It is property tax time again! Your board of review just finished mulling over property owners’ annual filings last month, commercial and industrial appeals to the Tax Tribunal are due May 31, and agricultural and residential appeals to the Tribunal will be due July 31. Since our last update on property tax law, there have been numerous property tax developments. Knowing about these recent developments can help you avoid expensive tax appeals and increase your property tax collections.
Beware Big Boxes!
Recent newspaper reports across the state have highlighted concerns about Tax Tribunal decisions and settlements involving big box stores such as Meijer, Wal-Mart, Kohl’s, Target, Lowe’s, Home Depot and others. Since late 2010, with a Tax Tribunal decision involving a Target store in Novi, the Tribunal has repeatedly enforced a new theory that results in dramatically lowering the property values of big box stores. That has also resulted in many townships agreeing to settle big box tax appeals for unreasonably low values.
The new approach being used by the Tribunal incorrectly compares operating big box stores with “dark stores,” which are failed and vacant stores that went out of business and have been converted to some other use. For example, one of the “comparable” properties the Tribunal relied on in several recent big box opinions was a former Sam’s Club that was closed, sold, partially converted to an indoor go-cart track but never opened, then resold for use as a warehouse. Another Tribunal “comparable” is a former big box store purchased by a congregation for conversion to a church at substantial reconstruction cost.
Such failed former store buildings will of course never be worth as much as a building used by a thriving store. That’s why MCL 211.27(1) requires true cash value to be based upon the “existing use,” not some future or speculative secondary use that might be made of the building years from now when the building becomes obsolete for its existing use. Two townships from the Upper Peninsula have appealed to the Court of Appeals, attempting to reverse this line of Tribunal cases. The Michigan Townships Association and Michigan Municipal League will be supporting the townships’ appeals with their own briefs.
Unfortunately, many townships are panicking as a result of the recent Tribunal decisions and are settling tax appeals with big box store owners for very low values. Townships should recognize that such settlements may deprive local taxing units of significant tax revenues that may be irreplaceable. When an appeal is settled for low values, all the affected taxing units must refund substantial past taxes. In addition, Proposal A effectively prevents any significant increase in the taxable values in future years. Regardless of the outcome in the pending appeals, townships that settle for low values (and other affected local taxing units within those townships) may feel the effects of these settlements for years to come. Lowe’s v Marquette Charter Township, Michigan Tax Tribunal (2012); Home Depot v Breitung Charter Township, Michigan Tax Tribunal (2012).
State Tax Commission Filing Deadline is May 6, 2013
Pursuant to MCL 211.52, if the assessor believes that property has been omitted from or improperly described on the roll or individual assessments resulting from the board of review were not been made in compliance with law, the assessor may file a written complaint with the State Tax Commission (STC) by not later than the first Monday in may, which this year is May 6, 2013. The STC must conduct a hearing on the assessor’s complaint, after giving notice to the taxpayers. If the STC finds, based on that hearing, that property was omitted, improperly described, or that assessments were contrary to law, the STC has the power to amend the roll.
Tax Tribunal Must Independently Determine True Cash Value
Whenever a property owner challenges its property value in the Tax Tribunal, the Tribunal must independently determine the true cash value (TCV) of the property. The TCV is the property’s “fair market value” or “usual selling price.”
What this requirement for an independent determination means is that, regardless of any defects in the valuation evidence presented by the township or the property owner, the Tribunal “has a duty to make its own independent determination of true cash value.” This requirement can have several important consequences in your cases before the Tribunal.
For example, if multiple tax years are involved in an appeal and the property owner or the township neglects to submit an appraisal for all the years in question, the Tribunal still must make an independent decision for all the years based on the evidence submitted by the parties. The Tribunal cannot simply dismiss an appeal because of insufficiency in the evidence submitted. The township’s value is not presumed valid, and the Tribunal must conduct an independent review and derive the property’s value. Accomodator-Burwick Farms, LLC v Howell, Michigan Court of Appeals (2013).
When is a Hunting Cabin Part of the Principal Residence?
Hunting cabins frequently present principal residence exemption issues. If such a cabin is adjacent to a principal residence, has no septic system, running water, or heating system (other than a wood stove), is used principally for storage, and only temporarily used as hunting shelter during hunting season, it can be considered part of the property that is subject to the principal residence exemption. The determining legal issue is whether the cabin is “unoccupied” as required by law. If the cabin does not have any tenants or residents, is used for storage, and is not configured to be a residence, such use was not sufficient to find that the cabin is being used as a residence.
This recent case may have narrow applicability because it involved a cabin on property that was adjacent or touching the property owner’s principal residence. This does not mean that a hunting cabin on a piece of property located miles away from one’s principal residence is entitled to this exemption. Compson v County of Mecosta, Michigan Court of Appeals (2013).
What is the Difference between a Fee and a Tax?
It is well-known that, under the Headlee Amendment to the Michigan Constitution, a voter approval is required for a township to levy additional taxes. But not all revenues received by townships are taxes. Some charges are “fees,” which are not subject to the Headlee limitations on taxes.
