A seminar that walks you through taxes 101, personal property taxes, exempt property, recent developments in real property taxation, real estate tax issues for seniors and veterans, planning opportunities and pitfalls.

1. Fourth Annual
Property Tax Seminar
Thursday, February 20th, 2014

2. Tax 101 Update
By: Karrie A. Zeits
kzeits@shrr.com | (231) 486-4521

3. Assessment Notice
•
Assessment Notices are usually
delivered at the end of February.
•
The Assessment Notice indicates
what the local assessor determines a
property is worth for the current year
and the taxable value of the property.
It does not indicate what a property’s
taxes will be for the applicable year.
•
Assessed values may change from
year to year. The taxable value can
only be changed based on the
statutory formula. Typically, the gap
between the “assessed value” and
the “taxable value” will grow each
year.

4. Classification Codes
Real Property Type
Residential
Agriculture
Commercial
Industrial
Developmental
Timber Cut-Over
Classification Code
400’s
100’s
200’s
300’s
600’s
500’s
If the total usage of a parcel includes more than 1 classification, the assessor will
determine the classification that most significantly influences the total valuation
of the parcel.

5. Atypical Classifications
Developmental real property
Includes parcels:
• < 5 acres without buildings, or
• < 15 acres with a market value in excess of its value in use.
• May include farmland or open space land adjacent to a
population center, or farmland that may be subject to competing
valuation influences.
Timber-cutover real property
Includes:
• Parcels that are stocked with forest products of merchantable
type and size;
• Cutover forestland with little or no merchantable products; and
• Marsh lands or other barren land.

6. Different Valuations
• Taxable Value (TV)
• Capped Value (CV)
• True Cash Value (TCV)
• Assessed Value (AV)
• State Equalized Value (SEV)

7. Taxable Value
• The most important component of your assessment notice.
• Created by Proposal A in 1994.
• What is it?
– Lesser of
• State Equalized Value, or
• Capped Value
– Statutory formula meant to keep property taxes at an affordable level for long
term homeowners
• Why is it important?
– TV x Millage = Tax Bill
– Millage = Tax Dollars per $1000 of TV

8. Capped Value
• How is it calculated (2012)?
– 2014 TV = [(2013 TV – LOSSES) X (IRM)] +
ADDITIONS
– IRM = Inflation Rate Multiplier = lesser of
• 1.05 or
• the IRM calculated per the statute
– 2014 = 1.016

9. True Cash Value
• What is it?
– Fair Market Value (FMV) – what a willing buyer would pay a
willing Seller.
• How is it determined?
– By the Assessor
– By an Appraiser
• Why is it important?
– One half of this value determines Assessed Value (AV)

10. Assessed Value
• What is it?
– One half of the property’s “true cash value” (FMV) as determined
by the assessor.
• How is it calculated?
– AV = True Cash Value / 2
• Why is it important?
– Component of SEV and indication of potential sales price.

11. State Equalized Value
• What is it?
– SEV = AV x the Tentative Equalization Factor or the factor applied by
the State Equalization Department.
– SEV represents 50% of the “True Cash Value” of a property. It is called
an equalized value because the assessor has prepared the value based
on sales within the city, the county equalization board has made certain
that each city and township have assessed the properties at an equal
level, and the Michigan State Tax Commission has studied and
equalized all the counties within the state to ensure equity between
them.
• Why is it important?
– It is the TV the property “uncaps” to the year following a transfer.

12. Tentative Equalization Factor
• What is it?
– The factor determined by the county equalization director or the
State Equalization Department to be applied to a class of
property within a taxing jurisdiction to ensure the AV of all
property within the class does not exceed 50% of its True Cash
Value as required by the Michigan Constitution.
• How is it calculated?
– By the county or state equalization departments.
• Why is it important?
– May adjust the “uncapped” taxable value of the property and
impacts an Assessor and the Board of Review’s ability to adjust
AV and SEV.

13. Transfer
• What is it?
– Notice that the Taxing Jurisdictions has
determined that a transfer of the property has
occurred.
• Why is it important?
– It causes the property’s TV to be “uncapped”
to the SEV.

