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Defending Tax Appeals

Now that Notices of Assessment have been issued and March Boards of Review have been completed, Townships should start preparing to defend 2021 property tax appeals. This E-Letter (and our May Webinar) will address the “what,” “when,” and “how” for Townships to be prepared to receive, handle, and defend property tax appeals that are filed with the Michigan Tax Tribunal for tax year 2021.

In this E-Letter, we discuss important dates and deadlines associated with property taxes and the MTT, as well as the appeals process for both the Small Claims and Entire Tribunal divisions. Additionally, we will provide a brief update on recent court decisions, including the Menard, Inc v City of Escanaba case, which have important implications for townships in assessing property and defending appeals.

The Michigan Tax Tribunal

The Michigan Tax Tribunal (“MTT”) is an administrative court with exclusive jurisdiction over property tax appeals. It is made up of two divisions – Small Claims and Entire Tribunal. The Small Claims division hears residential, principal residence exemption (“PRE”), poverty and agricultural exemption appeals, along with other disputes involving less than $100,000 and special assessments involving less than $20,000. Small Claims proceedings are informal and are generally conducted by a hearing referee. The Entire Tribunal hears all other appeals. Entire Tribunal proceedings are formal and are conducted by a Tribunal Member or Administrative Law Judge (“ALJ”). Parties to an Entire Tribunal proceeding are generally represented by attorneys. Townships are responsible for assessing real property and collecting taxes, as well as defending appeals in both MTT divisions.

MTT Deadlines & Important Dates

There are several deadlines and other important dates related to property taxes that townships should be aware of:

“Tax Day” – Tax Day occurs on December 31 and is the day that property values are set for the upcoming tax year.

Notices of Assessment – Notices of Assessment must be sent at least 14 days before the March Boards of Review meet.

Appeal Filing Deadlines – The deadlines and requirements to file for an appeal vary based on the classification of the property at issue.

  • Agricultural: July 31
  • Commercial: June 1*
  • Developmental: June 1*
  • Industrial: June 1*
  • Residential: July 31 and must attend March Board of Review
  • Timber-Cutover: July 31

*The statutory deadline of May 31 is Memorial Day (a state holiday), so the deadline is the next business day pursuant to MCL 205.735a(8)Boards of Review – Boards of Review meet in March, July, and December of each year.

  • March – March Boards of Review hear taxpayer appeals regarding the taxable value of residential property. They have no authority to make corrections to a prior year’s assessment role.
  • July & December – July and December Boards of Review correct qualified errors and consider appeals regarding principal residence exemptions (“PRE”), qualified agricultural exemptions, and other specific exemptions.

Appeals Process

The Small Claims appeals process begins when a property owner files a petition. The MTT then assigns a docket number, which places the township on notice that it must file an answer within 28 days. The MTT provides a notice of hearing, including the date, time, and location, at least 45 days prior to the hearing. If either party plans to introduce evidence at the hearing, it must submit the evidence to the MTT and provide copies to the opposing party at least 21 days before the scheduled hearing date. After the hearing, the MTT will issue an opinion and judgment, which typically occurs within 90 days. The opinion and judgment may be appealed by either party to the Michigan Court of Appeals within 21 days.

The Entire Tribunal appeals process is similar but includes additional steps with a more formal process. Like a Small Claims appeal, the process begins when a property owner files a petition. After service on the township, the 28-day period to file an answer begins. The MTT will also issue a docket number. The parties may then conduct discovery, including interrogatories, depositions, and requests for production of documents. The Tribunal Member or ALJ overseeing the appeal will provide notice of a prehearing general call, which includes deadlines for discovery, the exchanging of valuation disclosures (which may include appraisals), and a prehearing conference with the judge. At the prehearing conference, the Tribunal Member or ALJ will discuss the dispute with the parties in preparation for the hearing. When the case is deemed ready for hearing, the MTT will provide notice of the time, date and place of the hearing to both parties. After the hearing, the MTT will issue an opinion and judgment, which typically occurs within 90 days. Like a Small Claims appeal, the opinion and judgment may be appealed by either party to the Michigan Court of Appeals within 21 days.

Recent MI Court of Appeals Decisions Impacting Property Tax Exemptions

The Michigan Court of Appeals has recently reviewed several MTT cases relating to property tax exemptions. Specifically, Stirling v. County of Leelanau, 2021 WL 1149197 (Mich. Ct. App. 2021), addressed a claim for a Principal Residence Exemption (PRE), while Salvation Army v. Addison Township, 2021 WL 1149192 (Mich. Ct. App. 2021), and USA Hockey Foundation v. Plymouth Township, 2021 WL 1042999 (Mich. Ct. App. 2021), considered whether properties were exempt as “charitable institutions.” These cases are laid out in more detail as follows. The MTT has also issued a summary of recent cases, which can be found at the following link: https://www.michigan.gov/documents/taxtrib/MTT_Newsletter_MTT_2021-6_4-12-21_722005_7.pdf

Stirling v. County of Leelanau

In Stirling, a Michigan landowner’s wife owned rental property in Utah and claimed a residential property exemption on it under Utah law. Distinguishable from Michigan’s PRE, which requires that the person claiming the exemption both own the property and occupy it as a principal residence, Utah law allowed a landowner to claim an exemption for property used as a principal residence either by the owner or by a tenant. Only a single exemption may be claimed in either state.

