Tax Payer’s Guide
MICHIGAN PROPERTY TAX
The general property tax has traditionally been an important part of our state’s tax structure. Money raised through property taxes goes toward financing local services, such as police and fire protection; public education; the operation of city, village, township, and county governments; and special projects such as sewers, streets, and parks. All property taxes collected by local units of government, other than the state education tax which is sent to the state School Aid Fund for distribution, are kept locally, and no other part of that revenue is sent to or used by the state.
PROPERTY TAX ASSESSMENT
Property subject to taxation by local units of government is classified as either real or personal property. Real property consists of land and any improvements to the land, such as buildings and water and sewer facilities. Personal property includes tangible items such as furniture, machines, and equipment belonging to a business, and those items not permanently attached to land or buildings. The “assessed value” of property is the value placed upon the property by the local assessment officer. The Michigan Constitution requires that property be assessed uniformly at a rate not to exceed 50% of true cash value. True cash value is what the property would bring on the local housing market.
Property assessment is an annual, three-step process.
- First, the local assessor determines the assessed value of property based on the condition of the property on December 31 of the previous year. This is 50% of what the assessor determines to be the market price.
- Second, the board of commissioners in each county equalizes, or applies an adjustment factor, to ensure that property owners in all cities, townships, villages, or school districts in the county pay their fair share of that unit’s taxes. Equalization serves to bring the total valuation across assessing units as close to the 50% level as possible.
- Third, the State Tax Commission applies an adjustment factor to the county assessments to bring the total valuation across counties as close to the 50% level as possible. This process produces the property’s state equalized value, or SEV.
While equalization results in the determination of the property’s state equalized value, the “taxable value” is what is used to calculate property taxes. The taxable value increase is capped at the rate of inflation or 5%, whichever is less. Historically, a property’s true cash value rose faster than inflation, resulting in taxable values below SEV. In recent times, even though some housing values have fallen, taxable value can never be more than SEV. The inflation rate used to calculate 2013 taxable values is 1.024%.
When a property is transferred, however, the following year’s SEV becomes the property’s taxable value, eliminating the cap of the rate of inflation or 5%. This triggers a “pop-up” in taxes due. A transfer of ownership occurs when a title or present interest in the property is transferred through conveyance by deed, land contract, trust, distribution under a will, certain leases, or other mechanisms. Transfers of property from one spouse to the other or from a decedent to a surviving spouse, among other exceptions, are not considered a transfer of ownership. Beginning December 31, 2013, transfers of residential property to an immediate family member are exempted from the pop-up if the use of the property does not change following the transfer.
The pop-up from taxable value to SEV does not apply when eligible farmland is transferred to new owners. When someone purchases eligible farmland and files an affidavit testifying that the property would remain in agricultural use for at least seven years, the transfer will not trigger the pop-up. Transfers of land subject to a conservation easement are also exempted from the pop-up.
PRINCIPAL RESIDENCE EXEMPTION
A principal residence is exempt from taxes levied by a local school district for operating purposes of up to 18 mills. A homeowner’s principal residence is defined as “the one place where an owner of the property has his or her true, fixed, and permanent home to which, whenever absent, he or she intends to return and that shall continue as a principal residence until another principal residence is established.”
Property owners may claim only one exemption. A husband and wife, filing income tax returns jointly, are generally entitled to no more than one principal residence exemption, although the law allows a temporary, additional exemption for up to 3 years on an unsold homestead, and allows members of the armed forces to retain their exemption if they rent their home while away on active duty.
To be eligible for the homeowner’s principal residence property exemption in 2013, a taxpayer must have claimed an exemption by filing an affidavit with the local tax collecting unit on or before June 1, 2013 for the immediately succeeding summer tax levy and November 1, 2013 for the immediately succeeding winter tax levy. Exemptions filed in prior years are valid until rescinded.
HOMESTEAD PROPERTY TAX CREDIT
Eligible homeowners or renters who pay more than 3.5% of their household income in property taxes can receive a credit or rebate on their state income tax.
A person may be eligible to request a poverty exemption from property taxes if they, at a minimum, own and occupy the property as their homestead, demonstrate evidence of ownership and identification, and meet poverty income standards. The local board of review makes the determination if the exemption should be granted or denied based on the guidelines for both income and asset levels adopted by the local unit of government. Poverty exemption denials may be appealed to the July or December board of review.
To be eligible for an exemption, a homeowner must apply to the local assessing unit after January 1 but before the day prior to the last day of the board of review.
APPEALING A TAX ASSESSMENT AT THE LOCAL BOARD OF REVIEW
If, for any reason, a taxpayer disagrees with the assessed value, taxable value, or assessment classification of property, he/she may appeal to the local governmental board of review.
Township boards of review are comprised of three, six, or nine voters who are appointed by the township board. Township review boards meet in the week containing the second Monday in March to hear protests. Boards of review also meet in July and in December to correct qualified errors in the roll, including adjustments for property incorrectly listed as having had a transfer of ownership or certain other errors regarding the taxable status of the property. These meeting dates are also used for disputes over claims for the homeowner’s principal residence, poverty, and initial qualified agricultural property exemptions.
The size, composition, appointment, and meeting times of city boards of review vary according to requirements of their respective charters. Places and times of their meetings should be posted in the local newspaper.
