In today's challenging economic climate, it is now more important than ever to review your current tax liabilities. Because property taxes are based on the property's true cash value, the continuing downturn could mean that your property is currently over assessed. Local governments across the state recently distributed personal property statements, and will soon mail out assessment notices. It is important for property owners to pay close attention to those documents. Michigan's property tax laws are rigid and complex, and failure to act quickly at the beginning of the year may result in business owners and individuals paying too much in taxes. It is important to review the notice of assessment and take action if you believe that your assessment is too high or that your property is exempt from taxation.
The deadline for appealing a property tax assessment depends on how the local assessor "classified" the property at issue. The assessment notice for each property should contain the property's current classification.
Property owners must make residential real property appeals to the board of review, or the right to an appeal at the Tax Tribunal is lost. The same holds true for all assessments against agricultural personal property and timber real property. Local boards of review typically meet in the first or second week of March, although each local government may set different filing deadlines, some (e.g. Detroit and Grand Rapids) as early as February 14. If an appeal to the local board is unsuccessful, the deadline to file a residential property tax appeal with the Michigan Tax Tribunal is July 31.
For commercial real or personal property, industrial real or personal property, utility personal property, or real property classified as "development" property, the deadline is May 31 to file an appeal with the Michigan Tax Tribunal an appeal to the local board of review is no longer required for these properties.
Michigan State Tax Commission Clarifies Position Regarding Industrial Personal Property Classification
In addition to dictating when and where to file an appeal, how the local assessor classifies your property also has a significant impact on your tax liability. Industrial personal property is now exempt from 24 mills of personal property tax, and personal property classified as commercial is exempt from 12 mills. In addition, the Michigan Business Tax offers a significant credit based on personal property taxes paid for industrial personal property.
Because classification can result in significant tax relief, it is vital to review the classification listed on your assessment notice to confirm the assessor has correctly classified the property. An appeal based on classification must be filed with the local board of review by the respective deadline to avoid waiver of appeal rights. Board of review decisions regarding classification may be appealed to the State Tax Commission ("STC") by June 30.
On December 7, 2010, the STC issued Bulletin 22 which clarifies how assessors must classify property as either commercial or industrial under MCL 211.34c.
Bulletin 22 provided the following guidance to assessors:
- Assessors must determine the appropriate classification of all property annually. Such classification must be based on the use of the property as of December 31st1 of that year (i.e., tax day), not the property's the highest and best use.
- Under the current statutory definition, industrial personal property includes all machinery and equipment, furniture and fixtures, and dies on industrial parcels. Therefore, a key to determining whether personal property qualifies as industrial is whether the real property on which it is located is deemed industrial. Bulletin 22 states that for purposes of determining if personal property is classified as industrial, an industrial parcel is a parcel on which manufacturing and processing is taking place.
- The Bulletin states that for purposes of its use in the definition of industrial real property, the term "manufacturing and processing" means, "the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail."
- Only warehouses that are directly associated with manufacturing and processing may be considered industrial.
- Receipt of an industrial facilities tax exemption certificate does not by itself qualify property to be classified as industrial.
- The mere fact that property is zoned "industrial" does not automatically qualify that property to be classified as industrial.
Taxpayers should expect to see assessors using these principles when making property classification determinations. Taxpayer arguments based on such things as the real property's zoning status, standing alone, will clearly be challenged by assessors and the STC. Taxpayers should carefully review an assessor's property classification to evaluate whether an appeal from an adverse classification may be successful in order to preserve the valuable school tax exemptions and MBT credits. It should also be noted that the STC's guidance generally is afforded deference by the Tribunal, but not if such guidance is contrary to the statutes.
State Initiated Classification Appeals
As a sign of how controversial this classification issue had become, in 2009 the Department of Treasury filed 10,331 appeals with the Michigan Tax Tribunal to reclassify industrial property as commercial property. However, at its December 7, 2010 meeting the STC also asked the Treasury Department to withdraw the classification appeals filed with the Tax Tribunal and directed its own staff to change the classification for property believed to be inappropriately classified for the 2009 and 2010 tax years. The STC notice did not state any authority or potential timing for such proposed staff reclassifications.