Legacy Law Blog

Michigan’s proposed property tax overhaul has grabbed headlines, but the linchpin of the package is a less‑understood bill HB 5880.

This bill is designed to create a new tax on certain services and to use that money to “backfill” revenue lost from large property tax cuts for municipalities that rely on such taxes for significant budgetary financing.

Below is a clear, practical look at what HB 5880 is as of June 2026, what it promises and where the biggest risks and unknowns still lie.

What is HB 5880 Supposed to Do?

HB 5880 is part of a broader package that would dramatically reduce or eliminate major state‑level property taxes, including the State Education Tax (SET), remaining personal property taxes and the “pop‑up” uncapping that occurs when property is sold. If passed into law, these changes, collectively, would remove billions of dollars annually from the tax base that funds schools and local governments.

HB 5880 responds by creating a new 6% excise tax on certain services and directing those revenues into a dedicated Property Tax Savings Reimbursement Fund. Money in this fund would then be used to reimburse:

1. The School Aid Fund first to hold schools harmless for lost SET revenue.
2. Local governments (cities, townships, counties and others) second, using whatever remains to offset their lost property‑tax revenue.

In short: the bill attempts to swap a chunk of Michigan’s property tax system for a state‑level tax on selected services, with a formula designed to keep schools and municipalities whole.

What “Covered Services” Likely Means

One of the most important details is also one of the fuzziest—which services will actually be taxed. As of the writing of this post, there is still a great deal to be decided as to what would comprise “covered services” as defined by the proposed bill.

Public descriptions by legislative leaders and business groups frame HB 5880 as a “luxury” or selective services tax, not a broad tax on every service. While the definitive statutory list is still evolving, examples that have been repeatedly cited in public discussions include:

• Tourism and recreation: golf, skiing, marinas
• Certain consulting and AI‑related services
• Newspaper publishing and some performing arts‑related services
• Political advertising services
• Lobbying services
• Robocall and telemarketing services, including debt collection
• Limousine and private jet services

These examples signal two goals: (1) focus on discretionary, higher‑end spending and (2) capture some specialized business services. However, they also highlight a core problem. Until a final list is enacted, no one can say exactly how broad or narrow the tax base will be or how much it will actually raise.

Claimed Benefits of HB 5880

Supporters of the package point to several potential upsides.

1. Lower property taxes for homeowners and businesses

The companion bills to HB 5880 would:

• Eliminate the State Education Tax on property
• Roll back or remove remaining personal property taxes on business equipment
• End taxable value “pop‑up” uncapping which currently increases taxes when property is transferred

For property owners, that means immediate and ongoing tax relief, especially for businesses with sizable personal property and for homeowners in areas with higher valuations.

2. School protection in the reimbursement formula

The design of the Property Tax Savings Reimbursement Fund explicitly prioritizes K–12 schools. The fund is required to make the School Aid Fund whole for the losses tied to SET and related changes before any money is sent to municipal governments. Politically, this is attractive because it addresses long‑standing concerns about cutting property taxes that fund schools without building in a direct hit to classrooms.

3. A shift toward taxing consumption, not property

Economists and some business groups have long argued that Michigan’s heavy reliance on property taxes and narrow sales‑tax base is outdated. HB 5880 moves the system toward:

• Less taxation of property ownership and capital investment
• More taxation of consumption in parts of the service sector, particularly in higher‑end or discretionary categories

This could make the tax system more neutral toward investment and property development and align Michigan more closely with states that more fully tax services.

4. Allow aging members of communities to downsize

Many homeowners nearing or in retirement would like to sell the homes they lived in when they had bigger families but cannot do so because the cost would be prohibitive.

Under the current system, the capped taxes they pay for the bigger property they’ve owned for years would be far less than the taxes they would pay for a smaller property if they were to downsize. The unintended consequence is that many of these homeowners are effectively locked into their homes.

HB 5880 would allow these homeowners to downsize into smaller homes without the huge increase to their tax bill which, in turn, should increase housing inventories for family homes.

The Major Limitations and Risks

Alongside these potential benefits, HB 5880 carries structural considerations about which local‑government groups, fiscal analysts and some stakeholders have been vocal.

1. No guarantee that municipal revenue is fully replaced

The bills do not promise that cities, townships and counties will receive dollar‑for‑dollar replacement of their property‑tax losses. Instead, the bills say that schools will be reimbursed first. Whatever remains is then distributed to local units based on formulas and may be prorated if revenues fall short.

Municipal associations stress that this is a residual, not an entitlement. If the service‑tax revenues underperform—whether due to economic downturns, slower‑than‑expected growth or overly optimistic forecasts—local governments are the ones left exposed. This is a real risk because the bills are tied to luxury goods consumption instead of the existing stable tax base that is tied to property values.

2. Volatility—relying on “luxury” services in a downturn

Property taxes are relatively stable across the business cycle. Consumption of discretionary services is not.