14. Appealing Your Assessment
Notice
1. Assessor
2. Board of Review
a. March
b. July
c. December
3. Michigan Tax Tribunal
**Calendar of Important Dates

15. Other Information
• Principal Residence Exemption
• Qualified Agricultural Property Exemption
• Qualified Forest Property Exemption
• Poverty Exemption
• Other Exemptions

16. Assessor & Board of Review
• Record Cards
– Assessor’s Manual
– True Cash Value of property
– Adjusted by ECF
• Equalization Factor
• Appraisals

17. Record Card

18. Record Card…Continued

19. Principal Residence Exemption
Test:
Owned and Occupied.
“1 place where an owner of the
property has his or her true, fixed,
and permanent home to which,
whenever absent, he or she intends
to return.”

20. May Not Claim If
• Has claimed a substantially similar exemption in another
state for the year in question.
• Spouse owns property in another state and has claimed
the exemption, unless separate tax returns are filed.
• Filed a nonresident Michigan income tax return.
• Filed an income tax return in another state as a resident.
• Previously rescinded the PRE and claimed an exemption
for another property for that year.

21. How to Claim:
• File a PRE Affidavit.
• By June 1, for the summer tax levy.
• By November 1, for the winter tax levy.

22. Removing the Exemption
• Claimant’s Request to Rescind – Must be filed within 90
days from the date the property no longer qualifies as
the PR.
• Assessor’s Denial.
– Current year plus up to 3 prior years.
– Appeal to MTT within 35 days.
• Michigan Department of Treasury denial.
– Current year plus up to 3 prior years.
– Initial Appeal to Department.

23. Personal Property Tax
By: Karrie A. Zeits
kzeits@shrr.com | (231) 486-4521

24. What is a Personal Property Tax?
Includes tangible assets like:
• Furniture
• Computers
• Copiers
• Machinery and equipment

25. Who Pays?
• The owner of the personal property, if known, or
the person in possession of the personal
property.
• Trade Fixtures are assessed to the Tenant.
• Leasehold Improvements may be assessed by
the assessor to either the Tenant as a personal
property assessment or to the Landlord as part
of the real property assessment.

26. How does the Assessor know that I have
Personal Property within the Jurisdiction?
• Driving around
• DBA filings
• State of Michigan business filings
• Prior year(s) reporting
• Personal Property Statement
• Personal Property Tax Audits

27. Industrial and Commercial
Personal Property Exemption
• Industrial personal property is exempt from
the 6 mill state education tax and is also
exempt from up to 18 mills levied for
school operating purposes.
• Commercial personal property is exempt
from up to 12 of the mills levied for school
operating purposes.

28. Personal Property Phase Out
• August Election.
• Qualified New Personal Property - manufacturing property
purchased on or after December 31, 2013, will be exempt
from property taxes beginning December 31, 2015.
• Qualified Previously Existing Personal Property –
manufacturing property that has been subject to or exempt
from the collection of taxes for the immediately preceding 10
years beginning December 31, 2015 through 2022.
Beginning 2022, all manufacturing property will be exempt.
• Under $80,000 Exemption.

29. Claiming the Exemptions
Affidavits will need to be filed with the local
assessor as follows:
• New Manufacturing Property: Beginning February 20,
2016.
• Existing Manufacturing Property: Beginning February 20,
2016.

30. Under $80,000 Exemption
• Eligible Property:
– Industrial or commercial personal property.
– Owned, leased, or in possession in taxing jurisdiction.
– TCV less than $80,000.
– Not leased to or used by a person who previously
owned the property or a related entity.
• Claiming the Exemption:
– Must be claimed by February 10, 2014 (?).
– Affidavit.

31. Appealing the Personal Property
Assessment
• Assessor
• March Board of Review
• Michigan Tax Tribunal

32. Exempt Property
(Nonprofits)
By: Karrie A. Zeits and Scott D. Harvey
kzeits@shrr.com | (231) 486-4521
sharvey@shrr.com | (231) 486-4545

33. Nonprofit Organizations
• Created under state law (Michigan
Nonprofit Corporation Act).
• Apply for income tax exemption under
federal law.
• Several categories of tax exemptions.
– 501(c)(3) “charitable” tax exemption.
– IRS Form 1023.
– Does NOT automatically ensure property tax exemption
under state law.
* An entity does not qualify for a tax exemption merely because it is incorporated
under the Michigan Nonprofit Corporation Act.

