It is property tax time again! As Boards of Review close and assessment rolls are finalized, it’s time for another Property Tax Update. This E-Letter focuses on recent developments in property tax law, changes in procedures at the Tax Tribunal, the Walgreens personal property appeals, and an update on Big Box appeals. Knowing about these recent developments can help you avoid expensive tax appeals and increase your property tax collections. Watch for a continuation of this update next month.
Big Box Litigation Update
As many townships are aware, “big box” retailers like Lowe’s and Home Depot have lowered their property tax assessments substantially across Michigan before the Michigan Tax Tribunal. The Tribunal has agreed that the values of these properties are comparable to closed, vacant stores. Townships have argued that the values must take into consideration the “existing use” of the properties and there is a market for occupied comparable properties. Breitung Township, Marquette Township, and Grandville have appealed big box decisions to the Court of Appeals. Breitung and Marquette Townships’ appeals were consolidated and will be argued next month. Although the ultimate result may not be known until one or more of the cases reach the Supreme Court, we will update you when the Court of Appeals issues its opinion.
New E-Filing System Introduced at the Michigan Tax Tribunal
The Tax Tribunal recently launched its new E-Filing and Case Management system. The Tribunal now offers a free, voluntary electronic system for filing pleadings and other documents for all cases in the Small Claims pision and the Entire Tribunal. Townships and their attorneys may now electronically file answers, stipulations, motions, and other documents, and pay filing fees. In addition, viewing and managing all electronically filed documents online is now available via the Tribunal’s new case management system. Please feel free to contact us with any questions about using the Tribunal’s new systems. The recently overhauled Tribunal website also has details on e-filing and the online case management system. The Tribunal’s website address is http://www.michigan.gov/taxtrib/.
Walgreens Files Personal Property Appeals Across the State
Walgreens recently filed numerous personal property tax appeals in the Tribunal. These appeals all claim a mutual mistake under MCL 211.53a. Walgreens argues that its photo processing equipment should be reported in personal property Table F, rather than Table D, which would substantially reduce assessments going back to tax years 2010, 2011, 2012 and 2013. Following Walgreens’ filings, the State Tax Commission reminded assessors that: (1) State Tax Commission Bulletin 12 states that photo developing equipment should be reported in Table D; and (2) since Walgreens’ appeals are filed in the Entire Tribunal, townships must file answers within 28 days after the petition was mailed to them. Please feel free to contact us if your township received one of these appeals, if you have any questions about them, or if you would like a copy of the State Tax Commission’s guidance to assessors.
Costs and Fees in Tribunal Tax Appeals
In defending property valuation appeals, townships must justify assessments with acceptable valuation methods. It is possible for the Tax Tribunal to order a township to pay costs and fees associated with a taxpayer appeal of a property valuation. If the taxpayer prevails on the appeal, and the township is deemed to have taken a “frivolous” position, the Tax Tribunal may assess costs against the township.
Under Michigan law, a defense or position taken by the township will be deemed frivolous if at least one of the conditions is met:
- The purpose of using the defense was to harass, embarrass, or injure the taxpayer;
- The township had no reasonable basis to believe the facts supporting its defense or position were in fact true; or
- The township’s legal position did not have arguable legal merit.
The Tribunal found a township’s defense of its assessment to be frivolous where the township ignored a previous court ruling regarding the same property. Even though the previous ruling said the township should not add deferred maintenance costs to the assessment, the township added those costs in the latest tax year, which led to the taxpayer appealing again. Since the township added the deferred maintenance costs contrary to the previous court ruling, and did not present new evidence to justify the costs, its position was ruled to be without “arguable legal merit.” Treetops Acquisition v Dover Township, Court of Appeals (January 16, 2014).
However, the Tribunal has complete discretion in determining whether costs should be awarded. The Tribunal Rules allow the judge to award costs, but provide no strict guidelines. In determining whether costs should be awarded, the Tribunal is only required to make a decision “supported by competent, material, and substantial evidence on the whole record.” Riggle v Suttons Bay Township, Court of Appeals (February 27, 2014).
