Michigan Property Tax Update Archive

UPDATED june 2024

The Huge Importance Of Michigan Property Tax Due Diligence

Under Michigan’s Constitutional Amendment known as Proposal A, the taxable value of a parcel of property is “uncapped” in the year following a transfer of ownership, such that the taxable value will be half of the property’s true cash (market) value, which of course an assessor initially sets.   Although there are exceptions, generally transfers between unrelated parties will result in the “uncapping” of the taxable value.  Even though Michigan’s current property tax system has existed for decades, each year there are taxpayers who acquire properties and agree to purchase prices without carefully estimating what will happen to property taxes the year after the acquisition.  It can be a serious problem when taxpayers budget for a relatively modest tax increase and taxes double or triple.  Yet, this continues to happen.  It is very important that those seeking to acquire Michigan property have experienced tax counsel assist them with their property tax due diligence.

Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED december 2023

Transfer of Ownership Definition Expanded

A recent ruling from the Michigan Court of Appeals could cause significant property tax increases for property owned by limited liability companies, corporations, partnerships and other legal entities.

Generally in Michigan, the annual increase in a tax parcel’s taxable value is capped to the lesser of inflation or 5% each year until there is a “transfer of ownership,” which is statutorily defined to include the transfer of over 50% of the ownership interest in a legal entity that owns property.   

In Resort Properties Co-Operative v Waterloo Twp, ___ Mich App ___; ___ NW2d ___ (2023) (Docket No. 364744), minority shareholders who owned 24% of the share in a corporation purchased an additional 48% of the shares and then subsequently sold 20% of the shares in a calendar year.  The assessor believed that these transfers constituted a transfer of more than 50%, and “uncapped” the property’s taxable value resulting in higher taxes.  An appeal ensued, arguing that there was not a “transfer of ownership” because original entity ownership of 52% did not change.  The Court agreed with the assessor, holding that adding together the transferred shares, totaled over 50% and therefore there was a transfer of ownership.  So, even though the purchase of the 48% interest was not a “transfer of ownership” the second 20% transfer of some of those shares caused a taxable value uncapping. 

While the the normal public trading of stock of a corporation does not constitute a transfer of ownership, this decision means the owners of minority interests can cause taxable value uncappings to occur.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

Deadlines to File for Exemptions and Appeals

There have been several appellate court decisions this year underscoring the need for property owners to carefully abide by filing deadlines or risk denial or dismissal.    The latest case, Proquest, LLC v Township of Ypsilanti, unpublished per curiam opinion of the Court of Appeals, issued November 30, 2023 (Docket No. 362977) involved a taxpayer who mailed its claim for the Eligible Manufacturing Personal Property Exemption (EMPP) via USPS.   The form was postmarked before the statutory deadline but was ultimately returned to the taxpayer for inadequate postage.    By the time the form was resubmitted, the Township’s Board of Review had adjourned and the assessor claimed to have no way of granting the exemption.   On appeal, the Tax Tribunal and Court of Appeals agreed that the postmark date of the form only applies if the form is actually delivered to the assessor. 

This decision prompts the question of what happens if a filing is “lost in the mail”, and illustrates the importance of being able to track and verify important Michigan property tax filings.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

2024 Assessments

For 2024, the Proposal A property tax inflation cap is 5%.   Except for parcels that transferred during 2023, the taxable value for each parcel of property, excluding “additions”, may not increase greater that 5% for the 2024 tax year.  Generally, 2024 assessments will be established during the first quarter.

For Michigan properties that the assessors have classified as commercial real or industrial real, the 2024 appeal deadline is May 31.   Property owners concerned about their property taxation, whether because of a valuation, exemption or other issue, should confer with their property tax counsel as soon as possible in 2024. 

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED september 2023

August 2023 Brings Three Michigan Tax Tribunal Reversals

In August, the Michigan Court of Appeals (“COA”) reversed three Michigan Tax Tribunal decisions.  The Tribunal had dismissed each of these cases.  In all of these cases the COA held that the property owners were entitled to a decision on the merits.  Perhaps the most important lesson of these cases, which is summarized below, is that as soon as Michigan property owners receive notice of an adverse governmental property tax decision, they should confer with experienced counsel who can help them to avoid missing a deadline and the expense of an appeal that involves procedural issues, and not the merits of the appeal.

In Winter v Manistee Township (COA Docket No. 361663), the Court of Appeals held that the Tax Tribunal had violated due process, at least in part, by rejecting a motion for reconsideration as untimely even though the petitioners claimed that they had timely mailed the motion under the Tribunal’s rules.  A key Tribunal ruling was that the petitioners’ motion for reconsideration was untimely because the USPS postmark date was ambiguous.  Yet, as the COA emphasized, the facts made it quite plausible that the mailing had been timely under the Tribunal’s rules, which was consistent with other evidence that the petitioners had provided.   Clearly, taxpayers should take care to make sure that there is unambiguous proof of the date of a mailing to avoid having to litigate this issue.

Praxis Packaging Solutions v Byron Township (COA Docket No. 361888), involved personal property tax exemption for eligible manufacturing personal property (EMPP).  Byron Township’s assessor denied the taxpayer’s exemption request.  The denial indicated that the assessor’s decision could be appealed during the March Board of Review but did not indicate the last day an appeal could be filed.  The taxpayer filed a day late. After the assessor informed the taxpayer it was too late, the taxpayer appealed to the Tribunal but the Tribunal granted the Township’s motion for summary disposition.

On appeal, the COA concluded that the assessor failed to provide the taxpayer with proper notice of the right to appeal and reversed the Tribunal’s decision.

In Winkler v Markey Township (COA Docket No. 362586), the COA again ruled for a taxpayer who claimed that the Tribunal’s dismissal was unlawful based on a lack of notice commensurate with due process.  On April 13, 2022, the Township mailed the taxpayer affidavits and notices regarding the taxable value “uncapping,” reassessment and tax delinquency of petitioner’s property.  Yet, nothing informed the taxpayer about his right to appeal the decisions. Petitioner did appeal but after the 35 day deadline so the Tribunal dismissed the appeal.  The taxpayer moved for reconsideration, arguing that he was given no instructions on how to appeal the decisions and his response was delayed by the COVID-19 pandemic. The Tribunal denied the motion.

Based on the record, the COA determined that the taxpayer was not given a meaningful opportunity to be heard because he was not given the appropriate notices as due process required. The COA ordered the Tribunal to accept the appeal as timely.

Honigman LLP tax appeal group
American Property Tax Counsel (APTC)

UPDATED june 2023

Detroit’s Split-Rate Property Tax Proposal

City of Detroit Mayor Michael Duggan has proposed legislative changes to permit a “split-rate” property tax system.   Under the proposal, land would be taxed at a significantly higher rate than buildings and other land improvements.  The Mayor believes that this new scheme would foster faster development of under-utilized property in the City.

The Mayor and his staff are still working on the plan’s details and the Legislature would have to amend Michigan law.  Any plan also will need the approval of City voters, and this may even require the state’s voters to approve an amendment to the Michigan Constitution.

The plan could still take many forms, but it seems like no matter what version is enacted, the property tax incidence in Detroit (and other cities that may adopt this scheme) will be shifted.  Owners of vacant lots, parking lots, scrap yards, parcels with low value buildings and parcels with high land to building ratios would likely see tax increases and they might be significant.  Owners of parcels with high value buildings and parcels with low land to building ratios will likely would see tax reductions.  

We expect that a plan will be announced this fall and that whatever is announced will have important support in the Legislature.  As a result of Michigan’s Blue Wave in last year’s election, the Mayor, the Michigan Legislature and the Governor are all members of the same political party.

.
Mark Hilpert and Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED December 2022

Michigan Legislature Considers New Protections for Confidential Taxpayer Information

As always, the first quarter will be a busy one for Michigan taxpayers, as it will be for assessors who will be completing their 2023 property tax assessment rolls.  There are personal property filing deadlines, in particular for those who have eligible manufacturing personal property (“EMPP”) and those who can now claim the so-called small business personal property exemption with the exemption now available to those whose total personal property value in a jurisdiction is under market value of $180,000.  Every year we hear from taxpayers who lose these exemptions because they do not timely and properly file what is needed. 

During the first quarter real property assessment notices will be sent.  For some classes of property and some jurisdictions, appeals will need to be filed in February.  For properties that assessors have classified as commercial real or industrial real, appeals can be filed locally but such appeals are not required in order to appeal to the Michigan Tax Tribunal.

For most taxpayers, the taxable value (on which property taxes are based) will increase 5%, which is this year’s inflation rate and the taxable value “cap” per a constitutional amendment.  Since the constitutional amendment known as Proposal A was enacted in 1994, this is the first time that the taxable value rate has been as high as 5%. 

For properties that transferred during 2022, no taxable value cap applies for 2023.  Some taxpayers have reported being victimized by assessors “chasing sales” and dramatically increasing not only the taxable values, but the assessed values as well.

For Michigan properties that the assessors have classified as commercial real or industrial real, this year’s appeal deadline is May 31, which falls on a Wednesday.  The pandemic and remote work continue to impact the Michigan real estate market.  Some properties that suffered greatly during 2020 have recovered nicely, while others are now struggling even more than they did during that year.  Property owners concerned about their property taxation should confer with their property tax counsel as soon as is possible in 2023. 

Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED september 2022

Michigan Legislature Considers New Protections for Confidential Taxpayer Information

On October 28, 2021, the Michigan Tax Tribunal issued a new Notice, MTT 2021-14 (the “Notice”), which dramatically changed the Tribunal’s handling of motions for protective orders.  Generally, prior to the issuance of the Notice, the Tribunal had granted motions to protect property owners’ confidential information. 

Following the Notice’s issuance, APTC member Honigman LLP initiated an effort to amend the Tax Tribunal Act to protect property owners’ confidential information.  The Michigan business community has strongly supported this effort.  As a result, House Bill 5697 was introduced by Representative Julie Calley to address this matter.

On October 5, 2022, the Local Government and Municipal Finance Committee of the Michigan House of Representatives held a hearing on HB 5697.  Not surprisingly, at the hearing the bill received broad support from the business community, and a number of witnesses praised the bill and described the reasons the bill deserved to be enacted.  While other witnesses emphasized the need to preserve transparency, there were local government witnesses who recognized the need for some new protections for sensitive information.

It is quite possible that some compromises will be made with respect to the bill’s language, which would set the stage for the House Committee to then vote on the bill.  While the bill’s ultimate language and fate are not yet known, what is certain is that Michigan property taxpayers should review their record retention policies to make sure that if necessary, they will be able to attest that confidential information is carefully guarded and has been kept out of the public domain.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED march 2022

Now In Sight: May 31, 2022 Michigan Deadline For Tax Appeals

By now, Michigan taxpayers should have received their 2022 assessment notices.  Some Michigan taxpayers have received enormous assessment increases.  For most taxpayers, the taxable value (on which property taxes are based) increased 3.3%, which is this year’s inflation rate and the taxable value “cap” per a constitutional amendment.    