THE MICHIGAN TAX TRIBUNAL
To make an appeal at the state level, a taxpayer must have first locally appealed an assessment of residential or agricultural property. If not satisfied with the judgment of the board of review, a taxpayer may appeal the decision to the Michigan Tax Tribunal, an independent body which has the power to hear appeals of judgments of the local boards of review. The tribunal has seven members appointed by the Governor and confirmed by the Michigan Senate. To appeal an assessment to the Michigan Tax Tribunal, an appeal must be filed on or before July 31 of the tax year involved for residential or agricultural property and by May 31 for other property.
The Residential and Small Claims Division of the Michigan Tax Tribunal hears appeals of agricultural and homeowner’s principal residence exemptions. An appeal must be filed within 35 days after the assessor, county treasurer, or county equalization director denies a claim for exemption. An appeal of a claim for a poverty exemption must be filed by June 30, if the claim was denied at the March board of review. A claim must be filed within 30 days if the July or December board of review (meetings held to correct errors in the roll) denies a claim of exemption. There is no fee for the filing of a homeowner’s principal residence property tax appeal. The fees for filing other property tax appeals are on a scale determined by the amount of SEV in contention, with a minimum of $25.00.
An initial letter of appeal to the Michigan Tax Tribunal should be addressed to the Michigan Tax Tribunal, P.O. Box 30232, Lansing, MI 48909. The letter should state: (1) that the assessed value has been protested this year at the local board of review (if residential or agricultural property); (2) the number of assessments which are being appealed; and (3) the location of the property by village, city, or township and county.
PROPERTY TAX RATES
The tax rate, or millage, is the number of tax dollars the taxpayer must pay for each $1,000 of taxable value. This rate varies by local unit, but certain statewide constitutional and statutory restrictions exist. The rate may not exceed 15 mills ($15 per $1,000) except in counties in which voters have approved rates of up to 18 mills. Excluded from these limitations are:
- debt service taxes for all debts of local units approved by the electorate;
- extra-voted millage rates up to 50 mills for not more than 20 years; and
- taxes imposed by those units having tax limitations provided by charter or general law (cities, villages, charter townships, charter counties, and charter authorities).
Property taxes can be determined by multiplying the total local millage rate by the taxable value of property. A mill equals one one-thousandth of a dollar ($1 of tax for each $1,000 of taxable value). For example, if the local millage rate is 32 mills ($32 per $1,000 of taxable value) and the taxable value is $100,000, the formula would be $32 x 100, for a property tax of $3,200. The Michigan Department of Treasury has a property tax estimator on its website (www.michigan.gov/treasury).
Property taxes may be collected in the summer or the winter, or in some combination. Townships traditionally collect property taxes in the winter, but most cities, and all counties, now collect property taxes in the summer. The six-mill state education tax is collected in the summer. School boards or intermediate school districts can request that a city or township collect half or all of their school taxes in the summer. County extra-voted millage is collected in the winter.
There are several instances in which a taxpayer may have their payments for special assessments or summer or winter property taxes deferred.
A homeowner who is 65 years of age or older or who is totally and permanently disabled, and who is a citizen of the United States, a resident of this state for five or more years, the sole owner of a homestead for five or more years, and who meets household income standards, is eligible to defer special assessments on that homestead. The total amount of the special assessment to be deferred, exclusive of interest, cannot be less than $300.
For those who qualify for a special assessment deferment, the payment of the deferred special assessment by the owner, or the owner’s estate, will include an interest charge of 1% per month or fraction of a month. Special assessments will be deferred until one year after the owner’s death or until the homestead is sold, conveyed, or transferred to someone else. Death of a spouse, however, will not terminate the deferment for the surviving spouse, unless the surviving spouse remarries.
SUMMER OR WINTER PROPERTY TAX
A taxpayer who is a senior citizen (age 62 or over, including the un-remarried surviving spouse of a person who was 62 years of age or older at the time of death), paraplegic, quadriplegic, hemiplegic, eligible serviceperson, eligible veteran, eligible widow or widower, or who is totally and permanently disabled or blind may be able to delay paying summer or winter taxes on his or her homestead if total household income in the prior taxable year did not exceed $40,000. Winter taxes may be deferred until May 1 of the first year of delinquency and summer taxes may be deferred until the following February 15. Subject to the approval of county boards of commissioners, property taxes deferred under this procedure shall not be subject to penalties or interest for the period of the deferment. This allows taxpayers to apply for and receive the homestead property tax rebate before the taxes are due. Taxpayers can contact the county treasurer to determine if the deferment has been made available and to check qualifications.
FARMLAND AND OPEN SPACE TAX RELIEF
In 1974, the Michigan Legislature passed the Farmland and Open Space Preservation Act to alleviate the rapid and often premature conversion of land, uniquely suited for agriculture and open space, to more intensive uses. This law enables a landowner to voluntarily enter into a developmental rights agreement or a developmental rights easement with the state. These agreements or easements ensure that enrolled lands (active farmland or certain open space lands are eligible) remain in a particular use for an agreed-upon period of time. In return for maintaining the land in a particular use, the landowner is entitled to certain property tax benefits. To be eligible, the agricultural land must be actively farmed and must generally meet one of the following qualifications: be 40 or more acres in size; five to 40 acres in size with a minimum per-acre gross income of $200 per year; or a Department of Agriculture and Rural Development-designated “specialty farm” with a minimum gross annual income of $2,000. At least 51% of the land must be primarily devoted to an agricultural use, except for specialty farms.
For more information on property taxes please go to: www.michigan.gov/taxes