34. Requirements
• Property must be owned and occupied by the
entity claiming the exemption.
• The entity must be a nonprofit.
• The entity must be one of the listed nonprofits.
• The property must be occupied by the nonprofit
solely for the purposes for which it was
incorporated.

35. • Occupy = physical presence. Use is not
enough.
• Listed nonprofits = library, benevolent,
charitable, education, scientific, theatre,
hospital etc.
• Solely for the purpose = partial exemption
(?).

36. Charitable and Educational
• Charitable = whether organizations’
activities, taken as a whole, constitute
charitable gift for benefit of general public.
• Educational = significantly relieves the
government’s educational burden.

37. Audit of Exempt Properties
• Centre Ice.
• Others.

38. Appealing the Determination
• Board of Review.
• Michigan Tax Tribunal within 35 days.
• Court of Appeals.

39. Dates to Remember
•
•
•
•
•
•
•
•
•
•
February 10, 2014
Deadline for submitting under $80,000 Affidavit.
February 20, 2014
Deadline to file Personal Property Tax statement with the Assessor.
March 10, 11, or 12, 2014
March Board of Review.
June 1, 2014
Deadline to file PRE Affidavit for summer tax levy.
June 2, 2014 (May 31 is a Saturday)
Deadline to appeal commercial, industrial, and utility personal property assessment to the
MTT.
June 30, 2014
Deadline for classification appeal to the State Tax Commission. (Must have appealed to
the BOR.)
July 22, 2014
July Board of Review.
July 31, 2014
Deadline to file appeal of agricultural personal property assessment to the MTT. (Must
have appealed to the BOR.)
November 1, 2014
Deadline to file PRE Affidavit for winter tax levy.
December 9, 2014
December Board of Review

40. Recent Developments in Real
Property Taxation - 2013
By: Robert W. Parker
rparker@shrr.com | (231) 486-4504
"It would be so nice if something made sense for a change.”
- Alice from Lewis Carol's Alice in Wonderland

41. State Tax Commission 2013
Annual Report

42. State Tax Commission Bulletin 23 of 2013
[December 16, 2013]
Clarifies that the exemption created by PA
497 of 2012 transfer of residential real
property to a person related to the transfee
by blood or affinity to the 1st degree, does
not apply to transfers to a trust, an llc or
distribution from probate.

43. State Tax Commission Transfer of Ownership
Guidelines issued December 2013
• Clarified that in order to qualify for the PA
497 exemption there must be no change in
use. Does not matter that the
classification stays the same.
• Clarified that a lady bird deed where the
remainder interest is created in a party
who would qualify under PA 497, MCL
211.27a(7)(s) is not a transfer.

44. Drew v Cass County
830 NW2d 832; 299 Mich App 495 (2013)
• Driver’s licences, voter registration + tax
returns does not = PRE.

45. Power v Department of Treasury
835 NW2d 622; 301 Mich App 226 (2013)
• Lot lease does not = PRE.

46. Mancuso Family Trust v City of Charlevoix
831 NW2d 907; 300 Mich App 1 (2013)
• Identical trustee does not = commonly
controlled entity.

47. Detroit Lions, Inc v City of Dearborn
302 Mich App 676; 840 NW3d 168 (2013)
• “Commonly controlled” means just
that. Commonly controlled.

48. Real Estate Tax Issues for
Seniors and Veterans
By: Gregory R. Kish
gkish@shrr.com | (231) 486-4557

49. Real Estate Tax Issues
Impacting Seniors
• Disabled Veterans Exemption
• Poverty Exemption
• Snowbirds and the PRE
• PRE for Nursing Home and Assisted Living
residents
• Payment Deferral for age 62 and over

50. Dannie Lee Barnes Disabled Veteran
Property Tax Relief Act
(formerly known as the “Soldiers and Sailors Exemption”)
Soldiers and Sailors exemption (in the past):
• Provided a complete exemption from real estate tax for any
soldier or sailor honorably discharged with a serviceconnected disability for which the veteran received a 702
housing grant from the US Department of Veterans Affairs
(VA) for adaptive housing.
• Exemption would continue for the veteran even if the veteran
moved to a home other than the adapted home.
• Exemption would continue for the un-remarried surviving
spouse of the veteran who lives in the adapted home.