For properties that transferred during 2021, no taxable value cap applies for 2022.  Some taxpayers have reported being victimized by assessors “chasing sales” and dramatically increasing not only the taxable values, but the assessed values as well.

For Michigan properties that the assessors have classified as commercial real or industrial real, this year’s appeal deadline is May 31.  Given that May 30 is Memorial Day, taxpayers concerned about their property taxation should confer with their property tax counsel as soon as is possible.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED December 2021

Preparing for 2022 Michigan Property Tax Appeals

Michigan taxpayers should receive their 2022 assessment notices during the first quarter of 2022. Most taxpayers will have them before March arrives, so taxpayers should be watching for them. Based on our conversations with many assessors, there should be no surprise if the 2022 assessments do not reduce values.

The Proposal A taxable value “inflation rate” for 2022 is 3.3%. This means that 2022 taxable values (on which taxes are based), will typically increase 3.3% over 2021 taxable values. (Taxable value must be less than or equal to assessed value, so effectively taxable value acts as a cap on value. Typically state equalized value and assessed value are the same and are required to be half of market value.) For properties that transferred during 2021, no taxable value cap applies for 2022 and these new owners should be particularly aware of the potential for large tax increases, even while the pandemic is still creating so much hardship.

Unlike 2020, last year the Legislature did not extend the filing deadline for tax appeals. Although COVID continues to disrupt life throughout the country, taxpayers should plan on the current May 31, 2022 appeal deadline for properties that assessors classify as commercial or industrial real property. Owners of other property types, including and not limited to those classified as agricultural and residential have additional appeal requirements, including in some cities, local appeals filed before mid-February. Failure to timely file valuation tax appeals typically will prevent a taxpayer from obtaining relief.

Taxpayers, especially those whose properties have suffered because of the pandemic, should be proactive in 2022 and begin working with property tax counsel even before the assessment notices are sent.Paste or type article here.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED September 2021

Early Indications: Michigan 2022 Assessments Will Be a Mixed Bag

Assessors are still months away from finalizing their 2022 Michigan assessments, nevertheless, based on feedback from assessors in a number of Michigan jurisdictions from various parts of the State, 2022 assessments could vary greatly depending on the property type and location.  To the extent that the taxable value inflation rate applies, properties’ taxable values are expected to increase more than three percent.  Here are some other early indications of what is in store for Michigan taxpayers:

• Multi-family. It will not surprise if these properties experience value increases, and more than six percent in some instances. One assessor commented with the sentiment that he knows his values will be below what the sales are indicating, but he is sensing that there are some aberrational transactions occurring with these properties.
• Industrial.  Industrial property owners can expect value increases. Some will see modest increases, but some assessments for this class very well may increase six percent, or more.
• Office.  Some assessors are recognizing that while these properties are not yet facing the challenges of hotels, there is softness in the market. None of the assessors surveyed projected material value increases for office properties.
• Retail.  This group may see the greatest variances. In some jurisdictions, the assessor believes that some retail properties have turned a corner and have become more valuable due to COVID’s impact, whereas others see these properties as suffering.
• Hotels.  Assessors generally seem to be aware that the challenges created during the pandemic remain, yet few may be willing to materially reduce values, and some may even keep their values the same.

When stepping back and looking at the big picture, 2022 could be an unusual year. Historically, it has often been the case that real estate values generally were falling across the board, such as during the Great Recession, or rising, such as in the recovery years that followed that recession.  Next year’s Michigan assessment changes likely will very much depend on the property type and location. One certainty is that taxpayers should carefully review their 2022 assessment notices, consider whether their taxation is lawful, and talk to their property tax counsel if there is any doubt.

Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED december 2020

Time to Prepare for Michigan 2021 Appeals

Michigan taxpayers should receive their 2021 assessment notices during the first quarter of 2021, and most taxpayers will have them before March arrives, so taxpayers should be watching for them.  Based on conversations with many assessors, there should be no surprise if the 2021 assessments do not reduce values. 

The Proposal A “inflation rate” for 2021 is 1.4% which means that taxable values (on which taxes are based), will increase where a property’s state equalized value exceeds its taxable value (typically state equalized value and assessed value are the same and required to be half of market value).    For properties that transferred during 2020, no taxable value cap applies for 2021 and these new owners should be particularly aware of the potential for large tax increases, even while the pandemic is still creating so much hardship.

During 2020, due to the pandemic, and the difficulties taxpayers were experiencing, the Legislature extended the Tax Tribunal appeal deadline to August 31.  This was especially helpful to owners of commercial and industrial real properties, many of whom were challenged to timely file appeals by the May 31 deadline.  Taxpayers should not count on being able to obtain additional time in 2021.  Taxpayers, especially those whose properties have suffered because of the pandemic, should be proactive in 2021 and begin working with property tax counsel even before the assessment notices are sent.  Paste or type article here.

Honigman LLP
American Property Tax Counsel (APTC)

UPDATED june 2020

Michigan Extends 2020 Property Tax Appeal Deadline

Due to the challenges property taxpayers faced as the pandemic took hold, Honigman’s Tax Appeal Group sought legislation to provide additional time for filing 2020 tax appeals.  That effort successfully ended on June 11, when Michigan House Bill 5766 became Public Act 88 of 2020, and August 31 became the State’s new property tax appeal deadline for the current 2020 tax year.

Honigman convincingly argued to legislators in Lansing that without the extension of the filing deadline, due to the pandemic and government office closures, taxpayers would be deprived of fundamental fairness and due process.  Legislators agreed.  The bill passed unanimously in both the Michigan House and the Michigan Senate, and it was signed into law by the Governor on June 11.  With this additional time, taxpayers can now take a holistic approach and carefully evaluate their 2020 Michigan property taxation.

Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED march 2020

Michigan Tax Appeal Deadline Looming Amid Corona Virus Shutdown

Generally, those with business property in Michigan should strive to file their Michigan property tax appeals by May 29 this year.  As has occurred elsewhere in the country, COVID-19 has impacted Michigan property tax assessment and appeal proceeding s in multiple ways.  Since Governor Whitmer’s Executive Order declaring a State of Emergency due to COVID-19, and her “stay at home” order for non-essential employees, there has been speculation that tax appeal deadlines might be extended this year.  On April 2, the Tax Tribunal issued a notice that tolls and extends the deadlines for existing cases and the filing of new ones.  Without further action, however, it is likely that local government units will seek to dismiss appeals that are filed after the statutory deadline, which at a minimum means that the issue will have to be litigated.  Although some further favorable action is expected, it had not occurred as of April 9, and there is no way to be certain whether the Governor or legislature will do what is needed to ensure that taxpayers have additional time.  While true for all Michigan taxpayers, especially those who have had difficulty obtaining their 2020 assessment notices should work with their property tax counsel as soon as is possible so that any needed appeals are filed before the end of May.

Stewart L. Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED september 2019

Michigan Property Taxation Traps Another Taxpayer

Since the enactment of Michigan’s Proposal A over two decades ago, many a property taxpayer has unexpectedly suffered a tax increase that might have been avoided with better tax planning, and/or more effective advocacy in a tax appeal. Michigan property transfers can be especially painful. Property taxes are based on a property’s taxable value, and generally, taxable values are capped to the lesser of inflation or 5%, except in the year following a transfer of ownership. In that year, the taxable value is uncapped to equal 50% of the true cash (market) value.

On September 12, 2019, the Michigan Court of Appeals issued its most recent transfer of ownership decision in the case of Puppy’s Cubby v City of Farmington Hills. This case involved a transfer from a husband and wife as joint tenants, to a limited liability company of which the husband was the sole member.   The taxpayer claimed the transaction was not a transfer of ownership because it was between commonly controlled entities. The Court ruled in favor of the City, finding that under the joint tenancy the husband did not have control, rather the husband and wife had equal control. Consequently, the Court concluded that the joint tenancy and the limited liability company were not entities under common control.  

The outcome in this case is very troublesome. The taxpayer’s objective was to transfer property that was jointly owned by spouses, into an LLC owned by one of the spouses, without having the taxable value uncap. The Legislature has unambiguously provided that a “transfer of ownership” does not include a transfer between spouses. Yet, the subject transfer resulted in the uncapping.

Taxpayers have options in how they structure their transactions, and in how their tax appeals are pursued. The unfortunate outcome in this case confirms the importance of taxpayers working with experienced property tax legal counsel in planning property transactions, and in having property tax appeals pursued.  

Mark Hilpert and Stewart Mandell
Honigman LLP
American Property Tax Counsel (APTC)

UPDATED JUNE 2019

New Michigan Industrial Tax Abatement Decision

Michigan’s Public Act 198 of 1974 (“PA 198”) provides a discretionary property tax abatement program for industrial facilities.   The program can be used for new construction or rehabilitation projects. Generally, under the program, new construction receives an approximately 50% reduction in the tax rate, and a rehabilitated property’s tax base is frozen at the pre-rehabilitated value. PA 198 abatements must be approved by both the local unit of government and the State Tax Commission (STC) and may have a term up to 12 years after the completion of construction.

In Delta Business Center, LLC v Delta Charter Township, a June 20, 2019 published decision of the Michigan Court of Appeals (Docket No. 343386), the Court clarified that if a property is leased, in order to be eligible to receive the abatement, the lessee of the property must be liable for the taxes and must furnish proof of that liability.

In this case, the owner-landlord applied for the abatement.   The Township approved the abatement, but the STC denied it stating that even though the property’s lessees would be using the property for industrial purposes, the applicant owner did not engage in any eligible industrial activities.   The Court of Appeals found that, contrary to the STC’s finding, the statute does not require an applicant to be engaged in an eligible industrial activity, however, it affirmed the denial of the abatement because no proof was submitted that the lessees were liable for the taxes.

Mark Hilpert
Honigman
American Property Tax Counsel (APTC)

UPDATED MARCH 2019

Beware of Michigan E-Filing Pitfalls

The Michigan Court of Appeals recently issued a decision that should cause all tax attorneys and consultants to sit up and take notice.   In the lead case of Centerpoint Owner LLC v City of Grand Rapids, the Court upheld the Tax Tribunal’s dismissal of 81 cases that were determined to be untimely filed.    All of the cases were filed by a single consulting firm shortly after the 11:59 pm, May 31, 2017 filing deadline.   Personnel from the consulting firm attempted to e-file 189 petitions on May 31, but ran into a number of problems, including not having the correct type of credit card, the length of time required to process each e-filing, etc.   As a result they had to file many of the petitions the following day.   The Tribunal dismissed all petitions filed after May 31, and Centerpoint appealed.

