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2020 Property Tax Update

The State Tax Commission (“STC”) is a three-member commission appointed by the Governor. The STC is the authority charged with supervising the administration of the property tax laws in Michigan. In 2020, the STC released bulletins that provide guidance to assessors of local units of government. In this E-Letter we discuss and highlight Bulletin 08: Audit Process and Designated Assessor Overview, which most directly impacts Townships. We next discuss the addition of a qualified error exemption for disabled veterans, followed by recent updates on the “big box stores” case, Menard, Inc. v City of Escanaba. The outcome of this case has important implications for Townships in valuing and assessing big box stores in the future. Finally, we will discuss two property tax extensions related to the COVID-19 pandemic and their impacts on the 2020 tax year. 

 

STC Bulletins

The following STC bulletins were issued in 2020. The full bulletins are available on the STC’s website.

2020-01: 4th Quarter Certified Interest Rates

2020-02: Millage Requests and Rollbacks

2020-03: County Multipliers for 2014 Assessor’s Manual

2020-04: 1st Quarter Certified Interest Rates

2020-05: Interest Rates on MTT Judgments

2020-06: Alternative Energy Systems

2020-07: Mathieu Gast Act (Alternative Energy Systems)

2020-08: Audit Process and Designated Assessor Overview **discussed below

2020-09: Assessor Certification

2020-10: Assessor Certification Level Requirements

2020-11: 2nd Quarter Certified Interest Rates

2020-12: Random Week for “Qualified Business”

2020-13: 3rd Quarter Certified Interest Rates

2020-14: Property Tax Appeal Procedures for 2021

2020-15: Property Tax and Equalization Calendar for 2021

2020-16: Inflation Rate Multiplier for 2021

2020-17: Procedural Changes for the 2021 Assessment Year

 

Bulletin No. 08: Overview of the Audit Process and Designated Assessor Requirement

STC Bulletin No. 08 provides an overview of the audit process and Designated Assessor requirements created by PA 660 of 2018. The Act is focused on providing statutory guidance under the General Property Tax Act to ensure high quality assessments. Under the Act, a Designated Assessor for each county must be submitted to the STC by December 31, 2020.

Audit Process

The STC will conduct an audit of an assessment district’s assessing practices every 5 years according to a published schedule. If the assessment district is found to be in substantial compliance, no further action is required. Substantial compliance is defined as a situation in which “any identified deficiencies do not pose a significant risk that the assessing district is unable to perform the assessment function in conformity with the state constitution and state statute.”

In order to be in substantial compliance, Townships should ensure the following 3 requirements are met: (1) the assessing district “has properly calculated and appropriately documented Economic Condition Factors;” (2) the assessing district “has properly calculated and appropriately documented land value determinations;” and (3) “less than 1% of the record cards are on override and less than 1% of the record cards reflect flat land values.” The STC has recommended that assessing districts can prepare for the audits by ensuring that the current Audit of Minimum Assessing Requirements (AMAR) and the “Supervising Preparation of the Assessment Roll” are met. An AMAR Review Sheet, as well as other guidance on the STC, can be found on the STC website.

If any of the requirements are not met, the assessment district will be found to be in noncompliance and will be issued a notice of noncompliance, along with the reasons for finding noncompliance. A noncompliant assessment district will have the option of either appealing the determination through a written petition or submitting a corrective action plan.

Designated Assessor

Each county, through the County Board of Commissioners, must select an individual to serve as the county’s Designated Assessor. A Designated Assessor is responsible for serving as the assessor of record for any assessing district found to be non-compliant with an audit. The Designated Assessor must be certified at a level at least as high as the highest level required by any assessing district within the county. The county must notify the STC of their choice for Designated Assessor by December 31, 2020.

The Designated Assessor must be approved by the STC. If a county fails to select a Designated Assessor and notify the STC by the December 31st deadline, the STC will select a Designated Assessor for that county. Townships should be aware of the requirement and deadline and ensure they are involved in the selection of a Designated Assessor.

Along with providing the STC with the county’s Designated Assessor, the county must also provide the STC with an interlocal agreement. An interlocal agreement must be executed by the County Board of Commissioners, a majority of the assessing districts in the county, and the proposed Designated Assessor. It must include an outline of the assessment responsibilities of the Designated Assessor, the scope of the Designated Assessor’s services, the duties and responsibilities of each local unit of government in the county, and the terms and conditions regarding cost and compensation.

