Last month, our E-Letter focused on some of the recent developments in property tax law. This month, our E-Letter addresses additional developments in property tax law, more changes at the Tax Tribunal, and an update on personal property taxes. In addition, this E-Letter includes an important update on Federal Flood Insurance reforms.
Changes at the Michigan Tax Tribunal
The Tax Tribunal has moved! On April 21, 2014, the Tribunal moved from its location in Dimondale to its former location in the Ottawa Building, 611 W. Ottawa, Lansing, Michigan. The Tribunal’s offices are now located on the 4th floor of the Ottawa building. The Tribunal’s courtrooms are the same courtrooms previously used by the Tribunal on the 2nd floor. The Tribunal’s mailing address remains the same: P.O. Box 30232, Lansing, MI 48909. The Tribunal’s telephone number has changed to (517) 373-4400 and its fax number has been changed to (517) 373-4493.
Personal Property Tax Update
In 2012, laws were enacted to repeal personal property taxes in Michigan. Beginning this year, commercial or industrial personal property totaling $80,000 or less in value with certain requirements may be exempt from taxes. Starting in 2016, newly acquired eligible personal property or eligible personal property that is at least ten years old may be exempt from personal property taxes. Recently, the laws were revised to address replacement revenues. Under the 2012 laws, townships would not have received a full reimbursement of lost revenue as personal property taxes were phased out. Under the new laws, townships will be eligible for 100% reimbursement beginning in 2016. The new laws, however, do not address the losses in revenue this year or next year from the $80,000 or less exemptions. In addition, the personal property tax repeal laws are subject to approval by voters at the August, 2014 state primary election. If you have questions about the details of the new personal property tax laws or would like copies of the new public acts, please contact us.
Valuation disclosures are a critical component for each party involved in a property valuation dispute. The Tax Tribunal Rules provide that valuation disclosures must be submitted by the deadlines provided by the Tribunal’s prehearing order. When a party fails to provide its valuation disclosures in a timely manner, the Tribunal will consider eight factors in determining whether to impose sanctions on the party:
- Whether the violation was willful or accidental;
- The party’s history of refusing to comply with evidence discovery requests (or refusal to disclose witnesses);
- Any negative effect on the opposing party resulting from the late filing;
- Whether the opposing party had any notice of the evidence or witness that would be used;
- Whether the party has a history purposely delaying proceedings;
- To what degree the party has complied with the other Tribunal orders;
- Whether the party made an effort to remedy the late filing; and
- Whether a lesser punishment would better serve the interests of justice.
After weighing the factors, the Tribunal may choose to impose a penalty on the party, which may include prohibiting valuation evidence from being admitted and disallowing any expert witnesses from testifying in support of the valuation. Adelman v Township of West Bloomfield, Michigan Court of Appeals (December 17, 2013).
A “Complete Appraisal” authored by a township assessor was admissible in the Tax Tribunal because it was actually a “valuation disclosure”, which a certified assessor is qualified to prepare. An “appraisal” and an “assessment” are “substantively similar” and both fall under the Tribunal’s requirements for a “valuation disclosure.” An assessor’s level of expertise may be considered in determining the creditability of the report, but an assessor’s valuation disclosure entitled an “appraisal” (even though the assessor is not a licensed appraiser) is admissible nonetheless. WCY Realty, L.L.C., v Township of Fairhaven, Michigan Court of Appeals (August 7, 2012).
Tax Tribunal’s Independent Determination
The Tax Tribunal is obligated to make an independent determination of the true cash value of the property at issue in a valuation dispute and cannot automatically accept either party’s valuation determination without analyzing the individual circumstances of the case. However, the Tribunal may adopt either party’s determination of true cash value as its independent determination if it relies on sufficient evidence in arriving at the same valuation. Accordingly, the Tribunal may, for example, adopt the assessed value on the rolls as its independent determination of value if there is competent and substantial evidence to support that finding. The Tribunal is prohibited, however, from presuming that the assessed value is valid. If the Tribunal does not have enough evidence to make an independent determination of true cash value, it is improper to rely solely on the remaining evidence. Instead, the Tribunal should seek additional data from the parties. Avolio and Avolio v Detroit, Michigan Court of Appeals (May 23, 2013).