The Court of Appeals rejected Centerpoint’s claim that it was denied due process, citing that the consultant’s choices were what caused the untimely filing (they could have filed by mail or by hand).  The Court also found that the Tax Tribunal did not have an obligation to notify practitioners of the alleged e-filing “glitch” because there was no widespread problem and no one other filers complained.   Finally, the Court rejected the argument that the Tribunal had the authority to accept late filings.   The lesson here is if you plan to e-file a pleading with the Michigan Tax Tribunal you should review the requirements and allow adequate time to complete the filing.

Centerpoint has filed an application for leave to appeal to the Michigan Supreme Court.

Stewart Mandell
Honigman LLP

UPDATED december 2018

Preparing for Michigan’s 2019 Property Tax Season

Michigan taxpayers should receive their 2019 assessment notices during the first quarter of 2019, and most taxpayers will have them before March arrives, so taxpayers should be looking out for them.

The Proposal A “inflation rate” for 2019 is 2.4% which means that taxable values (on which taxes are based), will increase where a property’s state equalized value exceeds its taxable value. For properties that transferred during 2018, no taxable value cap applies for 2019 and these new owners should be especially aware of the potential for large tax increases.

The Legislature recently passed House Bills 6053 and 6054, which would ease penalties for taxpayers who miss payment deadlines associated with the Eligible Manufacturing Personal Property Exemption (EMPP) and Essential Services Assessment (ESA). Taxpayers receiving the EMPP exemption must pay the ESA. Prior law required that the ESA be paid by August 15 of each year. If full payment were not received by October 15, the EMPP exemption was rescinded. The bills allow taxpayers to make full payment of the ESA as late as April 15 in the year following the original due date, before the EMPP exemption is rescinded. Interest will continue to accrue, but the drastic penalty of completely losing a valuable exemption for paying late has been abated. As of December 26, 2018, the Governor had not yet signed the bills, but vetoes are not expected.

Stewart L. Mandell
Honigman, LLC

UPDATED september 2018

Important October 15 Michigan Deadline For EMPP

For qualifying taxpayers, Michigan’s eligible manufacturing personal property (EMPP) exemption can provide significant tax savings.  The Essential Service Assessment, which is a state assessment imposed instead of the ad valorem personal property tax, will usually be modest compared to the ad valorem personal property tax.  However, qualifying taxpayers have multiple deadlines that have to be satisfied to obtain the savings.  Generally, the initial reporting deadline is February 20 each year. The deadline to certify and pay without penalty was August 15th.  If, by October 15, the Michigan Department of Treasury does not receive a certified statement and full payment (including interest and late fees if not paid by August 15), the taxpayer’s EMPP exemption will be rescinded.  For taxpayers who still need to act, they should do so quickly.  Though 2015 was the first year the  exemption took effect, each year taxpayers have missed critical deadlines and lost the personal property tax exemption.

If there are any questions about this, the professionals in Honigman’s tax appeal group are very experienced with Michigan property tax matters, including those involving EMPP.

Sarah Belloli and Stewart Mandell
Honigman, Miller, Schwartz and Cohn LLP

UPDATED june 2018

Two New Taxable Value Uncapping Cases

Michigan’s taxable value cap does not apply the year following a transfer of ownership.   Under the controlling statute, a transfer of ownership does not include transfers where the grantor and grantee qualify as entities under common control.   The Michigan State Tax Commission (STC) had adopted a definition of “common control” that set a high threshold of control, and included a requirement that the entities involved be engaged in a business activity.   Two recent Court of Appeals decisions involve this issue:

TRJ & E Properties, LLC v City of Lansing, is an April 17, 2018 published decision of Michigan Court of Appeals. The court found that the STC definition of common control conflicted with the plain meaning of the statute and ruled that common control must be determined on a case-by case basis depending on the structure of the entities involved.  

In James E. Scott et al v City of South Haven, an April 19, 2018 unpublished decision of the Michigan Court of Appeals, the same panel of judges ruled that except in the case of a sole proprietorship, an individual cannot be considered to be a legal entity under common control.

The first decision is a good one for taxpayers. It reduces the threshold of control required for entities to be considered commonly controlled and arguably removes the business activity requirement.   However, the second decision is likely to cause problems for individuals seeking to transfer properties between themselves and entities, even where the transfer involves an individual and their wholly owned limited liability company. Efforts to enact taxpayer friendly legislative clarification are already underway.

Stewart Mandell
Honigman
American Property Tax Counsel (APTC)

UPDATED March 2018

Michigan’s May 31 Property Tax Appeal Deadline!

Michigan property taxpayers should now have their 2018 assessment notices. May 31, 2018 is the deadline for a Michigan Tax Tribunal property tax appeal for most Michigan business property, including real property that the assessor has classified as industrial or commercial.

Michigan property taxes are calculated using taxable value. Generally, 2018 taxable values increased 2.1%. While, 2018 taxes will not be calculated using the 2018 assessed value, or state equalized value, there are situations where taxpayers might want to pursue an appeal of those values. Knowledgeable Michigan property tax counsel can assist with making such decisions.  

Appealing Special Assessments in Michigan

The Michigan Court of Appeals recently offered guidance on successfully challenging a special assessment in Michigan.   Previous cases established that special assessments would be presumed valid, and to prevail, taxpayers would have to establish that one of the two following standards was not met: (1) the improvement funded by the special assessment failed to confer a special benefit to the assessed property beyond that provided to the community as a whole; or (2) the amount of the special assessment was not reasonably proportionate to the benefits derived from the improvement, with such benefits measured by the increase in the value of the property as a result of the improvement.

In Thakur v Farmington Hills, decided March 15, 2018, the Michigan Court of Appeals upheld the special assessment for reconstruction of a road. The taxpayer had introduced a study of paired sales before and after other road improvements which showed little or no increase in value after the improvements occurred. The Court discounted the study stating that it was not specific enough to the subject property, and although the study measured the value of properties before and after improvements, the Court ruled that legal test should be the difference in the subject property’s value “with” and “without” the improvement. For these types of appeals, taxpayers would be well advised to confer with experienced Michigan property tax counsel.
 
Stewart Mandell
Honigman
American Property Tax Counsel (APTC)

UPDATED DECEMBER 2017

Michigan Taxpayers: Get Ready for 2018!

Michigan Taxpayers will again face some challenges and opportunities in the coming year. The Proposal A “inflation rate” for 2018 is 2.1% which means that taxable values (on which taxes are based), will increase where a property’s state equalized value exceeds its taxable value.

Taxpayers should receive their assessment notices during the first quarter of 2018, and most taxpayers will have them before March arrives, so taxpayers should be looking out for them. Some assessors have already let it be known that many taxpayers will see assessed values increase by double digits.

Recent changes to Michigan law will make it easier for taxpayers to comply with certain personal property tax exemption filing deadlines. On December 28, 2017, Public Acts 261-264 were signed. These Acts made multiple changes impacting both the Small Business Taxpayer Exemption and the Eligible Manufacturing Personal Property Exemption (EMPP).

The deadline for filing the Small Business Taxpayer exemption has been changed to February 20, 2018. Also, Form 5076, which is used to claim the exemption, has been changed from an Affidavit to a Statement, which permits assessors to receive either a facsimile or electronic signature. Additionally, under this new legislation, can accept a proper claim of exemption for EMPP if the envelope is postmarked by February 20, 2018. Last, the new legislation changed the appeal procedure for both the Small Business Taxpayer Exemption and the EMPP Exemption so that the March Board of Review can grant exemption if an otherwise proper claim was filed late.

The State Tax Commission has advised that in early 2018 it will be issuing guidance about the new legislation. The guidance is to include updated Frequently Asked Questions.
 
Stewart L. Mandell
Honigman Miller Schwartz and Cohn LLP
American Property Tax Counsel (APTC)

UPDATED JULY 2017

Michigan Supreme Court grants personal property exemption to for-profit educational institutions

Arguing on behalf of a school in SBC Health Midwest, Inc v City of Kentwood,  Honigman attorneys successfully argued to  the Michigan  Supreme Court  that  an educational institution need not be a “non-profit” to qualify for the exemption from personal property tax under Section 9(1)(a) of the General Property Tax Act, MCL 211.9(1)(a) (“Section 9(1)(a)”).   Section 9(1)(a) does not contain language limiting the exemption to non-profit entities, but another exemption in the General Property Tax Act dealing with real property, MCL 211.7n, does.  The Tax Tribunal held that the two statutes must be read in pari materia, and that under this construction the statutes require the entity seeking exemption to be non-profit.  Honigman took over this appeal in the Michigan Court of Appeals, where the Court relied upon the plain language of Section 9(1)(a) and reversed.  The Michigan Supreme Court affirmed the Court of Appeals. Consequently, for-profit educational institutions may now obtain personal property tax exemption.  

In a related matter, the Michigan Supreme Court has recently agreed to hold oral argument in Harmony Montessori Center v City of Oak Park and will address the question of what constitutes an educational institution under MCL 211.7n.  It is expected that the Court will hold oral argument later this year.
 
Stewart Mandell
Honigman
American Property Tax Counsel (APTC)

 

UPDATED MARCH 2017

Michigan Supreme Court Reviewing Court of Appeals Menard Decision
In Menard, Inc. v City of Escanaba the Michigan Supreme Court recently issued an Order that provided for the submission of additional briefs and oral argument.  In this case, the Michigan Court of Appeals reversed the Tax Tribunal, which had mostly accepted Petitioner’s sales comparison approach to arrive at the value of Menard’s store in Escanaba, Michigan, which is in Michigan’s Upper Peninsula.  The Court of Appeals held that the Tribunal had erroneously rejected the City’s cost approach.  This ruling was based on Clark Equipment  v Leoni, 113 Mich App 778, 318 NW2d 586 (1982), which had held that the Tribunal should use a cost approach that reflected value in use, if the lack of demand for a property would lead to a market value that was low relative to the property’s cost.  Also, the Court of Appeals found no evidence of functional obsolescence because the subject was constructed the same way that Menard would construct a new store today.  Menard appealed to the Michigan Supreme Court.  Several business groups filed amicus curiae briefs that supported Menard’s position and argued in particular that the Clark decision was contrary to well established Michigan law, including the Michigan Supreme Court’s decision in First Federal Savings & Loan Association Of Flint v City Of Flint, 415 Mich 702; 329 NW2d 755 (1982).  Under the Michigan Supreme Court’s recent Order, the Court will hear oral arguments on the questions of whether (1) the Court of Appeals exceeded its limited authority to review Tax Tribunal decisions, and (2) whether the Tribunal may utilize the valuation approach approved in Clark.  It is not yet known when the Court the oral argument.      

