In Puppy’s Cubby v. City of Farmington Hills, unpublished per curiam opinion of the Court of Appeals, issued September 12, 2019 (No. 347757), the Michigan Court of Appeals held that property held as a tenancy by the entirety cannot be considered “commonly controlled” for the purpose of taxes.
In 2007, Oleg and Elizabeth Shvartsman purchased real property in Farmington Hills, owning the property as tenants by the entirety. From 2013 to 2017, the Shvartsmans rented out the property for a profit. On March 31, 2017, the Shavartsmans conveyed title to the subject property via quitclaim deed to Plaintiff – a limited liability company owned solely by Oleg.
In 2018, Defendant notified Plaintiff that it was “uncapping” the taxable value of the subject property because of the 2017 transfer of ownership. Plaintiff appealed the Defendant’s decision to the Board of Review, which declined to overturn the decision. Plaintiff then filed the instant case, arguing that Defendant was precluded from uncapping the property’s taxable value under MCL 211.27a(7)(m), as the transfer of property was among “commonly controlled” “legal entities,” and could therefore not be uncapped. The lower court held that the transfer of the subject property was not between two “legal entitles,” and did not fall under MCL 211.27a(m)(7). After Plaintiff’s motion for reconsideration was denied, Plaintiff appealed.
In the current case, Plaintiff argued that MCL 211.27a(7)(m) applies, which exempts a transfer from uncapping “if (1) the transaction is between legal entities and (2) the legal entities involved are commonly controlled.” The Court of Appeals first noted that MCL 211.27a does not define “commonly controlled.” Therefore, in the absence of a more-specific definition, the Court has relied on the definition provided by MCL 211.9o(8)(b) when analyzing control under MCL 211.27a.
The Court of Appeals held that while Oleg controlled Plaintiff, in order for the two “entities” at issue to be “commonly controlled” Oleg must have also controlled the property before the transfer of ownership to Plaintiff. Consequently, under the definition under MCL 211.9o(8)(b), Oleg must have had the power, either directly, or indirectly, to direct or cause the direction of the management and policies of the entity that owned the subject property before the transfer.
Turning to the current facts, the Court of Appeals held that it was undisputed that the entity that owned the subject property before the transfer was the Shvartsmans, collectively, as tenants by the entirety. A defining characteristic of this tenancy is that neither the husband nor the wife can dispose of the property without the assent of the other. Therefore, Oleg alone did not have the power to direct or cause the direction of the management of the entity. Because he did not have “control” over the subject property before the transfer, as required under MCL 211.9o(8)(b), the Court of Appeals held that the transfer was not between “commonly controlled” entities, and MCL 211.a(7)(m) did not apply.
A link to the opinion can be found at: https://law.justia.com/cases/michigan/court-of-appeals-unpublished/2019/347757.html
This article was written by Emily Honet, Law Clerk