Principal Residence Exemption
Michigan’s principal residence exemption allows property owners to claim an exemption for their principal residence from taxes levied by a local school district for school operating purposes. In claiming a principal residence exemption, a taxpayer must prove that the property is used as the taxpayer’s principal residence, and that the taxpayer is the owner of the property.
The Tax Tribunal has the discretion to decide how much weight is given to evidence that demonstrates whether property is used as a principal residence. For example, the Tribunal may decide to give more weight to evidence of the taxpayer’s address used for voter registration purposes versus evidence of the address where the taxpayer receives mortgage statements. Nelson v Mackinac County, Court of Appeals (October 10, 2013).
In claiming a personal residence exemption, the taxpayer must provide sufficient proof of ownership. Lease and license agreements show a right to use property, but generally are not evidence of ownership. A deed or other writing that actually shows the transfer of title to the property are the strongest evidence, but other evidence that demonstrates ownership will be considered by the Tribunal. Power v Department of Treasury, Court of Appeals (May 28, 2013).
Charitable Tax Exemption
Michigan law exempts “charitable institutions” from paying property taxes. In seeking a charitable exemption from property taxes, an institution must satisfy several factors to establish itself as a “charitable institution.” One of the factors requires the institution to offer its charity on a non-discriminatory basis, meaning that it serves any person who needs the charity being offered.
An institution that offers its charity on a discriminatory basis, even without discriminating against a protected class (i.e., gender, age, race, national origin, religion, familial status, etc.), is not entitled to a charitable tax exemption. For example, an institution providing free room and board to only 30 students enrolled at a University based on a highly subjective application process “discriminates” in providing its services and therefore is not entitled to a charitable tax exemption. Telluride Association v Ann Arbor, Court of Appeals (July 16, 2013).
In contrast, a thrift shop did not discriminate in providing charitable services when it sold used merchandise it received by donations and then donated all its profits to a local Christian school to reduce tuition payments for students. Even though the profits were only donated to a select group, the thrift shop was not providing charity in a discriminatory manner because any family who wanted to send their child to the Christian school would benefit from the charity. The tuition reduction was available to every student. Additionally, the shop re-donated items to various other charities. Second Impressions Inc v Kalamazoo, Court of Appeals (July 24, 2012).
Education Tax Exemption
Similar to qualifying for a charitable property tax exemption, an institution must satisfy several elements to qualify as an educational institution. Such an institution must fit into the “general scheme” of public education and make enough of a contribution to relieve some of the burden the government has in providing education.
Property used for a skilled-labor apprenticeship program, owned by a trust that also provides money to defray costs of training apprentices, does not qualify as an educational institution that is exempt from property taxes. The type of training offered in the apprenticeship program does not fit into the “general scheme” of public education and does not relieve any burden of the government. Michigan Laborers’ Training Fund v Breitung Charter Township, Court of Appeals (October 23, 2012).
Uncapping Property Taxes
A property’s taxable value is uncapped for the year following a transfer of ownership. In the event that a transfer of ownership is not immediately brought to the attention of the township, the township may adjust tax years dating back to the transfer once it becomes aware of the transaction. Generally, the taxpayer cannot avoid these tax adjustments by filing a corrective deed attempting to change the nature of the previous transfer of ownership, especially if makes a substantial change in the name of the person who received the ownership interest in the property. Lewallen v Porter Township, Court of Appeals (February 20, 2014).
When a property owner dies, the transfer of the property to a trust may result in the uncapping of the taxable value. Under state law, if property is transferred to the deceased owner’s spouse, the taxable value remains capped. Likewise, if the property is transferred into a trust, but the spouse is the sole beneficiary of the trust, the cap on taxable value remains. However, if the property transfers to a trust, and the surviving spouse is not the sole present beneficiary of the trust (meaning other inpiduals are also presently eligible to receive distributions from the trust), the transfer to the trust is considered a transfer of ownership and the taxable value is uncapped. Durbrow Trust v Leelanau Township, Court of Appeals (November 21, 2013).
