The largest tax levied in the State of Michigan, measured by the amount of tax dollars collected, is the ad valorem property tax levied on tangible real and personal property. Not infrequently, the property taxes levied on a particular property are far higher than permitted by law. However, property tax taxpayers who act timely can potentially accomplish significant tax savings by filing an appeal with the Michigan Tax Tribunal by May 31.
Michigan’s property tax, its oldest and most complex tax, is still levied under Act 206 of 1893 (Michigan’s General Property Tax Act) and has been amended scores of times throughout its 120-year life; it can now be likened to an old coat which has been altered and patched over 120 years to fit the changing needs and styles of five generations of persons who had to wear it.
Michigan’s property tax is independently administered and levied by hundreds of different cities and townships, sometimes by highly trained and knowledgeable assessors, and sometimes by politically elected or appointed persons with little experience and far less training.1 These assessors are required by statute to use their “best information and judgment” in determining the “true cash value” of the taxable property which Michigan’s General Property Tax Act requires be assessed each year.2 These assessments are the starting point for calculating the “taxable value” against which township, city, village, school district, special education district, county, state and special property taxes are levied. The property tax levied is equal to the aggregate millage levied by all of these tax levying entities, multiplied by each year’s “taxable value.” (A mill is 1/100 of a dollar.) In some areas of Michigan the tax levy may be based on as few as 30-some mills, while in others, three times as much. (For example, a parcel of improved industrial or commercial property with a $2,000,000 “true cash value” and a $1,000,000 “taxable value” would, if the tax levy were 50 mills, pay $50,000 in annual property taxes.)
Each property assessment is finalized by a local “board of review” consisting of appointed/elected persons from that area who are not required to have any experience in property valuation or assessment. The State Tax Commission is charged with the power to supervise assessor conduct and practices and to resolve a limited scope of disputes.
Inequality in terms of average city and township intra-county assessments on each of 11 different classes of tangible property3 is addressed under Act 206 of 1893 by each of 83 different county equalization departments, and inter-county (statewide) level of assessment equality between counties is to be accomplished by the State Tax Commission. This “equalization process” deals with weighted averages and looks only to intra-assessment districts and intra-county equality. It does not concern itself with unequal, inequitable or excessive individual assessments, and it can result in county and state equalization multipliers which usually increase all assessments of the class in a township/city or county, to bring them, in the aggregate, up to 50%. The equalization process can exacerbate over-assessment of a property. (A 1.2 equalization factor will increase the assessment of a property which is already 100% over-assessed to make it 140% over-assessed.) Property taxpayers cannot appeal equalization results directly.
Local assessors not only value property in determining the assessment (at 50% of “true cash value”), they also “classify” property into 11 different classes, each of which is separately equalized. A difference in classification, for example the difference between “industrial real” as opposed to “industrial personal,” can make a difference in valuation technique applied and the ultimate value conclusion as well as, in some instances, what is exempt or entitled to an abatement arrangement. Additionally, property classified “industrial personal” or “commercial personal” is exempt from certain state property tax mills (industrial personal is exempt from the six-mill state education tax and up to 18 mills levied for school operating purposes, and commercial personal is exempt from up to 12 of the mills levied for school operating purposes.)4 An improper classification must be challenged by a different assessment route than valuation assessments, at different times.
There are also numerous valuation theories and approaches to further complicate Michigan’s property tax system. The statutes do not define with great specificity the “true cash value” at 50% of which all property is to be assessed. There are no promulgated rules which supplement Act 206 of 1893 in this regard. This term is taken to mean the “usual selling price.” Some administrative and judicial decisions suggest it looks to what the owner could sell the property for, assuming the owner would no longer want it, even if the owner was perfectly satisfied with the property it had just built to its own design. For example, a brand-new “big box” retail store would sell for, and have a “true cash value” equal to, 50% of what someone else for whom it would not be ideal would pay for it in the secondary market.5
This superficial “thumbnail sketch” of Michigan’s property tax suggests that for many industrial, commercial and utility property owners there is a very real possibility of significant tax relief or refunds. This sketch should also show that the prosecution of property tax appeals, from informal discussions with assessors through appraisals and litigation in the Tax Tribunal (or rarely in the State Tax Commission) and possibly on appeal to the courts, is a very specialized and complex undertaking. Long gone are the days when assessment agreements could be reached over dinner and cigars. But the potential tax relief results will most often more than justify the effort and expense of a professional appeal.
Property tax relief can have a long-lasting effect. In these times when many property values have often slumped, if the taxable value can be lowered, not only will the current taxes be reduced, but because of Michigan’s “property tax assessment cap,” these taxable values will stay lower in the future. This is because the “taxable value” is only permitted to increase by the lower of the annual inflation rate (CPI) or 5%. Establishing an assessment at the current recession’s lower true cash value can keep the assessed and taxable values low in the future when market values escalate.
Even the calculation of “taxable value,” however, can be complex. The “cap” on taxable value increases does not preclude a taxable value increase to reflect certain types of “additions” and requires a cap decrease to reflect certain types of “losses.” In addition, if there has been one of 10 types of “transfer of ownership,” which is not one of the 14 types of transactions excepted from that definition, the assessor can, by timely action, “uncap” the taxable value and bring it into alignment with the then-current state equalized assessed value.
But there can be a “fly in the ointment” in terms of a possible well-advised 2013 property tax appeal. While the requirements that commercial, industrial and developmental classed real property must be appealed to the local assessor and/or the Board of Review in March have been repealed, these assessments must be formally appealed to the Michigan Tax Tribunal by May 31 of each year. Industrial, commercial and utility personal property must likewise be first appealed to the Tax Tribunal by May 31, but only if the Personal Property Statement required to have been filed by February 20 was timely filed.
A timely appeal of 2013 property taxes can assert the assessment is too high, is at a percentage of value higher than other properties of its class, is intentionally discriminatory, is exempt, and/or that the assessment, regardless of true cash value, is at a “taxable value” not calculated pursuant to the Act 206 of 1893.
The risk that an assessment appeal could result in an assessment increase, rather than a tax relief decrease, has been substantially reduced by the fact that taxable value cannot be increased by more than the lesser of 5% or the inflation rate, regardless of the amount of any assessment (assessed value) increase. Taxable value, however, can never exceed the assessed value and must be reduced if the assessed value is reduced below what the taxable value would have been.
Those who could have, but do not act before May 31 to file a formal property tax assessment, taxable value, exemption and/or uniformity appeal to the Tax Tribunal must, in almost all cases, wait until next year to appeal the 2014 taxes. (There are narrow exceptions for “mutual mistakes of fact,” “clerical errors” and “qualified errors.”)
In the property tax assessment appeal area, as is true in so many areas of endeavor, the rewards go to the vigilant. Unlike claims for refund or tax relief of Michigan’s state taxes, here there is no four-year statute of limitations in which to pursue property tax appeals and property tax refunds. With rare exceptions, unless a commercial, industrial, developmental or utility property tax appeal is properly presented and filed by May 31, the 2013 property taxes become final and unappealable, no matter how improperly and illegally calculated and assessed. In this situation the old adage is correct, “Speak (act) now or forever (until next year) hold your peace.”