In Knier, Powers, Martin, & Smith, LLC v City of Bay City the Michigan Court of Appeals unexpectedly found that the new roof installed on an existing commercial building was “new construction” and therefore an “addition” for the purposes of property tax valuation in MCL 211.27a.
MCL 211.27a(2)(a) defines, in part, the taxable value of a parcel as “The property’s taxable value in the immediately preceding year minus any losses, multiplied by the lesser of 1.05 or the inflation rate, plus all additions.” KPMS installed a new roof to their commercial building in 2021. Bay City considered the new roof as an “addition” when evaluating the property for the following tax year which resulted in a new taxable value 12.4152% higher in 2022 than it was in 2021.
KPMS appealed the decision of the Tribunal and argued that a roof was not an addition because the building already had a roof prior to the new one being installed. However, the Court of Appeals agreed with the Tribunal and Bay City and came to the surprising conclusion that the roof was an “addition”.
In the Court’s very technical analysis, it turned to MCL 211.34d(1)(b)(iii) for the definition of “additions”. MCL 211.34d(1)(b)(iii) states that “additions” means “new construction” which is defined as “property not in existence on the immediately preceding Tax Day and not replacement construction”. All parties agreed that the new roof was not replacement construction under the language of the statute, as it was not done is response to “an accident or act of God.” 211.34d(1)(b)(iii), (v).
The Court ultimately concluded that because the new roof was more valuable than the old one it would be treated as “new construction”. The Court also stated that the new roof was “entirely new” and “not in existence on the immediately preceding Tax Day.” The Court held that the Legislature intended for the definition of “new construction” to be broad and aimed at any “additions” that enhance the value of a property.
