district must be at least 3 acres in size, unless the facility is located in a downtown area. After receiving the petition, the legislative body will conduct a hearing to allow interested parties to voice their opinions about the proposed district.
Once the Commercial Rehabilitation District is approved, the owner of the qualified facility is permitted to file for an exemption certificate. The application must include numerous details about the facility involved and proposed rehabilitation. However, two of the most important requirements are: 1) the rehabilitation did not begin more than six months before the application for the exemption certificate was filed; and 2) the rehabilitation of the qualified facility would not occur without the exemption certificate. Here, too, a hearing will be held for interested parties regarding the issuance of the exemption certificate. The tax exemption also requires the approval of the State Tax Commission.
The extension of the Commercial Rehabilitation Act to vacant properties throughout Michigan is critically important to stimulate business and generate growth in our communities. The Act will allow business leaders to rehabilitate properties that were previously considered too expensive to invest in because of the taxes associated with the project. In addition, it will allow Michigan the ability to transform vacant properties into vibrant commercial centers to attract new businesses to the region. Because the exemption certificates are transferable, the restored facilities are likely to entice businesses that wish to take advantage of the favorable tax conditions in these new commercial centers. Ultimately, both the rehabilitation of these facilities and the new businesses that inhabit them will stimulate the local economies and bring jobs into the region. I encourage business leaders throughout Michigan to take advantage of the Commercial Rehabilitation Act in the coming year and help erect new monuments to guide our growth and development as a business community.
© 2011 Michael P. James, J.D., M.B.A., CSSGB
Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at email@example.com, (810) 936-4040 or www.michaeljameslaw.com.