Michigan’s May 31 Property Tax Appeal Deadline
Michigan property taxpayers should now have this year’s assessment notices.  For most Michigan business property, including real property that the assessor has classified as industrial or commercial, May 31, 2017 is the deadline for a Michigan Tax Tribunal property tax appeal.  Especially given that Michigan assessment notices will show different types of values, taxpayers may benefit from obtaining the input of knowledgeable Michigan property tax counsel.    

Stewart Mandell
Honigman
American Property Tax Counsel (APTC)

 

Updated September 2016

Update On Adverse May 2016 Michigan Big Box Decision
As previously reported, the published Michigan Court of Appeals decision in Menard, Inc. v City of Escanaba reversed the decision of the Michigan Tax Tribunal.  The Tribunal had relied largely on a sales comparison approach.  Petitioner’s appraiser and the Tax Tribunal found that although some of the comparable sales were deed restricted, the sales prices were not affected by the restrictions, and therefore no adjustments for the restrictions were needed.  The Court of Appeals ruled that although the deed restrictions did not affect the price paid by the ultimate buyer, the property may have sold to different buyers for higher prices in the absence of the restrictions.  The Court also made legal rulings regarding the City’s cost approach, requiring that property be valued based on value in use, rather than the statutorily-required usual selling price (market value/value in exchange) standard.  The Court of Appeals remanded the case to the Tribunal and ordered that additional evidence be presented. 

On July 7, Menard filed an Application for Leave to Appeal in the Michigan Supreme Court.  The Application asks the Court to reverse the Court of Appeals decision and reinstate the Tax Tribunal decision.

On September 9, two amicus briefs were filed in this case.  Four organizations affiliated with government units filed an amicus brief asking the Court to deny the Application, and to let the Court of Appeals decision stand.

The Michigan Manufacturers Association (“MMA”) also filed an amicus brief.  The MMA asked the Court to grant the Application and issue a decision confirming that Michigan law requires a value determination based on “usual selling price,” which is equivalent to market value, and not value in use.  Key points made in the brief were that in adopting the value in use standard, the Court of Appeals violated: 1) the Michigan Constitution and the General Property Tax Act; and 2) a Michigan Supreme Court decision, which repudiated value in use taxation and reversed the original Court of Appeals decision that had approved value in use taxation.  The Honigman firm authored the MMA’s amicus brief.

It is very difficult to predict when the Michigan Supreme Court will rule on the Application.  It is possible that there will not be a decision until the second quarter next year, or later.

Stewart Mandell
Honigman 
American Property Tax Counsel (APTC )

 

Updated June 2016

Adverse Big Box Decision Could Affect All Michigan Business Property Owners
In Menard, Inc. v City of Escanaba (published decision of the Court of Appeals, Docket No. 325718), the Court reversed the decision of the Tax Tribunal, which had relied largely on Petitioner’s sales comparison approach. Petitioner’s appraiser and the Tribunal found that although several of the comparable sales were deed restricted, the sales prices were not affected and were, thus, not adjusted for the restrictions. The Court found that although the deed restrictions did not affect the price paid by the ultimate buyer, the property may have sold to different buyers for higher prices in the absence of the restrictions. The Court also made legal rulings regarding the City’s cost approach, requiring that property be valued based on value-in-use, rather than the statutorily-required usual selling price (value-in-exchange) standard. The Court remanded the case to the Tribunal and ordered that additional evidence be presented. It is not yet known if Menard will appeal this decision.

 

HB 5578-“Dark Store” Bill Would Harm Owners of All Business Property
HB 5578 recently passed by the Michigan House of Representatives. The bill amends the Tax Tribunal Act and requires, for all cases that are not in the Tribunal’s small claims division, numerous findings that will materially increase the cost of appraisals and hearings. The bill also restricts consideration of certain comparable sales. The bill’s intended result is that for several types of properties, the only acceptable valuation approach will be the cost approach.

Among the bill’s significant problems is that it requires the Tribunal to base its valuation on criteria not required to be used by the assessor and, therefore, appears to violate the state constitution’s uniformity requirement. The bill would require the Tribunal to make a separate determination regarding several aspects of the property under appeal (e.g., the demand for potential uses of the property) that are not necessarily essential in determining the true cash value of the property in every case. The bill also prohibits the Tribunal from using certain comparable sales. Specifically, it requires the impact of private deed restrictions be considered and prohibits use of comparable sales that have private deed restrictions that substantially impair the property’s highest and best use. In addition, the bill confuses different concepts. For example, the bill prohibits the use of comparable sales that were vacant at the time of sale unless several requirements are met, including “the vacancy does not reflect a use different from the highest and best use of the property subject to assessment.” Every Michigan taxpayer should be troubled by this bill.

 

Eligible Manufacturing Personal Property (EMPP) and Essential Services Assessment (ESA) (Public Acts Nos. 107, 108, 109 and 110 of 2016)
These bills were signed in early May to make some additional changes to the new Personal Property exemption program for manufacturers that went into effect in 2016. The key changes include:

• Created a new EMPP filing window for those who filed late or filed an incomplete form. The new window closed May 31, 2016. The ESA deadlines for these filers did not change.
• Starting in 2017, Construction in Progress will be assessed under the ESA at 50% of original cost.
• For EMPP that is leased, the parties to the lease may elect that the lessee reports all of the property subject to the lease, even if some is still subject to the tax. Absent an election, property still subject to the tax will be reported by the lessor.
• Clarification that assessors and Boards of Review may correct and adjust EMPP affidavits, allowing the claims to be processed without an appeal to the Tax Tribunal.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC )

 

Updated March 2016

Michigan Property Tax Appeal Deadlines

Michigan, a few jurisdictions will send out assessment notices in January, but most will send them out in February or early March. Depending on the jurisdiction, appeals to assessor boards or local boards of review will be in February or March. For the property of most businesses, the Tax Tribunal’s 2016 appeal deadline will be May 31, 2016.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC)

 

Updated December 2015

Michigan Personal Property Tax Exemption

Michigan’s exemption for manufacturing related personal property begins next year and taxpayers should be planning now to take advantage of this important tax benefit. Personal property predominately used for industrial processing or direct integrated support of that processing is eligible for exemption. Qualifying property placed into service after 2012 will become exempt in 2016 and the tax on such property placed into service before 2013 will be phased out over seven years. Property that becomes exempt under this program will be subject to a state special assessment called the State Essential Services Assessment (SESA). Paying the SESA instead of the personal property tax will result in material tax savings, especially for property that is located in jurisdictions with high tax rates.

Most taxpayers will be able to determine now whether personal property at a given location will qualify for the exemption. To qualify, over 50% of the original cost of all the personal property at a location must be used for industrial processing or direct integrated support. Most typical manufacturing locations will easily be over the 50% figure. However, those that are close to 50%, may have to wait until all the acquisitions and disposals are complete for the year to make the calculation.

Taxpayers that qualify for the exemption must claim the exemption by filing a Michigan Department of Treasury form 5278 with the local assessor on or before February 20, 2016. If the form is not received by the local assessor on or before February 20, it will be considered not filed. Unlike some other Michigan tax exemptions, the manufacturer's exemption must be timely claimed to take effect. There is no mechanism to account for late-filed claims or provision for retroactive corrections. However, if a claim is not made in a given year, the taxpayer still has the opportunity to file a claim for future years.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP 
American Property Tax Counsel (APTC )

 

Updated June 2015

Michigan Personal Property Tax Reform Update

Michigan’s exemption for Eligible Manufacturing Personal Property (EMPP) and imposition of the State Essential Services Act (SESA), both take effect next year.   Recent legislative modifications include an acceleration of the collection of the SESA during the year (from Sept.15 to Aug. 15) and a requirement that the basis of the SESA be changed from the acquisition cost of the current owner to the acquisition cost of the original owner.  This later requirement could have an impact on taxpayers who have purchased used equipment.  Additionally, the legislation authorizes the State Tax Commission to issue guidelines in certain circumstances.  

New Appellate Highest & Best Use must be a Legal Use

Honigman attorneys recently prevailed in a case involving the question of highest of best use of property.    The Court of Appeals affirmed a Tax Tribunal decision that found the highest and best use of the subject property to be “recreational/future development” as opposed to “commercial” as the City claimed.  Under the existing zoning, development of the property as commercial would have required an expensive “ring road” around a quarry located on the property.   With the significant cost of the “ring road” making such a development cost prohibitive, the property’s highest and best use would have been as recreational.

The City claimed that the property should have been valued as commercial assuming that a zoning variance would have been granted, enabling development with a less expensive cul-de-sac.  However, the Michigan Court of Appeals held that when determining highest and best use, it could not be assumed that the property owners would be granted a zoning variance.  As a result, the property’s highest and best use was as recreational and the resulting value reduction was more than eighty percent.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC)

 

Updated March 2015

Are There Reasons to Appeal Assessed and State Equalized Values in Michigan? 

For Michigan property tax purposes, each parcel of property has an assessed value (AV), a state equalized value (SEV) and a taxable value (TV). AV and SEV should be 50% of market value. TV, on which taxes are based, is often less than AV and SEV because the annual growth of TV is generally limited to inflation or 5%, whichever is less. Many parcels now have material spreads between their TV and their AV and SEV. This, coupled with the fact that the tax rates are applied to the TV, leads many to conclude that the other values are irrelevant and can be ignored. However, there are reasons why an artificially high AV and SEV could negatively impact taxpayers. One problem is that if the AV and SEV are higher than the TV, the property’s TV will be increased each year by the rate of inflation even if market values are flat. Also, artificially high AVs and TVs could distort valuations performed for other reasons, such as for financing or estate and/or gift taxes. Finally, high AVs and SEVs could scare away potential buyers, who understand that the year after a transfer of ownership, the TV will be increased to equal the SEV, which in turn, will cause them to pay significantly more tax than the seller had been paying.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC)

 

Updated December 2014

Michigan Personal Property Tax Reform Implementation

Michigan voter's approval in August of Proposal 1 ensures that the phase-out of manufacturing personal property will proceed and the "small business" exemption, which became effective in 2014, will continue. While the manufacturing exemption does not take effect until the 2016 tax year, there are some additional reporting requirements in 2015 for those planning to claim the exemption in 2016. The 2015 personal property statement will require that additional information be provided concerning if and when the property reported in 2015 will become exempt under the new law. Failure to file the schedule in 2015 will not disqualify a taxpayer from claiming the exemption in 2016, but will result in additional procedural steps to do so.

