Although personal property tax has seen significant revisions by the Legislature in the past two years, collection of personal property tax remains an issue for many Townships. Townships often focus on real property tax calculation for prudent reasons. Namely, delinquent personal property tax collection in any jurisdiction is typically a small amount compared to the real estate property tax collected by the township. Even so, townships possess authority to exercise several “tools” to collect these delinquent amounts. This month’s E-letter focuses on the statutory “tools” that every township should be aware of to collect personal property tax.
Is Delinquent Personal Property Still an Issue?
New amendments to personal property taxation appear to phase out personal property tax collection. The new amendments exempt business establishments with less than $80,000 (true cash value) in equipment in a local tax-collecting unit from personal property taxes. The new amendments also exempt Eligible Manufacturing Personal Property by 2023. Thus, it appears that treasurers no longer need be concerned with personal property tax collection and the archaic tax collection seizure and sale process provided by Michigan law. But there are several instances where personal property tax collection remain: (1) some existing delinquent amounts exist for tax years prior to the enactment of the new amendments; (2) if a business owner exceeds $80,000 in personal property, the entire tax is owed; and (3) not all eligible manufacturing personal property is exempt at this time. The exemption for eligible manufacturing personal property is being phased in, meaning some personal property will need to be collected.
When personal property tax becomes delinquent, who is responsible for collection? Contrary to delinquent real property tax collection, the county does not collect delinquent personal property tax unless the township and the county have entered into an agreement. Therefore, the township treasurer is charged with the authority to collect delinquent personal property taxes. The process of collecting delinquent personal property taxes requires certain demand procedures to be followed as set forth in MCL 211.46 prior to seizure and sale. Once the process is understood, it can be extremely effective in collecting delinquent taxes.
Making a Demand for Delinquent Personal Property Taxes
The township treasurer must first send a personal demand and notice of delinquency regarding the personal property. The demand must be made in the month that the taxes are due. This means that the demand is made between February 15th and the last day of the month in February. For individuals, the demand can be made in person or by mail. For corporations or companies, the demand may be made in person at an office of the corporation, or by mail to the corporation or principal officer at its usual place of business.
Best practices suggest that the demands be made in writing to document that the demand was made in the time specified by statute. The demand must state the delinquent amount and the time and place where the amount can be made. Typically, this is the township office. A copy of the tax bill(s) should be included.
While the statute does not specify the requirement to send additional notices, we recommend sending additional demands for payment. They are important in creating a record that shows due diligence in attempting to collect the tax, especially if other taxing jurisdictions later assert that the township treasurer never diligently attempted to collect the delinquent amounts. Similar to the first notice required under the statute, the written demands should be sent via certified and first-class mail. Notice from a township’s legal counsel can also assist.
Seizure of Personal Property Due to Delinquent Personal Property
Sometimes the delinquent amounts remain outstanding regardless of the township treasurer’s efforts in sending written demands and notices. The statutory sections governing personal property tax collection equip the township treasury with a unique “tool.” If the proper procedures are followed, the treasurer can seize the personal property and sell it to collect the amount owed to the township. One item that can concern treasurers is that the cloak of governmental immunity does not apply for wrongful seizure of personal property to pay taxes. This means that the township and the treasurer can be sued for the full value of the seized property if: the proper procedural steps are not followed or the seizure is excessive. While this may be disconcerting, the procedural steps are not difficult,and if followed, the township may seize personal property. MCL 211.47. This is extremely helpful for collection as the threat alone of seizing property can be enough to receive payment of past due amounts.
If the procedural steps have been followed, the treasurer may seize only the personal property subject to personal property tax and only enough to pay the tax and cost of selling. It’s important to not seize stock. For instance, a treasurer could seize a printing press used in a form printing business or a lawnmower used in a landscaping business. The treasurer, however, could not seize either of the owners’ cars that they personally own and that are not related to the business. Seizing property that is not subject to seizure would constitute an unlawful taking, which could result in the township or the treasurer being sued.
When seizing personal property, the treasurer must identify property that is to be seized. Creating accurate records is important in this process. The treasurer should work with the assessor to maintain an inventory of personal property assessed by item and identification number, when available. This will assist the treasurer in accurately identifying the property and avoiding taking claims.
The mere act of appearing on-site to seize the property may itself be effective in getting the taxpayer to pay what is owed, but where appearance alone is insufficient, the township must be prepared to actually complete the seizure. There are several guidelines that a treasurer should consider when seizing property. The treasurer should never seize property alone, but be accompanied by law enforcement and possibly legal counsel. When possible, the treasurer should seize during normal business hours to avoid possible trespass issues.
An important component part of seizing property is taking physical possession. The treasurer, at the time of visiting the location of the personal property, should be prepared to physically take possession of any movable property when they go to carry out the seizure. This may mean having a suitable truck, machinery, tow truck, or storage arranged for the day of seizure to physically move the personal property and store until a public sale can be held.
If property is not movable, post a notice of seizure and use a seizure tag and padlock. “Notice of seizure” signs on movable property are inadequate, and such property must be taken in the possession of the township. If the treasurer is seizing an immovable structure that you believe contains or includes property belonging to another (for example, a person leasing space inside the structure), post a notice with instructions regarding who to contact in order to obtain the property. Before leaving, post a notice that informs the taxpayer that a seizure has taken place, and what property has been taken.
Sale of Personal Property
Once the property is seized, the township will need to sell the property to recover the delinquency. The township should hire an auctioneer. This expense is included in the recoverable costs of collecting and selling the property. This means that the expense of the sale will be added to the delinquency. After seizure, provide notice at least 5 days before holding a public auction. Post in three public places in the taxing district. Additional media (newspaper, websites, etc.) publications are preferred to demonstrate good faith to obtain the maximum amount.
