Michigan and its various cities, townships, and villages impose a tax on real and personal property. This entry focuses on the real property taxation system in Michigan and how to challenge an assessment, which may result in a reduction in property taxes.
First, a bit of background is necessary. In 1994, the voters of the State of Michigan passed Proposal A, a school finance reform package that increased the sales tax from 4% to 6%, shifted the funding of school districts from primarily local to primarily state level, and introduced the concept of “taxable value.” The property tax you pay on a property is based upon the taxable value, and not the state equalized value (“SEV”). SEV is supposed to be 50% of the property’s market value. Once you purchase a property, the assessor will, in the year following your purchase, establish a SEV. In that year, your taxable value and SEV will be equal. Every year after your purchase, your SEV may increase or decrease without limitation, in order to remain at 50% of market value. In other words, SEV can fluctuate based on the real estate values in the community in which the property is located. However, the taxable value will only change by the rate of inflation, with a limit on a year-to-year increase of 5%. Therefore, in order to determine if an appeal of an assessment would reduce your property taxes, you must determine whether the property’s value is less than twice the taxable value. This is true because in order to reduce your taxes, you need to reduce the SEV to a number less than the taxable value.
There is a two step process in Michigan to challenge a property’s assessment. The first step is an appearance before the Board of Review, which is generally held sometime after the second Monday in March of each year. (There are some additional requirements for properties located in several communities, most notably, the City of Detroit). A Board of Review is made up of several members, who are generally appointed by the administration of the City. If the Board of Review, after reviewing the property’s assessment, does not reduce the SEV to an amount acceptable to the property owner, the second, and final, step is an appeal to the Michigan Tax Tribunal. The Michigan Tax Tribunal is an administrative agency created by Michigan law. For smaller cases, your case may actually be heard by a hearing officer, who can either hold a telephonic hearing or an in-person hearing. These hearings typically last 30 minutes. For larger cases, the case will be heard by a Michigan Tax Tribunal Judge in the City of Lansing. These hearings may last several days.
Significantly, for residential and agricultural property, an appearance before the March Board of Review is mandatory. If the March Board of Review’s decision is not acceptable, an appeal must be filed before the Michigan Tax Tribunal on or before July 31, 2010.
For commercial and industrial classified properties an appearance before the March Board of Review is optional. The deadline for filing an appeal before the Michigan Tax Tribunal for properties with these classifications is May 31, 2010.
Because of the declining Michigan real estate economy, the number of appeals has grown exponentially in the past few years. This has led to a significant backlog before the Michigan Tax Tribunal. For smaller cases, which are heard by hearing officers, the waiting period before you receive a hearing may be 1 to 2 years. For larger cases, which are heard by Michigan Tax Tribunal Judges, the waiting period can be anywhere from 2 to 4 years. Of course, it is always possible to resolve an action with the local community prior to a hearing. The likelihood of this occurring depends upon the attitudes of the particular community and assessor regarding the resolution of these appeals.
While an appeal is pending, a property owner should continue paying taxes at the amount billed by the community. When the case is resolved, if a refund is generated based upon the terms of the resolution, that refund will also include interest from the date of payment of the tax to the date of refund.
Property owners who are unsure of whether an appeal is appropriate should consult with an experienced property tax attorney who can evaluate the likelihood of success in an appeal. In most cases, property tax appeals will be handled by an attorney on a contingent fee basis, which means that the property owner will pay no attorney fees unless a refund is generated through the appeal.