An estate that accidentally overpaid property taxes in previous years is not entitled to a refund. Upon his death in 2006, a man donated two parcels to a friend. Even though the deed transferring the property was created in 2001, it was not delivered until 2006, meaning the taxable value should not have been uncapped until 2006. Unfortunately, due to incorrect recording of the deed, the taxable value was uncapped beginning with tax year 2002, but the taxpayer was unaware until 2010. Based on state law, the Tribunal only had authority to correct the erroneous uncapping of property for the current taxable year (2010) and the three preceding years. Estate of Walters v Lincoln Township, Court of Appeals (August 16, 2012).
In the case of land contracts and for purposes of uncapping, the transfer of ownership occurs when the land contract is entered into, and not when title passes – even if title does not pass for years after the contract is created. Miller-Bradford v Negaunee Township, Court of Appeals (October 10, 2013).
Classification Appeals to State Tax Commission by Assessor
In order for a property classification to be appealed to the State Tax Commission, there must first be an appeal to, and determination by, the March board of review. If a taxpayer never protests the classification to the board of review, there is no decision to appeal to the State Tax Commission.
This inability to appeal also applies to assessors. Once property is classified, and the classification is not appealed to the March board of review, the assessor is unable to petition the State Tax Commission to change the classification for that tax year. Livingston Capital v State Tax Commission, Court of Appeals (July 25, 2013).
Michigan Tax Tribunal Filing and Jurisdiction
For all parties filing in the Tax Tribunal, even taxpayers without legal representation, filing deadlines are critical. If a petition is not filed by the time required by state law, the Tax Tribunal will dismiss the action because it does not have jurisdiction to hear the case. A petition will be considered timely filed if it is postmarked on or before the deadline, even if the Tribunal receives it after the deadline has passed. Jameson v Northville, Court of Appeals (April 23, 2013).
The Tax Tribunal is free to refuse admission of valuation disclosures that are filed in an untimely manner. However, the Tribunal has the discretion to admit a late disclosure if the filing party provides a reasonable excuse or good cause for the delay. The Tribunal will also consider whether allowing the late filing will have an unfair impact on the opposing party’s ability to review the valuation disclosure. Adelman v West Bloomfield Township, Court of Appeals (December 17, 2013).
The Tax Tribunal does not have the authority to order townships to issue a refund for past tax years that were not challenged, even if the Tribunal has determined that the previous tax bills were incorrect. The Tribunal only has the authority to reduce previous unconstitutional increases in taxable value for the purposes of setting the correct taxable value of tax years that are timely appealed. Slade Development v Springfield Township, Court of Appeals (February 11, 2014).
According to state law, the Tax Tribunal has exclusive authority to hear appeals of an agency decision relating to property tax rates under Michigan’s property tax laws. Accordingly, a circuit court lacks jurisdiction to hear such an appeal. Hillsdale County Senior Services, Inc v Hillsdale County, Michigan Supreme Court (May 31, 2013).
The “Headlee” amendment to the Michigan Constitution imposes a limitation on total state spending each year. Additionally, it prohibits the state government from requiring local governments to implement new programs without reimbursing the local unit. Increased costs of permits required for operating municipal separate storm sewer systems do not violate the Headlee Amendment of the Michigan Constitution. The operation of such disposal systems is an optional undertaking by municipalities, not a mandatory action, so any related permit cost increases are not in violation of Headlee. Riverview v Department of Environmental Quality, Court of Appeals (September 19, 2013).
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Welcome Steve Koski!
Steven L. Koski joined Fahey Schultz Burzych Rhodes PLC in January, 2014, after receiving his Juris Doctor, cum laude, from Thomas M. Cooley Law School in May 2013. While in law school, he completed internships with the Michigan Attorney General’s Office, the Eaton County Prosecutor’s Office and the Michigan Senate. Prior to law school, Steve graduated from Northern Michigan University with a Bachelor’s degree in Political Science.
Steve has also previously served as a Township Board member and Planning Commission member, giving him unique insight into the concerns of other Township officials. During his term of office, he experienced first-hand the range of issues facing townships. In addition, Steve brings experience in state government to his representation of municipalities. Before joining the firm, he served as a member of the legislative staff of State Senator Steve Bieda.
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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.