LANSING — Gov. Gretchen Whitmer says she is “skeptical” of legislation passed with bipartisan support during the Legislature’s lame duck session aimed at giving significant tax breaks to Grand Rapids-based grocer Meijer for the purchase and retention of automation equipment.
Whitmer must decide whether to sign Senate Bills 1149, 1150 and 1153, which remove sales tax from the purchase of automated material handling systems and remove personal property tax from such systems, once installed.
The bills have reached Whitmer’s desk as the state is facing declining revenues and increased costs during the coronavirus pandemic, and as Michigan grocers are seeing sharply increased profits. Still, the bills have support from what many would consider an unlikely source — the United Food and Commercial Workers Union that represents tens of thousands of grocery workers in Michigan.
The Senate and House fiscal agencies were unable to give estimates of how much money the bills might cost the general fund and the School Aid Fund. But Delta Township Trustee Fonda Brewer said just the personal property tax exemption on Meijer’s massive Lansing distribution center could cost Eaton County municipalities and school districts more than $1 million a year.
Meijer and Republican lawmakers framed the legislation as a tax fairness issue. They argue that Michigan in recent years removed the personal property tax from industrial and manufacturing equipment — which exactly describes the automated equipment Meijer uses to build pallets of consumer goods tailored to the supply needs of specific stores.
But because Meijer is regarded as a retail operation, all of that equipment is classified as “commercial,” and subject to the tax, said Sen. Peter MacGregor, R-Rockford, the sponsor of one of the bills.
Michigan also provides an exemption from sales tax on machinery or equipment used in industrial processing.
“The line between retail and industrial processing has been skewed,” Dan Papineau, director of tax policy and regulatory affairs for the Michigan Chamber of Commerce, told the Senate Economic and Small Business Development Committee on Oct. 1, testifying in support of the legislation.
“Retailers are adopting industrial or manufacturing type equipment in their retail operations.”
Amazon, because it has no brick-and-mortar retail outlets associated with its operations, is already considered industrial, not commercial, for the purposes of its distribution centers, and is therefore exempt from the relevant taxes, officials said. Meijer’s biggest Michigan competitor, Kroger, has its big automated distribution center located in the Detroit Region Aerotropolis around Metro Airport and enjoys tax exemptions due to that location’s special status, officials said.
Still, though aimed at Meijer, the bills would also benefit Kroger or other grocers if they built automated material handling systems in Michigan outside of a special tax zone such as Aerotropolis.
“The bills would reduce sales and use tax revenue by an unknown amount because the number of fully automated consumer goods handling systems implemented in the future, along with the magnitude of the capital investment, cannot be determined,” the House Fiscal Agency said in an analysis.
“In addition, revenue lost from a personal property tax exemption cannot be estimated for the same reasons.”
Whitmer said some of the bills the Republican-controlled Legislature sent her during the lame duck session after the Nov. 3 election were negotiated in advance. This one was not, she said.
“I’m very skeptical about these bills and certainly I would say anyone who likes to think of themselves as fiscally minded and responsible should never vote for a bill that they don’t even know what it’s going to mean in terms of cost to the state,” said Whitmer, noting that further revenue losses could negatively impact a range of services, from policing to schools to health care.
Whitmer’s criticism about voting for bills with an unknown cost hits not only Republican lawmakers.
More than a dozen House Democrats, including Sarah Anthony of Lansing, Brenda Carter of Pontiac, Tyrone Carter of Detroit, John Chirkun of Roseville, Brian Elder of Bay City, Kevin Hertel of St. Clair Shores, Rachel Hood of Grand Rapids, Jewell Jones of Inkster, David LaGrand of Grand Rapids, Donna Lasinski of Scio Township, Frank Liberati of Allen Park, Leslie Love of Detroit, Ronnie Peterson of Ypsilanti, Terry Sabo of Muskegon, Tim Sneller of Burton, Joe Tate of Detroit, Rebekah Warren of Ann Arbor, Karen Whitsett of Detroit and Angela Witwer of Delta Township, cast “yes” votes for some or all of the tax cuts.
Support from a major union was likely a factor.
“The servicing of these robots is where the money is,” said John Cakmakci, president of the United Food and Commercial Workers Union Local 951.
There is no way to fight the growing trend toward automation, Cakmakci said, but the union can get in front of the issue and support companies such as Meijer that are growing in Michigan and developing jobs for mechanics and other high-tech support workers that in some cases pay $38 to $42 an hour, he said.
“There are going to be less jobs overall, but the jobs that are there for people are very good middle-class jobs.”
Still, the Michigan Municipal League and many school groups oppose the bills, saying they will hurt schools and local governments that cover many of their costs with revenues from sales taxes. When the state exempted industrial and manufacturing equipment from the personal property tax, it devised a replacement revenue for local governments. But that does not happen when tax breaks are given on a piecemeal basis, said Jennifer Smith, director of government relations for the Michigan Association of School Boards.
“Each bill on its own serves its purpose,” Smith said. “When you put them together, they’re having a harmful effect.”
Recent reports on grocer profits can make the tax breaks harder to digest.
The Free Press reported Dec. 4 on a study that said profits soared an average of 39% in the first half of the year at supermarket chains and other food retailers, thanks to the pandemic, although front-line workers reaped little or no benefit.
At Cincinnati-based Kroger Co., which has 119 stores in Michigan, profits for the first two quarters were up 90%, according to the report from the Brookings Institution, a Washington, D.C.-based think tank.
“The House just voted on a bill package to give tax exemptions for automated goods handling systems for the Meijer company,” Rep. Laurie Pohutsky, D-Livonia, tweeted after the Dec. 17 House vote. “The last thing MI needs right now is another corporate tax break. I voted no.”
Profit numbers for Meijer, a privately held company, were not included in the report.
John Van Fossen, senior director of government affairs at Meijer, told lawmakers that Meijer has major automated distribution centers in Ohio and Wisconsin, in addition to the one in Delta Township, near Lansing. Now, the grocer is eyeing a possible $350 million investment to develop a similar center in Newport, in Monroe County, he said.
“As a Michigan-based company that continues to invest heavily in our home state, we are simply asking for a level of parity for Michigan businesses (when it comes to incentives and flexibility) that has been provided to out-of-state companies in the warehousing and manufacturing space,” said Meijer spokesman Frank Guglielmi.
Another package of bills passed in lame duck would give similar tax breaks for smaller grocery facilities intended to respond to customers’ online orders.