Michigan: Year-end legislation modernizes tax code

At the end of 2015, Gov. Rick Snyder announced his approval of legislation that he said would “modernize the structure of Michigan’s tax code to ensure treatment of data center inputs more closely aligns with treatment of manufacturing inputs and tax laws in other states.” There are approximately 40 data centers currently located in Michigan that would benefit from SB 616 and SB 617; effective Jan. 1, 2016, they exempt data center equipment from the state’s sales and use taxes, respectively.

The language in both bills sets forth an expiration date of Dec. 31, 2035. But the exemptions could only continue after Jan. 1, 2022 if the businesses have collectively established at least 400 data center industry jobs, data center industry related jobs, or a combination of both, since Jan. 1, 2016.

In addition, if that 400 industry jobs creation requirement is satisfied, the exemptions could only continue after 2026 if the industry as a whole has established 1,000 data center jobs since Jan. 1, 2016.

In his announcement, Gov. Snyder noted that at least 16 other states provide some form of tax exemptions on data center equipment. Following suit, he reasoned, only improves Michigan’s ability to attract more and better jobs, and additional investment. He pointed to Switch, which intends to locate new data centers in Michigan “as a result of the tax code modernization.”

Switch describes itself as a “transformational technology idea engine,” purposed in serving as a platform for the founder’s “sustainability-focused patents and differentiated technologies.” Its clients include Google, eBay, Amazon, Zappos.com, the outdoor clothing company REI, Shutterfly, Intel, JPMorgan Chase, Habitat for Humanity, and numerous others across a broad spectrum of industries.

MLive called Switch, headquartered in Nevada, the “largest data center in the United States.”  Switch is planning a $5 billion investment, including a 2 million square foot campus, in Grand Rapids. It anticipates creating 1,000 information technology jobs with a minimum starting wage of $15 per hour, plus benefits. Switch emphasizes that most of its data center jobs pay between $60,000 and $200,000 a year.

The Detroit Free Press reported that some lawmakers are not happy with the size of corporate tax breaks that they say have hurt Michigan’s budget. This is likely a reference to deals that the state secured with several car manufacturers, which have recently been restructured. In one that was finalized in early December, Fiat Chrysler Automobiles agreed to renegotiate its tax incentives, which we described on Dec. 10, 2015. This was needed to stabilize the state’s finances because the amount of credits owed to Fiat had become unpredictable.

Also, as was widely reported, Michigan reached a similar arrangement with General Motors Co. in mid-December. That compromise limited the state’s liability for tax credits in an undisclosed amount, while it also secured General Motors’ commitment to make capital investments of $1 billion in the Great Lakes State by 2030. In a comparable situation, Ford Motor Company agreed to cap its incentives at $2.3 billion in June 2015.

In addition to this tax exemption legislation, Gov. Snyder signed several other measures into law, designed to do the following: 

• Help to ensure collection of child support when parents live in different states or countries by streamlines the process for collecting international child support, and removing the burden of determining the legality of international child support orders from employers.
• Allow the state to collect child support, restitution for crime victims, an IRS levy, or other owed tax liabilities before paying a judgment or claim.
• Ensure that an amount equivalent to the sales and use tax revenue generated from the sale or use of aviation fuel is used for aviation purposes.
• Provide exceptions to the requirement that sales tax on fuel be prepaid for an exporter or supplier of fuel for immediate export, and for fuel that is part of a bulk transfer.
• Maintain current regulations on recreational deer and elk feeding in order to prevent the spread of infectious diseases, which were scheduled to expire on Jan. 1, 2016.
• Clarify the relationship between employees of a franchise and the franchisor, ensuring control over employees and benefits is determined at the franchise level.

Thus, Gov. Snyder hopes to secure his state as one “that continually draws on innovative commerce and new opportunities for Michiganders.”