Qualified Error for Disabled Veterans Exemption

On October 14, 2020, the state legislature enacted PA 206 of 2020 to amend the General Property Tax Act’s definition of a qualified error. Under the Act, “an issue beyond the control of a disabled veteran” or his/her unremarried surviving spouse that causes a denial of the disabled veterans’ exemption is now a qualified error. To be considered a qualified error, an issue may involve either:

  1. An error by the local tax collecting unit in processing a timely filed exemption affidavit, or
  2. A delay by the United States Department of Veterans Affairs’ in determining that a veteran is entitled to veterans’ benefits at the 100% rate due to being permanently and totally disabled as a result of military service.

Townships should be cognizant of the amendment and strive to process exemption affidavits in a timely manner to avoid any issues.

Menard, Inc. v City of Escanaba

Probably the most well-known issue in property tax law in the last decade has revolved around the valuation of “big box” stores. Big box stores are retail stores that take up a large amount of space and generally offer a wide variety of products. These include stores such as Home Depot, Lowe’s, and Menards. Taxpayers have argued that these stores are built and tailored specifically to their owners’ purposes, so they have less value as shown by sales to “non-big box” stores. This has led to disagreement as to how big box stores should be valued for tax purposes.

History of the Case

In Menard, Inc. v City of Escanaba, the owner of Menards challenged the City of Escanaba’s property valuation for purposes of its property tax assessment. Escanaba’s assessor utilized the cost approach to valuation to calculate the true cash value (“TCV”) of the property to be around $8 million and utilized that value on the assessment role. Menards utilized the sales-comparison and income approaches to valuation and claimed that the property’s TCV was only $3.3 million. The Michigan Tax Tribunal found Menards’ valuation persuasive and valued the property near the $3.3 million TCV figure.

The Michigan Court of Appeals reversed this decision, finding problems in both parties’ valuation approaches. Specifically, the Court of Appeals noted that sales-comparison approach used by Menards failed to account for the fact that several of the comparable sales contained deed restrictions that impacted the value of those properties, but that a deed restriction did not exist for Menards’ property. Further, the Court of Appeals explained that the Tax Tribunal should have considered the cost-less depreciation approach, which is an appropriate valuation method where the market for comparable properties is limited. The case was sent back to the Tax Tribunal to consider additional evidence regarding the effect of deed restrictions and the cost-less-depreciation approach.

Valuation on Remand to the Tax Tribunal

On remand, the Tax Tribunal explained that a big box store should be valued based on its “value-in-exchange” as opposed to its “value-in-use.” This reflects the idea that a big box store’s value is dependent on its fair market value, rather than its value to the current owner. The Tax Tribunal did note, however, that the existing use of a property can be indicative of its highest and best use.

The Tax Tribunal also found that deed restrictions may not affect the sale price of a property and therefore can have a “neutral market affect.” However, the Tax Tribunal explained that an appraiser should consider the individual transaction and whether adjustments should be made for deed restrictions. The Tribunal found the best valuation approach in determining True Cash Value was the cost-less depreciation approach, recalculated the depreciation and obsolescence of the property, and found that the property was “over-assessed.” Ultimately, the Tribunal found that the correct TCV was $5 million, which is approximately $3 million less than the original value on the assessment role. In September 2020, Escanaba appealed the Tax Tribunal’s decision. The case is, once again, pending before the Court of Appeals.

COVID-19 Related Changes

On May 14, Governor Whitmer issued EO 2020-87, which extended the deadline for assessment disputes related to commercial real property, industrial real property, developmental real property, commercial personal property, industrial personal property, and utility personal property from the typical annual deadline of May 31 to July 31, 2020. It also required July Boards of Review to hear assessment challenges from individuals who were unable to submit those challenges to March Boards of Review. Although the Governor’s Executive Orders have since been overturned, the state legislature later codified and lengthened these deadline extensions.

On June 11, the state legislature enacted PA 88 of 2020, which extended the deadlines for filing appeals related to commercial, industrial, and residential property appeals beyond the extension previously provided by EO 2020-87. The deadlines for commercial and industrial appeals were extended from the normal deadline of May 31 to August 31, 2020, and the deadline for residential appeals was extended from the normal deadline of July 31 to August 31, 2020. Similarly, on June 24, the state legislature enacted PA 96 of 2020 to extend the application deadline for principal residence exemptions. The normal deadline of June 1 was extended to June 30, 2020.

Notably, these COVID-19 related deadline extensions are only applicable to the 2020 tax year and, therefore, we are now past the deadline for filing appeals. Townships should already be aware of appeals that were filed pursuant to the extended deadlines and should be prepared to defend assessments accordingly.

By: Ross Bower, Brittany Nichol, and Amanda Anderson

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