Mark Hilpert
Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP 
American Property Tax Counsel (APTC)

 

Updated September 2014

Michigan Legislature May Pass Important Tax Appeal Legislation This Year

For many months, Michigan State Senator Bruce Caswell has been working on a large number of wide-ranging possible changes to Michigan’s property tax appeal system.  The potential changes ranged from who could serve on the Michigan Tax Tribunal, to jurisdiction over property tax classification appeals, to the deadlines for filing Michigan tax appeals.  Additionally, the proposed changes included eliminating the so-called “pay-to-play” requirement, which forced taxpayers to pay disputed state taxes in order to appeal state taxes to the Michigan Court of Claims.  As a result of the Senator’s efforts, there are now three bills pending in the Michigan Senate, SB 1038-40, which would amend Michigan’s General Property Tax Act, the Michigan Tax Tribunal Act and the Michigan Revenue Act.  The three bills currently are tie-barred (i.e., all three bills must be enacted in order for any of them to take effect).

On September 17, 2014, the Senate Finance Committee held a hearing on these bills.  As a result of the testimony at the hearing, Bill changes are now being proposed and discussed.  It remains to be seen what will be included in the final versions of the Bills, and whether the Bills can be enacted this year, given the relatively few remaining days in which the legislature will be in session the rest of this year.  However, it is quite possible that the Bills will be enacted because the Michigan Department of Treasury is supporting many of the changes that have been proposed.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC)

 

Updated June 2014

Government Effort to Obtain Value-In-Use Taxation Continues

Two northern Michigan communities are continuing their efforts to have Michigan change the standard for valuing real property under the Michigan's General Property Tax Act. Michigan courts have long held that under the Act, properties are valued based on their value-in-exchange, i.e., their usual selling price. In two cases involving the valuation of relatively new big box retail stores, local government units have been asserting that the properties' values should include a value-in-use component because both properties were profitably operated on the valuation dates. The Michigan Tax Tribunal had rejected this contention and valued the properties based on sales of similar big box retail properties. In April the Court of Appeals affirmed the Tribunal's decisions. The local government units have now filed applications for leave to appeal with the Michigan Supreme Court. It is likely that the Court will rule on the applications within the next year.

Stewart Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel

 

Updated March 2014

Michigan Appeal Deadline Approaching
Generally, Michigan’s 2014 tax appeal deadline for business property is June 2. Now is the time for taxpayers to carefully review their 2014 assessments with their property tax counsel and determine if an appeal may be worth pursuing.

Tax Tribunal Accepts Taxpayer’s Highest & Best Use Valuation
Honigman recently obtained a Michigan Tax Tribunal decision that reduced a taxpayer’s contested land values by over 90%. The evidence presented established that because of development costs required for industrial/commercial use, the City had erred in using industrial/commercial as the property’s highest and best use. The Tribunal agreed with the taxpayer that the property's highest value was as speculative/recreational, which did not require the substantial development costs.

Legislature Passes Personal Property Reform Bill
The Michigan legislature has passed a comprehensive personal property tax reform package. Governor Snyder is expected to sign the bills. The package will be subject to a statewide vote on August 5, 2014. If the ballot question is approved, the tax on most industrial personal property will begin to be phased out in 2016.   In addition, with passage, taxpayers who own or lease less than $80,000 worth of personal property in a given locality will be able to obtain exemption.

American Property Tax Counsel

 

Updated December 2013

Michigan Personal Property Tax Reform Update
The first piece of Michigan's multi-faceted personal property tax reform plan is scheduled to take effect in 2014. If a taxpayer's personal property in a particular assessing jurisdiction (city or township) has a market value less than $80,000 it is eligible for exemption. The taxpayer must file an affidavit by February 10 each year to claim the exemption. The plan was recently amended to provide that the value of property owned by related entities is combined when determining eligibility for the exemption.

The more significant pieces of the plan will not become effective until the 2016 tax year. Starting in 2016, eligible manufacturing personal property (EMPP) placed into service after December 31, 2012 will be exempt. Also, beginning in 2016, EMPP that has been in service for at least ten years will also be exempt. Hence, by 2023 all EMPP will be exempt. The definition of EMPP was also recently amended to include all personal property primarily used for industrial processing or direct integrated support of Industrial processing.

At this time, the entire personal property tax reform plan is subject to repeal if in August of 2014 Michigan voters do not approve a ballot question regarding the distribution of State funds used to reimburse local governments for lost revenue. However, many observers expect that some form of the plan will ultimately move forward regardless of the outcome of the vote.

Stewart L. Mandell
Honigman Miller Schwartz and Cohn LLP
American Property Tax Counsel

 

Updated September 2013

Transfer of Ownership Developments
For Michigan property, and interests in entities that own Michigan property, whether a transfer of ownership occurs is an important issue. The year after a transfer of ownership, the property's taxable value (on which taxes are based) "uncaps," and equals the property's state equalized value (which should be half of market value). Due to relatively frequent legislative action, the law in this area continues to change. Additionally, over the summer the Michigan State Tax Commission issued new transfer of ownership guidelines. The law in this area presents many traps for the uninformed. Accordingly, taxpayers with Michigan property would be wise to confer with knowledgeable counsel before transferring either Michigan property or an interest in an entity that, directly or indirectly, owns Michigan property.

Personal Property Taxation Changes
On December 20, 2012, Michigan Governor Snyder signed several bills that could exempt certain personal property starting in 2014. The Administration and legislative leaders are now planning to modify the legislation enacted last year. Taxpayers with substantial personal property in Michigan should determine the impact of the currently proposed statutory changes, before they are enacted. For more details, you can call a Honigman tax appeal attorney.

 

Updated June 2013

New Michigan Transfer Tax Decision

In 525 Redevco Inc, v Department of Treasury, the Michigan Court of Appeals recently ruled that a developer using Certificates of Participation (COPs) was not subject to the Michigan State Real Estate Transfer Tax (SRETT) at the time a deed was actually transferred, because at the time of the transfer, the developer received no consideration. The SRETT is imposed on sellers of real property or interests in entities whose real property ownership equals or exceeds certain statutory amounts. The tax is .75% of the value of the property transferred. The SRETT has an exemption for transfers where the consideration is less than $100.

In this case a developer built a project which the State of Michigan was to lease. The lease provided the State a bargain purchase option pursuant to which the State could make certain rent prepayments at any time, to take title. For federal income tax purposes, the deal was financed with COPS, which allowed investors to purchase certificates through a trust. The COPS were secured by the State's rental payments, which were paid directly to the trust. In addition, the developer was not obligated by the COPs in any way because if the rental payments were stopped, insurance coverage had been procured to make the holders of the COPs whole.

About four years after the lease commenced, the State elected to prepay rent and take title. The State attempted to levy an SRETT on the developer, but the Court ruled for the developer agreeing that at the time of the transfer of the deed, the developer did not receive any consideration and the transfer was therefore exempt.

Michigan has two separate real estate transfer taxes (RETTS). One is levied by the State and another by the County in which the property transferred is located. These taxes have several subtle differences. Careful structuring of real estate transactions can beneficially impact not only one or both RETTs, but also the question of whether and how the taxable value of the property becomes uncapped for property tax purposes in future years. Before consummating a transaction involving Michigan property, conferring with legal counsel knowledgeable about these issues, could prove very beneficial.

 

Updated March 2013

2013 Property Tax Assessment Notices and Appeals to the Board of Review
Michigan Taxpayers have recently received, or soon will be receiving, their 2013 assessment notices. While owners of properties classified on the assessment roll as commercial and industrial real property do not have to protest their assessments to the local Board of Review in order to appeal to the Tax Tribunal, there are times when a March 2013 Board of Review appeal is still required to preserve Tax Tribunal appeal rights for the 2013 tax year. Required Board of Review appeal situations include:

1. Valuation or exemption appeals for property classified as Residential, agricultural or developmental.

1. Personal property appeals if the taxpayer failed to file a personal property statement before the first day the Board of Review meets.

1. 3A challenge to a property's classification.

Filing a letter or fax sometimes satisfies the protest requirement, but taxpayers should immediately check with the local assessor's office to verify the procedural and timing requirements in their jurisdiction.

 

Partial Exemption for Spec Homes
Michigan Public Act 494 of 2012 provides that for taxes levied after November 2012, certain residential property, defined as "development property," will be exempted from local school operating taxes. "Development property" includes any residential dwelling (including a residential condominium) that has never been occupied; is available for sale; is not leased; and is not used for any business purpose. The exemption lasts for the shorter of three years or whenever the property no longer qualifies as development property. Owners of qualifying property may petition the local 2013 July Board of Review to apply for a refund of school operating taxes levied in December 2012 as part of a winter 2012 property tax bill.

 

Court Decision Supports Use of Bank Sales in Property Tax Case
In Kassem Abbas v City of Dearborn, the Michigan Court of Appeals (in an unpublished decision) recently held that it was appropriate to consider bank-owned and short sales when determining value for property tax purposes. The taxpayer's appraiser testified that he could not find a sufficient number of private sales that were comparable to the subject property and therefore included some bank-owned sales and short sales in his sales comparison approach valuation. The City claimed that the appraisal must be disregarded because bank-owned sales and short sales are by their nature "forced sales," and Michigan's property tax law prohibits the use of forced sales when determining true cash value. The Court held in this case that the taxpayer's appraiser's sales could be properly used to determine true cash value. This case acknowledges that, during recent years, bank-owned and short sales are often the best, or maybe the only, indicators of market value.

If you have any questions regarding any of these issues or any other in-state or out-of-state real estate tax appeals matters, please contact any of our tax professionals listed on this Alert.

Stewart L. Mandell
Honigman Miller Schwartz and Cohn LLP
American Property Tax Counsel

 

Updated December 2013

Personal Property Tax Reform
Governor Snyder recently signed legislation enacting a long awaited personal property tax reform plan. Disagreement over the manner of reimbursement to local government of a portion of the resulting reduced property tax revenues almost derailed the effort at the last minute. As it is, the final version is linked to an August 2014 statewide referendum on dedicating a portion of the state's use tax to reimburse the local units of government. If the voters reject the use tax referendum, the whole plan will be repealed.

The plan does not eliminate all personal property taxes but instead would provide relief as follows:

• Beginning in 2014, small commercial and industrial personal property parcels will be exempt. If a taxpayer's commercial or industrial personal property in a given assessing jurisdiction is less than $40,000 of taxable value, the parcel is exempt. If the taxable value exceeds $40,000, tax is owed on the full amount. Taxpayers will have to file an annual affidavit with the local government unit and the Department of Treasury to claim this exemption.

• Starting in 2016, any Eligible Manufacturing Personal Property (EMPP) that was purchased new after December 31, 2012 will become exempt. EMPP is property that is used more than 50% of the time for industrial processing or in "Direct Integrated Support." Aside from traditional manufacturing and processing equipment, the EMPP definition includes equipment used in research and development, quality control, engineering and warehousing functions that are necessary as a result of industrial processing. Taxpayers will have to file an affidavit in 2016 only to claim this exemption.