The treasurer will hold the public auction. For any buyers at the auction, the treasurer can provide a bill of sale, which provides proof that the property was purchased due to delinquent taxes. If there is no sale because of lack of bidders, it’s best to adjourn and re-advertise. When the auction is complete, the treasurer should provide the taxpayer with an itemized list that states the property seized, the amount for which each item sold, the amount of debt satisfied, and either the amount of surplus being returned to the taxpayer or the amount of taxes left outstanding. Any amount of proceeds from the auction that exceeds the amount of the tax debt plus costs associated with selling the property must be returned to the taxpayer.
Property That Has Been Sold to Another or Moved to Another Jurisdiction May Still Be Seized
The process to seize and sell property is not complicated, especially when the personal property is movable and located in the township. There are two situations that occur often that can complicate the process, however. The personal property can be sold to another person. And, sometimes the personal property is moved to another jurisdiction. Generally, this personal property can still be seized and sold.
The General Property Tax Act clearly provides that a “transfer” of personal property does not divest or destroy a township’s lien, unless the personal property is “actually sold in the regular course of retail trade.” Therefore, if the property is sold to another person, the township can assert its lien against that person, unless the lien has not yet attached or a person bought the personal property in the “regular course of retail trade.” The statute provides no further guidance as to what “regular course of retail trade” means.
A change in location of any personal property also has no affect the township’s personal property tax assessments under the General Property Tax Act. This idea is based on the fact that the taxes are levied on the personal property themselves, not the property owner. As the personal property moves, the township’s lien moves with it. To collect on property moved out of the jurisdiction, the treasurer must submit to the taxing authority of the jurisdiction to which the property has been moved both: (1) sworn statement for seizure and collection and (2) evidence of the tax, such as the tax roll and notices of delinquency. The treasurer may consider providing the taxing authority with as much information as possible, which would include anything in the file relating to the delinquent taxes for the matter in question.
Another option available to the treasurer is pursuing delinquent taxes in court. This remedy applies whether the property is available in the taxing jurisdiction or has been moved. In lieu of seizing the property, the General Property Tax Act authorizes the treasurer to sue the person, firm, or corporation to whom the tax is assessed for the amount owed. The tax roll is prima facie evidence of the debt sought to be recovered. For amounts under $5,000.00, the treasurer can pursue the amount in small claims court. For amounts over $5,000.00, legal counsel can assist with collecting through district or circuit court actions.
Accelerating Delinquent Tax Collection
There are certain times when moving up the statutory date on which taxes can be collected is important. For instance, if the treasurer learns that a certain business is closing or selling and personal property taxes will be at risk, accelerating the tax collection process will allow the treasurer to be the first to collect before the business is closed or sold. There are two options available to treasurers: (1) jeopardy tax assessment (MCL 211.691) or (2) accelerating the tax lien day (MCL 211.40a).
Jeopardy Tax Assessment – MCL 211.691
Jeopardy Tax Assessment permits issuance of an early tax bill and acceleration of collection proceedings. This process requires a good reason to believe the owner will attempt to dispose of property. The treasurer must also file a sworn, jeopardy tax assessment affidavit that includes the following statements:
- Taxpayer owned the personal property on tax day;
- A description of the personal property;
- The property was in treasurer’s tax collecting district on tax day;
- The assessed value, amount of the jeopardy rate, and the tax due;
- Estimate jeopardy tax rate not more than 10% of the previous year’s rate;
- Taxing unit or units on whose behalf the jeopardy assessment is made; and
- Treasurer knows or has good reason to believe that:
- Taxpayer has or will abscond from or is hiding within the state;
- Taxpayer has or is about to assign, dispose of, or conceal any of the property;
- Taxpayer is removing or about to remove property from the state; or
- Other facts that put tax collection in jeopardy.
The treasurer files the affidavit with Register of Deeds no later than the next business day after the sworn date on the affidavit. The treasurer must notify taxpayer by mailing the affidavit to the address where personal property is located, or to the address where property was located on tax day. Once filed, the tax is immediately due and becomes a lien against the personal property.
If the treasurer receives payment, the money must be retained by treasurer in a special jeopardy tax account until the next regular tax roll is received from the taxing unit for whom the jeopardy assessment was made. This means the treasurer should open a separate account for this purpose. When the debt is satisfied, the treasurer provides a notice of discharge of the debt, which should also be recorded. If the tax is not paid, the treasurer follows the standard procedures for personal property tax collection and seizure as explained above.
Accelerating Tax Lien Day – MCL 211.40a
MCL 211.40a allows a treasurer to designate the tax day as the tax lien day for risky tax bills, including property subject to bankruptcy proceedings. A significant difference from jeopardy assessments is that this process applies to real property and personal property tax collection. Similar to a jeopardy assessment, the treasurer must file an affidavit with the register of deeds that includes:
- The year the taxes due were levied;
- The date the taxes due were assessed;
- The property owner named in the tax roll; and
- The tax identification number of the property.
The affidavit must also include a statement that one or more have occurred:
- The owner has filed for bankruptcy;
- A secured lender has initiated foreclosure proceedings;
- Owner is attempting to liquidate property;
- The property is subject to state or federal receivership;
- The owner has assigned the property for benefit of creditors;
- The property has been seized or purchased by federal, state, or local authorities; or
- A judicial action has started that may impair the ability to collect the taxes.
A significant advantage of accelerating the tax lien day under MCL 211.40a is the statutes expressly recognize that bankruptcy is a means to accelerate the tax lien day. The statutory sections are not as clear regarding jeopardy assessments, and thus MCL 211.40a may be of better assistance in bankruptcy proceedings.
By: Chris Patterson
Click here for a PDF version of this publication.
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 150 years of experience in township law, and have represented more than 150 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.