The couple disclosed the Utah exemption on their Michigan application for a PRE, and the MTT granted the PRE on the grounds that the Utah exemption was not “substantially similar.” The Court of Appeals disagreed, reasoning that the standard of “substantial similarity” does not require exactness, the main characteristic of both states’ statutes is to grant a primary residence exemption, and “the primary character and substance of both statutes is providing an exemption for a homeowner’s primary residence that is occupied as a primary residence.” Therefore, the Utah exemption was substantially similar to the Michigan PRE. Townships should take note of the fact that a landowner may only claim a single Principal Residence Exemption or similar exemption.

Salvation Army v. Addison Township

In Salvation Army, the Salvation Army operated a not-for-profit camp facility called Echo Grove Camp and Retreat Center. It employed a camp director, site and facilities manager, and program director, each of whom resided in houses on camp property (at no personal expense) as a condition of their employment. For the 2018 tax year, the Township changed the status of the parcels on which these employees resided from tax-exempt to taxable; however, the MTT found the parcels to be tax exempt. Section 7o of the General Property Tax Act (MCL 211.7o) creates a property tax exemption for charitable institutions, so long as they meet the following test established in Wexford Medical Group v. City of Cadillac, 474 Mich. 192, 199 (2006): (1) the property is owned and occupied by the claimant; (2) the claimant is a nonprofit charitable institution; and (3) the property is occupied by the claimant solely for the purposes for which it was incorporated.

The dispute in this case concerned the third requirement – whether the properties in question were occupied solely for the purposes for which the Salvation Army was incorporated. The Court of Appeals noted that “incidental residential use of property where such use is necessary to further the charitable purposes for which the institution was incorporated does not defeat the exemption.” The Court held that the parcels used by the camp director and site and facilities manager met the requirements for the exemption, as it was necessary for those employees to live in close proximity to the camp, and therefore the use of the parcels as residences directly benefited the charitable activities of the Salvation Army. The Court remanded with respect to the program director’s residence, as it was used as a pastoral retreat house (not as the residence of the program director) on the 2018 Tax Day. Townships should be aware of the exemption for charitable institutions, along with the fact that an incidental use that is necessary to further the charitable purposes of an institution will not disqualify the landowner from the exemption.

USA Hockey Foundation v. Plymouth Township

In USA Hockey Foundation, the property in question was an ice-hockey arena owned by Plymouth AC, LLC (“Plymouth”) and occupied by USA Hockey Foundation (“USA Hockey”). In 2018, Plymouth Township assessed the property, and USA Hockey appealed to the MTT, claiming that the charitable institution exemption applied. USA Hockey claimed that it was the sole member of Plymouth and was a non-profit entity. The MTT utilized the Wexford Medical Group test and determined that neither USA Hockey nor Plymouth satisfied the first element, because neither entity both owned and occupied the arena. It also found that neither USA Hockey nor Plymouth satisfied the second element, as a contrary finding would require combining Plymouth’s ownership with USA Hockey’s non-profit status and occupancy. Because it did not satisfy these elements, the MTT found that USA Hockey was not exempt as a charitable institution.

The Court of Appeals affirmed the decision of the MTT. It refused to accept USA Hockey’s argument that because it was the sole member of Plymouth, it “owned” the arena and could therefore extend its tax-exempt status. Townships should keep in mind the fact that the charitable institution itself, not a subsidiary must hold legal title to and occupy property in order to qualify for the charitable institution exemption.

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, 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 the 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. The parties recently filed briefs. An amicus curiae brief was filed on behalf of the Michigan Municipal League and Michigan Township Association. Fahey Schultz Burzych Rhodes PLC will continue to monitor the evolution of this case.

By Ross K. Bower II and Brittany M. Nichol

Upcoming Webinars

Defending Tax Appeals | Thursday, May 20, 12 – 1 p.m.

Each year, thousands of residential and commercial property owners seek to reduce their tax liability by challenging their property assessments. Because tax revenues account for such a large portion of municipal operations, it is important for taxing jurisdictions to successfully defend against those appeals.

Now that Notices of Assessment have been issued and March Boards of Review have been completed, Townships should start preparing to defend 2021 property tax appeals. This webinar will address the “what,” “when,” and “how” for Townships to be prepared to receive, handle, and defend property tax appeals that are filed with the Michigan Tax Tribunal (MTT) for tax year 2021. Join Attorneys Ross Bower and Brittany Nichol as they outline the important steps of the appeals process for both the Small Claims and Entire Tribunal Divisions.

Click here to Register!

This publication is intended for educational purposes only. 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.

Copyright © 2021 Fahey Schultz Burzych Rhodes PLC

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