• Starting in 2016, any EMPP that is at least 10 years old will be exempt. In each year after 2016, an additional oldest year of EMPP will become exempt so that all EMPP will be exempt by 2023. For example, EMPP purchased in 2006 will become exempt for the 2017 and later tax years

• EMPP that is currently subject to tax abatements and/or specific taxes will continue to be exempt from the General Property Tax Act and subject to the specific tax until the time when that EMPP would be exempt under the new law.

• The existing 12 and 24 mill property tax exemption for commercial and industrial classed property will remain in place (although most industrial personal property will eventually be completely exempt).

• A new statewide Metropolitan Authority will be created that will levy a portion of the current state use tax for purposes of reimbursing qualified local units for up to 80% of their estimated loss in revenue from personal property used for non-police, fire and ambulance service. The amount of the use tax dedicated to the Authority would be adjusted each year and the State portion of the tax would be reduced accordingly so that the overall rate remains at 6%.

• Local governments also will be authorized to levy an "Essential Services Assessment" (ESA), which will be a special assessment levied on the real property of taxpayers that benefit from the EMPP exemption. Since the ESA funds only essential services, the rate is expected to be smaller than the current personal property tax rate. In addition, the ESA is capped on a per parcel basis so that it should not exceed the benefit that a parcel receives from the EMPP exemption.

Penalties Rise for Failure to Report Property Transfers
Michigan Public Act 382 of 2012 increases the penalty for failure to notify the local assessor of a transfer of ownership of industrial or commercial property. This changes the prior law which required buyers or other transferees to notify the assessor within 45 days of a transfer by filing the state authorized property transfer affidavit. The penalty for not filing had been a fine of $5/day up to $200. PA 382 increases the penalty to $20/day, up to $1,000 for property selling for $100 million or less. In the case of property that sells for more than $100 million, the fine will be $20,000 after the 45 days have elapsed unless the assessor determines the failure is due to reasonable cause and not willful neglect, in which case the lesser fine is imposed. The buyer or other transferee may appeal the determination to the Michigan Tax Tribunal.

Some Transfers to Family Will Not Cause TV Uncapping
Public Act 497 of 2012 has been enacted as a result of the Governor's December 31, 2012 approval. This legislation provides that beginning December 31, 2013, which is the valuation date for the 2014 tax year, transfers of residential real property will not cause an uncapping if the parties are related by blood or affinity to the first degree and the use of the property does not change following the transfer.

 

Updated December 2012

Time to prepare for 2013
Michigan taxpayers will again face some challenges and opportunities in the coming year. For many properties the local assessors still have not fully recognized the steep drop in values resulting from the Great Recession. So, in many cases opportunities for savings remain.
The Proposal A "inflation rate" for 2013 is 2.4% which means that taxable values (on which taxes are based), will increase where a property's state equalized value exceeds its taxable value. Given the foregoing, and with next quarter's delivery of 2013 assessment notices, now is the time for taxpayers to begin planning for 2013 assessment appeals.

Penalties Rise for Failure to Report Property Transfers Michigan Public Act 382 of 2012 increases the penalty for failure to notify the local assessor of a transfer of ownership of industrial or commercial property. Prior law required buyers or other transferees to notify the assessor within 45 days of a transfer by filing a State authorized property transfer affidavit. The penalty for not filing had been a fine of $5/day up to $200. PA 382 increases the penalty to $20/day, up to $1,000 for property selling for $100 million or less. In the case of property that sells for more than $100 million, the fine will be $20,000 after the 45 days have elapsed unless the assessor determines the failure is due to reasonable cause and not willful neglect, in which case the lesser fine is imposed. The buyer or other transferee may appeal the determination to the Michigan Tax Tribunal.

Despite the increase in the fine, property owners should note that in most cases the greatest exposure resulting from not filing a transfer affidavit is the possibility of retroactive uncapping of the property's taxable value. If a transfer has not been reported, the assessor has the authority to retroactively uncap the taxable value once the transfer has been discovered. In addition to the higher tax, penalties and interest are charged back to the date when the taxes would have been due. With late payment charges that can be as much as 18% per year, this can be a significant amount.

Personal Property Tax Reform
On December 20, 2012, Michigan Governor Snyder signed several bills that could exempt certain personal property starting in 2014. The bills include some relatively complex provisions, the ramifications of which are still being analyzed. It appears that as enacted, the reform package is linked to a statewide vote on dedicating a portion of the State's use tax to reimburse local governments. If, in an election to be held in August 2014, the voters reject the use tax change, the whole plan will be repealed. For more details of the plan, please call a Honigman tax appeal attorney.

 

Updated September 2012

Michigan Properties and Toll Northville Michigan Supreme Court Decisions
In the cases of Michigan Properties LLC v Meridian Township and Toll Northville LP v Northville the Michigan Supreme Court expanded the ability of the March Board of Review and the Tax Tribunal to correct erroneous taxable values.

Prior to the Court's decision in these cases, taxpayers and local units alike were prohibited from claiming an adjustment to taxable value for the current year, based on an error made in a previous year, unless that previous year was timely appealed or the error fit into one of the narrow statutory provisions for a retroactive adjustment.

Obviously, while this expanded authority can cut both ways for taxpayers and local units, we believe there will be many opportunities for taxpayers to take advantage of this new case law in situations where appeals may not have been filed timely.

Interest on Tax Tribunal Refunds
Legislation has recently been enacted that will increase the interest rate that local governments must pay on refunds resulting from property tax appeals. Over the past few years the annual interest rate on Tax Tribunal refunds has barely hovered over 1%. The statutory rate was tied to the 90 day Treasury bill rate and was so low that it was less than the rate at which many local governments could borrow money. Hence, many believed it worked as a disincentive for local units to settle pending tax appeals. The new legislation ties the interest rate to the prime rate. So, for the second half of 2012 interest on Tribunal refunds will accrue at 4.25% instead of the current 1.09%.

 

Updated June 2012

Michigan Senate Controls Resolution Of Proposed Property Tax Penalties

Buyers of business property in Michigan should be aware of an effort to significantly increase the cost of failing to timely file a property transfer affidavit. Current law requires buyers of real property to submit a transfer affidavit to the local property tax assessor within 45 days of the transfer or pay $5/day up to a maximum of $200. House Bill 4860 increases the penalty for late filing with respect to real property classified as industrial or commercial. If the sales price of the property is $100 million or less, the penalty is $20/day up to $1,000. For properties with higher sales prices, the penalty is $20,000. The Michigan House of Representatives recently passed HB 4860 and it is now pending in the Senate. The Republican majority Senate is often receptive to input from the business community, so if enough taxpayers express opposition it is possible the Senate would take no action on the bill.

 

Updated March 2012

May 31 Deadline For Most Michigan Business Property Tax Appeals
In recent weeks Michigan taxpayers should have received their 2012 property tax assessment notices. For real property that is classified as industrial or commercial, assessments may be appealed directly to the Michigan Tax Tribunal. The same is true for personal property if the personal property statement was filed before the first meeting of the March Board of Review. For these types of property, Tax Tribunal petitions must be filed on or before May 31.

Sometimes Legislation is the Answer
Most Michigan property tax disputes involve issues of property valuation or exemption, for which a tax appeal is needed to obtain relief. However, there are times when the best and most efficient solution to solving the problem is to seek a change in the law. Honigman can help identify issues that may be handled in that manner. Recently, Honigman successfully completed work in such a matter where a property owner's significant tax problem was resolved through enactment of new legislation. As a result of Honigman's property tax law expertise and experience in working with the legislature, in this recent matter the passage of the legislation was achieved in far less time and cost than it would have taken to resolve the matter through a tax appeal.

 

Updated December 2011

2012 New Michigan Tax Savings Opportunities And Challenges

In Michigan, taxpayer opportunities and challenges will continue next year. The State still maintains a relatively high unemployment rate which is above the national rate. This continues to negatively impact the real estate market. The Proposal A "inflation rate" for 2012 is 2.7% which means that taxable values (on which property taxes are based), will increase where a property's state equalized value exceeds its taxable value. Given the foregoing, and with next quarter's delivery of 2012 assessment notices, now is the time for taxpayers to begin planning for 2012 assessment appeals.

A group of taxpayers are now working to increase the interest rate for property tax refunds. Under the Tax Tribunal Act, the interest rate for property tax refunds was 3.31% for calendar year 2009, 1.23% for calendar year 2010, 1.12% for calendar year 2011 and will be 1.09% for 2012. In contrast, if taxpayers pay their taxes late they are charged interest rates that range from 12% per year to 18% per year. Not only is this disparity unfair, but it incents taxing units to delay addressing legitimate tax appeals. Taxpayers who would be willing to endorse this statutory change can contact Honigman which is involved in the effort to change the law.

The Michigan Corporate Income Tax will soon be effective. Honigman can assist those seeking counsel with respect to any issues involving this new tax.

Stewart L. Mandell
Honigman Miller Schwartz and Cohn, LLP
American Property Tax Counsel (APTC)

 

Updated June 2011

Corporate Income Tax Replaces MBT
On May 25, 2011, Governor Rick Snyder of Michigan signed into law legislation that dramatically changes the tax landscape for Michigan businesses.  The new law replaces the Michigan Business Tax with a corporate income tax starting in 2012. The new tax will apply only to those entities characterized as a “corporation” under the federal income tax code.  The tax rate is 6%.  The corporate income tax is imposed on a “unitary” business group basis.  Income is apportioned to Michigan based solely on sales.

While exempting pass-through entities and S corporations from an entity level tax, the new law imposes a new withholding regime on pass-through entities for amounts distributed to its non-resident individual and non-individual members. 

With Michigan now having its third major state tax since 2007 there are important issues for taxpayers to discuss with their Michigan tax counsel.  For example, there are no provisions for the use of net operating losses incurred during the years that the MBT was in effect (2008 through 2011), nor does the new tax contain provisions for new credits after December 31, 2011, other than a small business credit.  Another important, of many potential issues: businesses contemplating 2011 transactions are urged to consider the timing of closing; there could be significant tax minimization by delaying closing until January 1, 2012.   Accordingly, taxpayers are urged to contact their Michigan tax counsel regarding these and other issues.

Supreme Court Allows Review Of Tax Commission Orders
On May 23, 2011 the Honigman firm obtained a significant taxpayer victory in the property tax classification saga that has involved many Michigan taxpayers.  Those who have followed Michigan’s property tax classification controversy are aware that in recent years the State had initiated an effort to change the classification of thousands of parcels.  At one time the Michigan Tax Tribunal had over 10,000 such cases pending.