If a party in a Tax Tribunal case fails to file a response to the tax appeal, the Tribunal may still make independent determinations regarding the property, so long as the determinations are supported by competent evidence on the whole record. Where a petitioner files an appeal seeking to remove items it believes were erroneously included in its personal property statement and the Township fails to respond, the case may proceed. The Tribunal may properly remove only some of the requested items from the statement where a petitioner does not present sufficient evidence to warrant removal of all of the items. My Auto Import Center v Township of Fruitport, Michigan Court of Appeals (October 9, 2012).
Public Service Improvements
When property ownership is transferred, the taxable value is uncapped for the year after the transfer. The uncapped taxable value in the year following the transfer of ownership sets a new value that is subject to a new cap. Generally, public-service improvements on “capped” property are not considered “additions” for purposes of determining taxable value. However, during the uncapped period following transfer of ownership, public-service improvements are not subject to the previous property-tax cap and may be properly included for assessment purposes. Nixon Road Holding Company, LLC v Township of Delta, Michigan Court of Appeals (October 23, 2012).
Bank-Owned Sales (Short Sales)
True cash value is defined as the usual selling price at the time of assessment, “being the price that could be obtained for the property at private sale, and not at auction sale…, or at forced sale.” Forced sales arise in situations outside of the context of traditional private sales, in which buyers commonly pay lower than the fair market value. Bank-owned sales (short sales) are not automatically considered forced sales, and may be used in determining true cash value. A determination must be made as to whether the bank-owned sale was in fact a forced sale. If a bank-owned sale is deemed to be an arm’s-length transaction that represents the fair market value of properties in the area, it may be included in sales-comparison evidence. Abbas v Dearborn, Michigan Court of Appeals (December 27, 2012).
Waiver of Interest on Delinquent Taxes
Counties and townships work hand-in-hand in the tax collection process. Therefore, in most cases involving property tax collection issues, the county and township are viewed as being in “privity,” meaning they can be treated as one party because they share the same legal right at issue in the case.
In a property tax dispute before the Tribunal, in which a township agrees to waive interest on delinquent taxes as part of a settlement agreement enforced by the Tribunal, the county will generally be bound by the agreement and unable to seek the interest from the taxpayer, due to the fact that the township and county are in privity. Sal-Mar Royal Village, LLC v Macomb County Treasurer, Michigan Court of Appeals (May 30, 2013).
However, on April 23, 2014, the Michigan Supreme Court issued an Order granting the county’s appeal of the Court of Appeals ruling. The Supreme Court will look at several issues in this appeal, including: (1) whether interest and fees owed to the county for delinquent taxes can be waived in a Tribunal proceeding in which the county is not one of the parties, and (2) whether a township and county are actually in privity for purposes of waiving interest and fees related to delinquent taxes. We will keep you posted on further developments on this issue at the Supreme Court. Sal-Mar Royal Village, LLC v Macomb County Treasurer, Michigan Supreme Court (April 23, 2014).
Utility Property and Government Subsidies
Government subsidies received by a utility company should be considered in the assessment process to the extent that they increase or decrease the value of the subject property. The Tax Tribunal must make an independent determination as to whether the subsidies impact the true cash value of the property. L’Anse Warden Electric Company, LLC v Township of L’Anse, Michigan Court of Appeals (October 17, 2013).
State law provides that the present economic income of property is to be considered in establishing true cash value. For leased or rented properties, present economic income is defined as the general economic return of the lease or rental of the property, and not necessarily the actual income of the property. The law also states that a federal or state regulated nonprofit housing cooperative is not subject to this particular application of present economic income. However, this does not mean that actual income MUST be used to determine the true cash value of a nonprofit housing cooperative. There is no single correct approach to the valuation of federally-subsidized property. Concord Consumer Housing v Township of Brownstown, Michigan Court of Appeals (February 11, 2014).
