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Michigan Property Tax Updates

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)

 

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