During a bearish economy, households and businesses tend to cut back first on exactly the types of expenditures HB 5880 aims to tax: travel, recreation, elective consulting, high‑end transportation (limos, jets) and other “luxury” services. That means:

• The tax base for HB 5880 is inherently cyclical and likely more volatile than the property‑tax base it is replacing.
• In a downturn, service‑tax revenues may drop quickly, shrinking the reimbursement pool at the very moment local governments face higher demand for safety‑net and public‑safety services.

Crucially, the package does not include any explicit mechanism to stabilize municipal revenue in that scenario—no minimum floor tied to prior property‑tax collections, no automatic draw from the state’s General Fund, and no dedicated reserve fund structure to smooth out recessions.

What the year-to-year volatility looks like in practice will vary greatly by county. For example, Ottawa County is expected to have a much more stable consumption-based tax base because it has a significant tourism industry compared to Jackson County that generally does not.

Another example of this phenomenon is the 2002-2003 Soldier Field renovation in Chicago. The renovation was financed largely with bonds backed by a dedicated 2% hotel/motel tax, with the idea that visitors—rather than residents—would pay for the stadium upgrade.

Due to downturns in hotel usage and increased costs, Chicago is still paying down a reported $525 million in debt 23 years later. This is a cautionary tale of tying municipal obligations to consumption-based taxes.

3. Long‑term erosion of the property‑tax base

HB 5880 would also eliminate “pop‑up” uncapping. This is the process that brings taxable value closer to market value when property is sold. This pop-up uncapping has been one of the few remaining sources of organic property‑tax growth for local governments under Michigan’s strict property‑tax caps. But it only benefits municipalities where properties change hands.

For rural communities where property owners live for longer periods or where properties are passed down to family members, there is far less pop-up uncapping to increase the annual budgets of municipalities.

By removing uncapping and replacing that built‑in growth with a more volatile service‑tax stream, the plan risks slower long‑term growth in local revenue capacity. There is also a risk of larger gaps over time between what services local governments need to provide and what the reimbursement formula delivers, especially if the service‑tax base does not grow as fast as costs.

4. Uncertain revenue estimates and design details

Many key parameters remain uncertain. The terms that still must be developed include but are not limited to the following:

• The precise list of taxed luxury services has not been fully defined. In addition, it is likely that new statutory definitions will be needed to legally define what falls within one of the named luxury services and what does not (i.e., if limousine rental is a taxable luxury service, what is the definition of a limousine? Is it tied to the number of vehicle doors or something else?)
• The treatment of business‑to‑business services is unresolved, and this matters immensely for the size and stability of the tax base.
• Revenue projections are still high‑level and depend on assumptions about behavior and economic conditions that could easily miss the mark if modeling assumptions are too aggressive. The U.S. economy is cyclical and a downturn in economic growth and consumption is inevitable. When a downturn occurs, how do these bills create a path forward for state and local governments?

Local‑government groups and fiscal observers note that Michigan revenue forecasters are already trimming expectations for future tax collections due to policy changes and a softer outlook, even before layering on something as ambitious and untested as HB 5880.

How This Compares to Other States’ Approaches

Conceptually, HB 5880 isn’t happening in a vacuum. Other states have broader taxation of services (Hawaii, New Mexico, South Dakota, West Virginia) where services are taxed by default and goods/services distinctions are less central.

Several states have also initiated state‑level replacement taxes that backfill local property‑tax cuts. Illinois’ Personal Property Replacement Tax is a longstanding example, where statewide business taxes replace eliminated local business personal property taxes and are distributed to local governments.

However, Michigan’s package is distinctive because it attempts, in one coordinated move, to accomplish the following:

• Eliminate or sharply reduce multiple state‑level property tax elements.
• Replace them primarily with one new state‑level tax on a curated set of mostly discretionary services.
• Rely on a residual reimbursement structure where schools are prioritized and local governments take the revenue‑volatility risk.

In that sense, HB 5880 combines known ideas in a new and relatively ambitious way, without fully building in the safeguards some other states use to ensure local funding stability.

The Bottom Line

HB 5880 is the “engine” that is supposed to make Michigan’s large property tax cuts fiscally workable. It offers clear, visible property‑tax relief for homeowners and businesses, protections for school funding through a priority reimbursement mechanism, and a strategic shift toward taxing selected services rather than property.

At the same time, the bill’s current design does not guarantee full, stable replacement of municipal property‑tax revenue, exposes local governments to the volatility of a narrow, discretionary service‑tax base, especially in economic downturns, reduces the long‑term growth potential of the property‑tax base by eliminating uncapping, without a robust replacement growth mechanism, and leaves key details—like the actual list of taxed services and the depth of the base—unsettled, making revenue projections difficult to evaluate with certainty.

For local officials, taxpayers and businesses, the core question is whether, over time and across economic cycles, the new revenue stream will prove sufficient and stable enough to support schools and keep municipalities solvent—or whether adjustments will be needed to avoid cuts to essential services. There is a great deal of work needed to fully understand the impact of the bills prior to passage.