For example, fees include the amounts that townships charge for water and sewer connections. Unlike taxes, fees are “exchanged for a service rendered or a benefit conferred, and some reasonable relationship exists between the amount of the fee and the value of the service or benefit.” In addition, a fee may serve a regulatory purpose by collecting revenues proportionate to the necessary costs of the service. Contrary to a fee, a tax is principally designed to raise revenue. Grand Blanc Community Schools v Wright, Michigan Court of Appeals (2013).
Fees and Special Assessments for Public Improvements
Fees should also not be confused with special assessments, which are charges designed to recover the benefit that a property receives from an improvement or service. In some circumstances, it may be appropriate for a township to levy both a special assessment and a fee to cover different aspects of the same improvement. For example, in a water or sewer system, there may be a connection fee designed to recover the costs of connecting the property to the main portion of the water or sewer system, as well as a special assessment to cover the property’s proportional benefit and cost of the whole water or sewer system. The two types of charges are not mutually exclusive. Carman v Northport, Michigan Court of Appeals (2012).
Trade Union Apprentice School Not Eligible for Tax Exemption
An apprenticeship fund that operates with the purpose of minimizing costs to training apprentices and journeymen should be assessed as commercial property and is not entitled to be exempt from property tax under MCL 211.7n as an “education institution.” Michigan Laborers Training & Apprenticeship Fund v Breitung Charter Township, Michigan Court of Appeals (2013).
Thrift Store Is Entitled to Property Tax Exemption
An organization that operates a thrift store, including re-donating items to various other charities and providing revenue received to local religious school is a “charitable institution” and is entitled to a property tax exemption. Second Impressions Inc v Kalamazoo, Michigan Court of Appeals (2012).
Recent Rule Changes at the Tax Tribunal
The Tax Tribunal has approved revised Rules of Practice and Procedure. The new Rules apply to all appeals filed after March 20, 2013. Here are the “highlights” of the new Tribunal Rules:
- Appeals filed in the Entire Tribunal, including commercial property appeals, are no longer served on townships and other taxing entities until petitioners file the appeals and the Tribunal issues docket numbers to petitioners. Then, petitioners have 45 days to serve the appeal petitions and file proofs of service with the Tribunal.
- Appeals filed in the Small Claims Division of the Tribunal, including residential property appeals, must be in “petition” form. Previously, the Tribunal accepted letters of appeal and would mail petition forms to petitioners and answer forms to townships. Letter appeals are no longer accepted. After small claims appeal petition forms are received, townships have 28 days to file answers.
- Filing fees for appeals filed in the Small Claims Division have been “corrected.” All appeals filed in the Small Claims Division, except for residential valuation appeals, now require the same fees as Entire Tribunal appeals. Only residential valuation appeals filed in the Small Claims Division now receive a reduction in fees (1/2 of the Entire Tribunal filing fees).
- If no filing fee is submitted to the Tribunal when an appeal is filed, the Tribunal will issue a Notice of No Action. The correct filing fee still must be paid by the statutory deadline for appealing (May 31 for residential; July 31 for commercial). Filing a petition without the filing fee will not “stay” the statutory deadline for filing.
- If an appeal is filed and an “insufficient” filing fee is submitted to the Tribunal, the Tribunal will issue a Notice of No Action. However, petitioner will have 21 days from the Notice to submit the required filing fee.
- If an appeal is filed and it is “not clear” whether the filing fee submitted to the Tribunal is sufficient for the appeal, the Tribunal will issue a Notice of Docket Number and docket the case. If the filing fee is determined later to be insufficient, the Tribunal will enter a default order. To remove the default order, petitioner must submit the required filing fee and file a motion to set aside the default (and pay the proper motion fee). If petitioner fails to set aside the default, the case will be dismissed.
- If a motion is filed without the required filing fee (or with an “insufficient” filing fee), the Tribunal will issue a Notice of No Action. The Tribunal will not take action on the motion unless the required fee is submitted (along with proof of notifying the opposing party) within 21 days of the Tribunal’s Notice.
- If a motion to amend a petition to include a subsequent tax year is filed and it is “not clear” whether the required filing fee was paid, the Tribunal will issue a Notice of No Action. The Tribunal will not take action on the motion unless a revised motion is submitted (with proof of notifying the opposing party) making clear what filing fee is required, along with the required filing fee.
- Witness lists are no longer filed after prehearing conferences in the Entire Tribunal. Instead, witnesses are identified in prehearing statements (filed prior to prehearing conferences).
- Post-valuation disclosure discovery is expanded to include discoverable information about witnesses disclosed in prehearing statements.
We Can Help
Fahey Schultz Burzych Rhodes PLC’s team of experienced attorneys is well-versed in property tax law. We use streamlined expert systems to efficiently litigate property tax appeals and keep township costs down while defending property assessments. Townships facing property tax issues need attorneys who have experience in trials, prehearing negotiations and appeals; stay up-to-date with recent Tribunal and appellate opinions; and control costs. If you have any questions about property tax issues or wish to discuss any of the matters in this E-Letter, please contact us.
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Fahey Schultz Burzych Rhodes PLC, Your Township Attorneys, is a Michigan law firm specializing in the representation of Michigan townships. Our lawyers have more than 130 years of experience in township law, and have represented more than 130 townships across the state of Michigan. This publication is intended for our clients and friends. This communication highlights specific areas of law, and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.
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