One of the most important legal issues that arose as these cases were litigated was whether taxpayers could appeal state tax commission classification decisions.  With respect to classification appeals that taxpayers filed at the state tax commission, Michigan’s General Property Tax Act provided that the state tax commission was to “arbitrate” taxpayer petitions and that “(a)n appeal (could) not be taken from the decision of the state tax commission regarding classification complaint petitions and the state tax commission's determination is final and binding for the year of the petition.”  MCL 211.34(6).

Notwithstanding this statutory prohibition of an appeal, The Honigman firm appealed a number of state tax commission decisions to Michigan Circuit Courts.  Even though every Circuit Court which ruled on the matter asserted jurisdiction, the Michigan Court of Appeals held that the Circuit Courts did not have jurisdiction.

On May 23, 2011 the Michigan Supreme Court reversed the Michigan Court of Appeals and held that the Circuit Courts do have jurisdiction in these cases.  The Court agreed with Honigman that the Michigan Constitution guaranteed a right of appeal and that the statute prohibiting the appeal was unconstitutional.

 

Updated March 2011

Eventful Opening to 2011 Tax Appeal Season

Michigan Tax Appeal Deadline Approaching.
For most business property, May 31 is the deadline to file 2011 appeals.  Michigan values are still very depressed and a property’s value could still be materially excessive even if the 2011 assessment declined.  While the Honigman firm provides a free evaluation for properties where the  assessment is at least $1 million, it is important that reviews be done soon because of the approaching deadline and number of appeals expected to be filed this year.

Miss Michigan’s Tax Appeal Deadline At Your Peril.
A February Court of Appeals decision confirms the importance of timely filing appeals.  In Allesee v Twp of Bloomfield, confusion over whether a rent-to-own agreement was a land contract caused the taxpayer's taxable value to become uncapped retroactively for multiple years.  The taxpayer did not immediately appeal believing the assessor would correct the error when the facts became known.   Ultimately the taxpayer had to file an appeal and both the Tax Tribunal and the Court of Appeals held that the appeal was too late.  The Court of Appeals expressed a hesitancy to affirm because it appeared there was “some merit to petitioner’s argument,” however under the facts presented and the law, the Court concluded it had no choice.  This case underscores the importance of timely appealing an action of a Michigan assessor, even in cases where a taxpayer believes that the error is so clear that the assessor will have to correct it.

Michigan Decision Supports M & E Personal Property Appeals.
On March 8, 2011 the Michigan Court of Appeals decided Spartech Polycom v City of St Clair in which the key issues were:  (1) the proper methods to value personal property; (2) could  appraisers use website sales information to value personal property; and (3) in a sales comparison approach could the appraiser disregard freight, sales tax and installation, which typically are included in the State Tax Commission’s cost approach.  The taxpayer’s appraiser valued most of the subject assets using the market approach.  The appraiser obtained information about sales and prices from a number of sources including: i)  e-commerce sites, such as eBay “Buy it Now” prices; and ii) manufacturers, sellers and dealers.  The appraiser did not include sales tax, transportation or installation costs in his sales comparison approach.  The City relied on the State’s cost less depreciation approach.  The City argued that the appraiser’s methodology violated state law and even in the Tribunal the State Tax Commission filed a brief supporting the City.  The Tax Tribunal accepted the methodology and conclusions of the taxpayer’s appraisal.  The Michigan Court of Appeals affirmed the Tax Tribunal.  Especially with this decision, taxpayers with Michigan manufacturing operations should carefully consider whether to appeal a personal property assessment.

Supreme Court Interprets Joint - Tenancy Taxable Value Uncapping
The Michigan Supreme Court recently decided Klooster v City of Charlevoix. The Court interpreted the exemption from property tax (taxable value) uncapping for a transfer creating or terminating a joint tenancy between two or more persons. There were three relevant transactions in Klooster involving property previously acquired by a father in a non-exempt transfer of ownership... More here

 

Updated December 2010

2011 New Michigan Tax Savings Opportunities And Challenges

In Michigan taxpayer opportunities and challenges will continue in 2011. The State still maintains one of the highest unemployment rates in the country which continues to negatively impact the real estate market. The Proposal A "inflation rate" for 2011 is 1.7%, which means that taxable values (on which taxes are based), will increase where a property's state equalized value exceeds its taxable value. Given the foregoing, and with next quarter's delivery of 2011 assessment notices, now is the time for taxpayers to begin planning for 2011 assessment appeals.

In November the Michigan Tax Tribunal began hearing some of the over 10,000 property tax classification appeals that the Michigan Department of Treasury had filed. In these cases the State sought classification changes that would have increased property taxes and Michigan Business Taxes. In one of the first cases heard, the Honigman firm obtained summary disposition for the taxpayer at the hearing. Shortly after this hearing the State Tax Commission ("STC") announced that it was withdrawing the pending Tribunal appeals and indicated it would be taking other actions with respect to property classification. Honigman attorneys are available to discuss the potential STC action and ramifications of that action as well as new assessment appeals for 2011.

 

Updated September 2010

Michigan Court Of Appeals To Taxpayers: "Timely File Your Appeals!"

A case the Michigan Court of Appeals (COA) recently issued for publication yet again confirms the importance of timely appealing unlawful Michigan property taxation. In this case, everyone agreed the property's classification was incorrect and yet the taxpayer's failure to timely appeal resulted in excessive taxation.

In Michigan, a valuable tax credit is available under both the Michigan Business Tax and its predecessor, the Single Business Tax (SBT), for property taxes paid on industrial personal property. In this particular case, the Department of Treasury denied the SBT credit the taxpayer claimed for personal property taxes it had paid during the tax year."The Department did not dispute that the property met the the General Property Tax Act definition of industrial personal property. However, the Dept. claimed that the SBT credit was limited for "personal property classified as industrial personal property under ...the General Property Tax Act". The Department contended the taxes paid on the property were not eligible for the credit because the local assessor had not classified the property as industrial and the taxpayer did not timely appeal the property's classification.

The COA agreed with the Department meaning that for purposes of eligibility for the MBT (or SBT) credit, the nature and use of personal property is not dispositive. What matters is how the property was actually classified under the general property tax act. Especially given that classification appeal deadlines expire before MBT returns are filed, taxpayers cannot wait until a credit claim is denied before appealing a property's classification. (Walter Toebe Construction Company v. Department of Treasury, Mich. App. No. 291764, July 27, 2010, approved for publication Sept. 2, 2010.).

 

Updated June 2010

Michigan Refuses To Issue New Pollution Control Exemption Certificates
Many states, including Michigan, exempt from property taxes facilities for which the primary purpose is to reduce water and air pollution. In Michigan, pollution control property becomes exempt only after the

State Tax Commission ("STC") Issues an Exemption Certificate
The Department of Natural Resources and Environment ("DNRE") has historically advised the STC as to whether specific facilities primarily reduce pollution under the definitions in Michigan law. However, recently the DNRE has refused to continue providing such advice to the STC. As a result, the STC is no longer issuing exemption certificates. This puts taxpayers in the position of having to file suit in order to force the government to act in accordance with Michigan law. At this time, Honigman is not aware of a taxpayer filing an action to obtain an exemption certificate.

 

Updated March 2010

Clearing the Air Regarding Michigan Classification Appeals
The Michigan Department of Treasury recently announced it had filed almost 10,000 property tax classifications for the 2009 tax year. In light of the MBT credit for industrial personal property tax paid and the reduced property tax rates for industrial and commercial property, Treasury's action likely will increase taxes for many taxpayers. The mass appeals announcement has caused a flurry of "advisories" and newsletters from various consultants and interested parties. It has come to our attention that some of these communications have significant inaccuracies.

To set the record straight, the Tax Tribunal is supposed to send each property owner the Petition that Treasury filed along with notice that the property owner has 28 days, from the date of service, to respond. While this will still require taxpayers to act quickly, and there may be cases where taxpayers do not receive notice, the system should provide much more notice than some have suggested. Additionally, the ramifications of these appeals need to be evaluated on a case by case basis. These appeals will significantly increase taxes for some, but not all, taxpayers. As a result, taxpayers should be on the lookout for such Tax Tribunal notices and they should carefully review their 2010 assessment notices to make sure each property classification is correct. If property is not correctly classified, then a timely appeal must be made to the March Board of Review.

Honigman has been at the forefront of the battle on classification issues and currently is handling the lead case which soon will be appealed to the Michigan Supreme Court. If you have concerns about the classification appeals and want to know how they could impact your taxes, you can call one of our property tax professionals.

Another Favorable Decision on the Uncapping of Taxable Value
The Court of Appeals in Klooster v Charlevoix recently held that a transfer of property from parents to their son, through the creation and termination of a joint tenancy, was exempt from uncapping, even though a direct transfer of property from parents to their children would have triggered an uncapping of taxable value. Under Klooster and the earlier Court of Appeals' decision in Moshier v White Water Twp, it may also be possible to transfer property to an unrelated third party buyer without uncapping. The manner in which a property transfer is structured is critical to the uncapping consequences. Honigman property tax professionals can provide guidance regarding Michigan transfer/uncapping issues.

 

Updated December 2009

2010 Provides New Michigan Tax Savings Opportunities And Challenges

This will be a unique year for Michigan property taxpayers. 2010 will mark the first time since Proposal A was passed in 1994 that taxable values for most properties will decline because the annual cap (multiplier) on taxable value permitted increases for 2010 will be less than one. However, the required value decline will only be 3/10 of 1%, and therefore given the trend in commercial, industrial and other Michigan property, many business property owners will be filing appeals to obtain substantially larger reductions.

Although valuation appeal opportunities exist for 2010, taxpayers also may have exposure. The Michigan Department of Treasury has announced plans to appeal property classifications for 10,000 parcels before the end of the year. These appeals seek to challenge the various parcels' current "industrial" classifications and, thus, put the reduced tax rate and Michigan Business Tax Credit for related personal property parcels at risk.

If a taxpayer receives notice of an appeal, a prompt and timely response is necessary to preserve the taxpayer's rights. Also, for personal property owners involved in industrial activity who lease real property, the classification of the landlord's real property could impact the taxes payable on that personal property.

Honigman is handling the lead classification cases that are currently pending at the Michigan Court of Appeals and Honigman attorneys are available to discuss potential tax ramifications on these classification issues.

 

Updated September 2009

Michigan Taxing Units Initiate Numerous Classification Appeals

Since June, Michigan taxpayers have seen local government units initiate a large number of classification appeals at the Michigan State Tax Commission. As a result of these, and prior efforts, in a relatively brief period there have now been over 1,000 cases in which the government has sought to change a property's classification. The reason for this substantial reclassification effort is that a Michigan's property's classification can determine entitlement to Michigan Business Tax ("MBT") credits (based on property taxes paid) as well as a reduced property tax rate. In the usual case the government seeks to change the property's current and favorable industrial classification. In these cases taxpayers usually are given very little time to respond so it is imperative that taxpayers act quickly when they receive notices of such appeals.

