June 28, 2004 |
2004-R-0465 | |
PROPERTY TAX EXEMPTION FOR PERSONAL PROPERTY IN A MANUFACTURING FACILITY | ||
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By: John Rappa, Principal Analyst | ||
You asked us to analyze the law allowing towns to exempt personal property in manufacturing facilities and if any towns have done so.
ANALYSIS
As Table 1 explains, CGS § 12-65h sets conditions under which towns may exempt all personal property in a manufacturing facility for a specified time. They may do so if the total assessed value for all personal property in the facility exceeds specified thresholds. A town that chooses to grant this exemption must do so under a written agreement with the business. Its legislative body must approve the agreement.
Table 1: Explanation of Property Tax Exemption for Personal Property in a Manufacturing Facility Under CGS § 12-65h
Provision |
Description |
Comment |
Tax Exemption |
A business pays some or none of the taxes on desks, machines, fork lifts, and all other personal property in a “manufacturing facility” because the town agrees to exempt some or all of the property’s assess value from taxation. |
By law, businesses pay taxes on personal property based on 70% of its fair market value, which depreciates over time. A business’ total personal property tax bill could increase after installing a new machine, and the potential increase could discourage the business from doing so. |
Eligibility |
A business qualifies for the exemption if • the facility where the personal property will be installed is a “manufacturing facility; ” • the business owns the land or air space, intends to acquire an interest in it, or leases or intends to lease the air space; and • the extent to which that property increases the total assessed value of all personal property in that facility |
Any personal property qualifies for the exemption as long as it is in that part of a plant, building or other structure used for a specified range of manufacturing activities, R&D, and overhauling and repairing products (CGS § 12-81 (72)). |
Exemption Schedule |
The exemption amount and duration depends on the extent to which the personal property increases the assessed value of all personal property in the facility: Increased in Assessed Value Exemption Period Exemption Amount At least $ 3 million Up to 7 yrs. 100% At least $ 500,000 Up to 2 yrs. 100% At least $ 25,000 Up to 3 yrs. 50% of increase in assessed value The exemption applies to all personal property in the facility, not just manufacturing machinery and equipment. |
The tax bill equals the mill rate multiplied by the property’s assessed value. Exempting some or all of that value reduces the tax bill. Example: • A new $ 500,000 machine is assessed at $ 350,000 (70% of fair market value). • If the mill rate is . 030, the taxes on the machine equal $ 10,500 • The exemption reduces the business’ total taxes by that amount |
Accessing the Exemption |
An otherwise eligible business qualifies for the exemption if the town chooses to offer it. The town’s legislative body must approve a written agreement between the town and business delineating the exemption. |
The exemption is optional, and the state does not reimburse the town for any the revenue loss, as it does under the mandatory exemption for manufacturing machinery and equipment (i. e. , M&E Pilot under CGS § 12-81(72)). |
TOWNS THAT HAVE PROVIDED THE OPTIONAL EXEMPTION
Of the 43 towns that responded to our survey, only Cromwell, South Windsor, and Torrington have exempted personal property under CGS 12-65h. As Table 2 shows, these towns (about 7% of our sample) have populations between 13,000 and 40,000. No large developed town and no small, rural town reported offering the exemption. (We are awaiting return calls from one town and will update this memo when we receive it. )
Table 2: Surveyed Towns that provided Property Tax Exemption Under CGS § 12-65h
Population |
Towns |
Population |
Exemption Provided |
Over 100,000 |
Bridgeport |
140,104 |
No |
Hartford |
124,558 |
No | |
75,000-99,999 |
Norwalk |
84,127 |
No |
50,000-74,999 |
Manchester |
55,084 |
No |
West Hartford |
61,365 |
No | |
West Haven |
52,733 |
No | |
25,000-49,999 |
East Hartford |
49,650 |
No |
Groton |
40,270 |
No | |
New London |
26,582 |
No | |
New Milford |
27,959 |
No | |
Torrington |
36,655 |
Yes | |
Windsor |
28,5191 |
No | |
Under 25,000 |
Bridgewater |
1,867 |
No |
Bozrah |
2,407 |
No | |
Burlington |
8,640 |
No | |
Chaplin |
2,331 |
No | |
Chester |
3,811 |
No | |
Cornwall |
1,454 |
No | |
Cromwell |
13,370 |
Yes | |
Darien |
19,887 |
No | |
East Granby |
4,910 |
No | |
East Hampton |
11,435 |
Awaiting return call | |
East Lyme |
17,983 |
No | |
Farmington |
24,189 |
No | |
Granby |
10,696 |
Nol | |
Hampton |
1,859 |
No | |
Middlefield |
4,273 |
No | |
New Canaan |
19,734 |
No | |
New Fairfield |
14,149 |
No | |
New Hartford |
6,413 |
No | |
Norfolk |
1,673 |
No | |
North Canaan |
3,376 |
No | |
Seymour |
15,727 |
No | |
South Windsor |
24,846 |
Yes | |
Southbury |
18,953 |
No | |
Sprague |
2,971 |
No | |
Stafford |
11,592 |
No | |
Stonington |
18,084 |
No | |
Thomaston |
7,766 |
No | |
Thompson |
9,064 |
No | |
Tolland |
13,945 |
No | |
Woodbridge |
9,146 |
No | |
Woodbury |
9,466 |
No | |
Woodstock |
7,518 |
No |
We conducted the survey in two stages. First we contacted all town assessors via e-mail or fax through the Connecticut Association of Assessing Officers and received 19 replies. We then increased our sample by selecting 25 additional towns at random and contacted them by phone. We received responses from 24 of these.
At least two factors might explain why few towns offer the CGS § 12-65h exemption. Another statute already requires them to exempt newly acquired manufacturing machinery and equipment for five years (CGS §12-81(72)). (The state reimburses towns for 80% of the subsequent revenue loss. ) Manufacturers qualify for this exemption regardless of the amount by which the machinery and equipment increases the assessed value of all personal property in the facility where it is located.
Given this mandatory exemption, most towns may see little need to exempt the nonmanufacturing personal property in a manufacturing facility. Instead, towns may offer it in tandem with the mandatory exemption when a manufacturer plans to use the facility for warehousing and other nonmanufacturing operations. In these cases, the value of the nonmanufacturing personal property could be significant, and the town’s economic development officials might offer the optional exemption to encourage the manufacturer to remain or relocate to the town.
JR: ro