A Circuit Court acted improperly when it overturned a foreclosure judgment resulting from the payment of taxes after the redemption period expired. In determining whether to grant a party relief from a judgment, several factors are weighed, including whether the other party in the matter will be adversely affected, and if extraordinary circumstances exist. In the event of a foreclosure judgment being reversed, the foreclosing party is prejudiced because it is losing title to property that it lawfully acquired. Also, a large difference between the taxes owed on the property and the value of the property does not constitute an extraordinary circumstance, as the taxes owed are generally much less than the value of the property. Sanilac County Treasurer v Jennifer Megie, Michigan Court of Appeals (February 11, 2014).
Industrial Facilities Tax Exemption
The Industrial Facilities Tax Exemption serves as a tax incentive to manufacturers to expand and renovate aging facilities. An application for the exemption must be filed with the local unit of government, which determines how long, if granted, the exemption will exist (from 1-12 years). The State Tax Commission must give final approval of the exemption. The State Tax Commission also has the authority to revoke the exemption. If a decision is made to revoke the exemption, the revocation does not take effect until the December 31 following the decision. The State Tax Commission does not have the authority to apply the revocation retroactively. Director, Workers Compensation Agency v MacDonald’s Industrial Products Inc., Michigan Court of Appeals (March 27, 2014).
Public School Academy Exemption
Property owned by a non-profit public school academy, but occupied by a for-profit management company that provides management services to the education institution, was found to be eligible for tax exemption provided to public school academies by Michigan law. The public school academy is exempt from taxation on all property it owns, regardless of occupancy. The exemption provided to public school academies is distinct from the general exemption provided to educational institutions under Michigan law, which requires ownership AND occupancy. The court did not address whether the for-profit company itself should have been subject to taxation, because the city in the case did not name the company as one of the parties in the appeal, but did indicate that the company could potentially be liable for taxes. Star International Academy v Dearborn Heights, Michigan Court of Appeals (April 17, 2014).
Mutual Mistake by Assessor and Taxpayer
If a taxpayer is assessed and pays taxes in excess of the correct amount owed due to a clerical error or a mutual mistake between the taxpayer and the assessor, the taxpayer is eligible to recover the excess amount paid. However, a mutual mistake does not occur and a taxpayer is not entitled to a refund when an assessor is not properly notified of a transfer in ownership, resulting in an inaccurate assessment. The taxpayer and register of deeds have an affirmative duty to notify the assessor of property transfers. Rhinehart v Detroit, Court of Appeals (April 10, 2014).
Federal Flood Insurance Reform Signed Into Law
In our April 2009 E-Letter, we explained the Federal Emergency Management Agency’s flood insurance rate map modernization efforts and how that “modernization” appeared to be flawed in many ways from the beginning, starting with inaccurate digital maps and the high cost of revising the maps—in both time and money. The re-mapping process ties directly into whether a township participates in the National Flood Insurance Program (NFIP) and residents’ flood insurance rates.
Since then, we have seen many township residents caught off-guard by the sudden insurance rate hikes as a result of changes, mistakes and inaccuracies in the maps. Dealing with this issue as a resident or elected official is by no means easy and in many cases quite expensive. Residents have in many cases been in a stand-off of sorts where their mortgage companies require flood insurance because of the mapping, but the residents themselves cannot pay the increased rates. Many times, this happens even when the residents do not need, or want to participate in any sort of flood insurance program.
Then, in 2012, Congress passed a law requiring property owners to pay the full cost of flood insurance, without a federal subsidy, and focusing on the current risk of flood for a property. The result was an astronomical increase in flood insurance premiums that only magnified the challenges addressed in April 2009 E-Letter.
In a recent bipartisan effort, Congress passed—and President Obama signed into law on March 21—a reform bill to support residents facing the high insurance bills from later changes to the NFIP program. FEMA now may not increase flood insurance risk premium rates to reflect the current risk of flood for a property. Premium increases are capped at 18% a year and permits homeowners to determine—on their own—whether to select a high deductible policy over the high rate policy. It also passes on below-market insurance rates to anyone buying homes in flood zones with taxpayer subsidized policies. (Those with second homes in a flood zone or with properties that continually flood will still see premium increases of 25% per year until the rate reflects the actual risk of flooding.) Interestingly, the new law will also refund excess premiums collected since the beginning of 2014.
Although the insurance rate hikes are still significant, we hope that this recent federal law will signal a shift into easier, less stressful times for township officials and residents alike when it comes to flood insurance issues generally.
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.