Currently pending at the Michigan Court of Appeals is the first case in which the Court will decide a number of issues relating to the classification of property which the taxpayer contends is industrial personal property. The APTC's Michigan member, the Honigman firm, is handling that case. There is a good chance that the case will be decided in 2010. In the meantime, taxpayers would be well advised to promptly respond to any notice of government action to change the classification of Michigan property.

 

Updated March 2009

Michigan March Madness: Boards of Review & Classification Appeals?

For decades Michigan has had its own special March Madness; a non-contact sport that sometimes involves nail-biting races against the clock as taxpayers try to file Board of Review protests notwithstanding assessment notices arriving with no time to spare and filing requirements and deadlines that vary among Michigan's thousands of taxing units (including a handful of jurisdictions that put time on their side by establishing February appeal deadlines). Mercifully, since 2007 those with certain properties, including properties classified as commercial or industrial real, have been given a Board of Review bye. However, the Board of Review challenge goes on for many taxpayers including those who wish to change a property's classification.

Recent Michigan tax law changes make it more important than ever to ensure that Michigan property is classified correctly. In short, a property's classification can determine entitlement to Michigan Business Tax ("MBT") credits (based on property taxes paid) as well as a reduced property tax rate. Property classified as industrial personal has these credit and tax rate advantages; property classified as commercial personal also has a somewhat reduced tax rate. Significantly, Michigan courts may ultimately rule that the classification of a real property parcel determines the classification of that parcel's personal property.

To date Honigman clients have had some success in these classification appeals. While the State Tax Commission ("STC") has not granted taxpayer requested relief in the vast majority of classification appeals filed, Honigman was able to persuade the STC to reconsider and reverse decisions it made on a significant issue impacting two Honigman clients. The arguments Honigman prepared were essential to this favorable achievement because another taxpayer, with other counsel making different arguments, had lost on exactly the same issue.

At least as important are on-going efforts in other appeals where Honigman has sought classification relief in local circuit courts. In both of the cases that have been heard to date, the circuit court has issued a writ of mandamus ordering the STC to issue a proper order changing the classification of the property to "industrial personal," as the taxpayer had requested.

While the victories just mentioned are not the end of the story, the key lesson of the chapters written to date is that taxpayers facing unlawfully excessive taxation must act timely. Clearly, time to file 2009 Michigan property tax appeals is winding down. Whether an appeal needs to be filed with a Board of Review, or filed directly in the Michigan Tax Tribunal, taxpayers should act as soon as is possible. Given the complexities and intricacies of Michigan's procedural and substantive property tax provisions, taxpayers also would be wise to confer with experienced Michigan property tax counsel as soon as they can with respect to their Michigan property taxes.

 

Updated December 2008

Michigan Property Classification Appeals Can Reduce Taxes

Under Michigan law, starting in 2008 certain property classes obtain significant property tax rate reduction. Additionally, 35% of the remaining taxes that are paid on industrial personal property may be taken as a refundable Michigan Business Tax Credit by the business paying the tax.

Prior to these recent favorable property tax changes, few property tax appeals involved a property's classification. Illustratively, in the past, for personal property, it usually was of no consequence whether the personal property was classified as commercial, industrial or agricultural. Therefore, when a property's classification was litigated the issue typically was whether the property was real or personal property.

While the new favorable property tax provisions have made property classification very important, in recent years the legislature has not changed the laws that determine a property's classification. Nor has the legislature changed the provisions relating to classification appeals.

As a result, the area of property classification is one where there is now far more litigation than ever before and many of the cases involve issues of first impression. Furthermore, the issues involved in these appeals include both substantive and procedural ones. In fact, there are significant issues relating to the appropriate path to appeal a property's classification.

To date the State Tax Commission has been extremely involved in these classification appeals. Given the tax dollars at issue in these appeals, it is not surprising that thus far many of the Commission's decisions have not been favorable to taxpayers. However, recently the Honigman firm was able to obtain a favorable ruling that will be of significant benefit to the taxpayers impacted.

Michigan taxpayers are well advised to work with knowledgeable Michigan property tax counsel in order to determine if there is anything that can be done to appropriately reduce property taxes based on their property's classification. For many taxpayers, a favorable classification appeal could result in substantial tax savings.

 

Updated September 2008

Year End Could Bring Important Michigan Property Tax Changes

Thus far it has been a relatively quiet year in terms of Michigan property tax decisions and legislation. This has occurred primarily because of relatively few new Tax Tribunal decisions, attributable to the high number of Tribunal Member vacancies, as well as a tax legislation stalemate. Michigan taxpayers should not be surprised by significant changes on both of these fronts before the end of the year.

The governor recently appointed Victoria Enyart, Kimbal Smith III and Stuart Trager to the Michigan Tax Tribunal. Victoria Enyart has worked both as an assessor and property tax consultant; she is a past president of the Michigan Assessor's Association and has the State's highest level CMAE IV designation from the State Assessor's Board. Kimbal Smith III has been in the legal profession for almost forty years and his experiences include serving as a Deputy State Treasurer of Michigan and representing taxpayers in the Tax Tribunal. Stuart Trager is also an attorney and he had been involved in property tax litigation and legislative matters while serving as Supervising Assistant Corporation Counsel for the City of Detroit Law Department. Both Tribunal Members Enyart and Smith have previously served as Tax Tribunal Members. The addition of these Members is expected to result in new Tribunal decisions before the end of the year.

Besides the likelihood of new Tribunal decisions as the year end approaches, the legislature is considering a number of important new tax measures that could be passed before the end of the year. Few expect these pending bills to move before the election. However, it is quite possible that the leadership of the Democratic controlled House and Republican controlled Senate could agree on a large legislative package that results in significant Michigan tax changes. This is likely to be one holiday season where Michigan taxpayers should stay in touch with their Michigan tax advisors and legislators.

 

Updated September 2008

In Michigan, It Is Now Seller Beware

Buyers of Michigan real property are generally aware of the potential adverse tax consequences on the purchase of real property due to real property transfer taxes and the "pop up" property tax (uncapping of taxable value) which is triggered when property is purchased. However, sellers may now also be subject to significantly adverse tax consequences on the sale of their real property.

Under the recently enacted Michigan Business Tax ("MBT"), taxpayers pay both a business income tax ("BIT") and a gross receipts tax ("GRT"). The base on which the MBT is levied starts with federal taxable income and therefore captures any gain reported for federal income tax purposes. The GRT base is defined as all gross receipts from the taxpayer's business.

The MBT, unlike the Internal Revenue Code, makes no distinction between capital gain and ordinary income. Therefore, sellers of Michigan real property will find themselves subject to the MBT on both the gain on the sale (BIT) and the gross receipts of the sale (GRT). A limited GRT exclusion is provided for property used in a trade or business.

Example: Assume Seller sells property for $6 million with a basis of $3 million. For federal income tax purposes, Seller will receive capital gain treatment. The MBT liability would be $239,710, calculated as follows:

Sale Price $6,000,000
Basis $3,000,000
Gain $3,000,000

MBT Liability
Business Income Tax (BIT) $ 148,500 (4.95% of $3M)
Gross Receipt Tax (GRT) $ 48,000 (0.8% of $6M)
Subtotal $ 196,500
MBT Surcharge (21.99%) $ 43,210
Total MBT Due Based on Sale $239,710

Recapture of investment tax credit taken for Single Business Tax purposes may also increase Seller's MBT liability. Many sellers of Michigan real property have already been surprised by this tax bite. However, with careful planning, sellers of real property may be able to lessen the impact of the MBT.

 

Updated March 2008

Crain's Detroit Business Recognizes Honigman Results

For the second year in a row Southeastern Michigan's Top Verdicts and Settlements featured in Crain's Detroit Business included a property tax appeal handled by Honigman Miller Schwartz and Cohn LLP. In Transwestern Fountain Walk LLC v City of Novi, the City valued a new lifestyle center as having market value of over $74 million on December 31, 2003. This property had over 750,000 square feet and featured such retailers as Dick's Sporting Goods, The Great Indoors and Cold Stone Creamery. Each year after 2004, the City continued to value the property at over $74 million until the case was settled in 2007. Pursuant to the settlement, the City agreed to reduce the property's market value to $57.5 million for tax years 2004-2006 and $47 million for 2007. The resulting multi-million dollar tax savings was one of only ten 2007 cases that Crain's featured.

In 2007, Crain's Top Verdicts and Settlements featured four cases that the Honigman firm handled. Of the four cases, two were Michigan Supreme Court victories for taxpayers.

 

Updated December 2007

Michigan Offers Personal Property Tax Savings Opportunities - Timely Payment Required for SBT Credit

2007 is the last year for the Michigan Single Business Tax (SBT). The new Michigan Business Tax (MBT) becomes effective January 1, 2008. However, a refundable credit against the 2007 SBT equal to 15% of Michigan industrial personal property taxes paid in calendar year 2007 remains available.

For property classified as industrial personal property, the 2007 tax must be paid on or prior to December 31, 2007 for the payment to be eligible for the SBT credit. Therefore, it is imperative that the 2007 tax bills for industrial personal property, including the recently issued winter 2007 tax bills, be paid on or prior to December 31, 2007.

Conferring with knowledgeable Michigan tax counsel could pay substantial dividends if you believe that you have industrial personal property but that property does not appear to be classified as such or if you need assistance in determining and filing for this credit.

 

Updated September 2007

External Obsolescence Results In Significant Tax Reduction

In recent years, Michigan industrial and commercial properties in particular have suffered from substantial external and economic obsolescence; obsolescence that is not attributable to a flaw in the property itself, but due to external forces. A recent Michigan Tax Tribunal case involved an agricultural processing facility that highlights how significant external obsolescence can be. In this case, the total assessment on the tax rolls reflected most if not all of the property's depreciation from physical and functional flaws. However, if the property owner had tried to sell this processing facility, no buyer would have bought the property for its existing use because foreign competition had forced non-farmer producers to exit the market. Accordingly, the property would have sold as basic industrial property, worth substantially less than the assessor contended. Notwithstanding this, and that an appraisal confirmed substantial economic obsolescence, the assessor refused to make any assessment reduction. Ultimately, after several days of trial, including intense cross-examination of the government's purported expert that prompted some significant observations from the Tribunal Judge, the case settled with downward revisions that totaled an almost 40% reduction from the original value on the tax roll. Very careful preparation is often required to persuade government representatives to make reductions based on external obsolescence. However, a lesson of this case is that tax appeal counsel who has experience with this issue can present cases that even persuade resistant government officials to make these reductions.