51. Who was Dannie Lee Barnes?
• Disabled veteran living in an assisted living facility in 2003.
• Approved for specially adaptive housing grant by the VA.
• Funds were released to an escrow account, to be released to the
contractor as work progressed.
• On March 30, 2004, work was scheduled to commence. Mr. Barnes
died that day.
• Cascade Township denied Mrs. Barnes’ application for the Soldiers
and Sailors Exemption. The decision was affirmed by the Michigan
Tax Tribunal because Mr. Barnes did not actually “receive” the 702
housing grant and the home was not “specially adapted housing”
because the work had not been done.

52. Exemption Expanded to
Include:
• All of those to whom the old Soldiers and Sailors exemption
applied (with no requirement of residence in the adapted
housing).
• All veterans who receive disability compensation (serviceconnected disabilities) from the VA at a 100% rating.
• All veterans rated as “individually unemployable” by the VA
(rated at less than 100% service-connected disabilities but
receiving compensation at 100% because of inability to work).
• All un-remarried surviving spouses of veterans listed above.

53. Fiscal Analysis
• House Fiscal Agency Analysis from June, 2013
– “To the extent that the expanded exemption is claimed, revenue
from the State Education Tax (which is earmarked to the School Aid
Fund) and local property tax would decline. However, without
knowing the number of veterans that would qualify and the
corresponding taxable values of their homesteads, an accurate
fiscal impact cannot be determined.”
• Senate Fiscal Agency Analysis from November, 2013
(paraphrased)
– We don’t know how many disabled veterans are rated as IU, nor do
we know how many own homes. About 8,000 Michigan veterans
receive disability compensation with a 100% rating, and if all of
them were approved, we think it would cost about $11.5 million per
year, of which $9.4 million would come from local unit revenue. The
report did not address claims by spouses.

54. Disabled Veterans Exemption
(continued)
• Signed by Governor on November 12, 2013,
retroactive for 2013 taxes.
• Applicants should contact the local assessor to file
the required affidavit and supporting documents
from the VA. Local application processes vary.
• July 2014 Board of Review can grant the 2013
exemption to any applicant who missed the 2013
December Board of Review deadline but
otherwise met the exemption’s requirements.

55. Poverty Exemption
• An exemption from payment of real property taxes
may be granted from 0% to 100% for eligible property
owners. MCL 211.7u
• Must be an owner and occupy the property as a
principal residence.*
• Must file a claim with the supervisor or board of review
after January 1 but before last day of Board of Review.
• Must provide copies of tax returns and other
supporting documents.
* “Principal residence” means principal residence or qualified
agricultural property.

56. Poverty Exemption…Continued
• Local taxing units establish publically available guidelines for
granting the exemptions, included but not limited to the
income and assets of the claimant and the household.
• Policy must be followed unless there are “substantial and
compelling reasons” to deviate that are explained in writing to
the claimant.
• Income test may not be stricter than federal Health and
Human Services Poverty Guidelines. (Family of four =
$23,850 for 2014)
• Homestead tax credit and food stamps are excluded.

57. Poverty Exemption…Continued
• Asset test varies by taxing unit but must focus on resources
available to pay taxes and must not include the value of the principal
residence.
• A policy of denying the poverty exemption if the value of the property
is higher than the average value of residential properties in the
taxing unit is common but may be challenged.
• Policies of requiring property ownership for a certain number of
years prior to applying for the exemption or limiting the number of
consecutive years for which a person may receive the exemption
have been struck down by the Michigan Tax Tribunal but still can be
found in some municipalities’ guidelines.

58. Poverty Exemption…Continued
• Applicants may appeal adverse decisions
to the Michigan Tax Tribunal.
• March Board of Review by July 31
• July and December Boards of Review
within 30 days of the denial.

59. Snowbirds and the PRE
“The law” says: "Principal residence" means the 1 place where an
owner of the property has his or her true, fixed, and permanent home to
which, whenever absent, he or she intends to return and that shall
continue as a principal residence until another principal residence is
established. . . principal residence also includes any portion of a
dwelling or unit of an owner that is rented or leased to another person
as a residence as long as that portion of the dwelling or unit that is
rented or leased is less than 50% of the total square footage of living
space in that dwelling or unit.” MCL 211.7dd(c)
Guidelines from the State Tax Commission specify that spending the
winter in another state does not impact the PRE.
Audited for Voting, State Income Tax Filing, and Driver Licensing, BUT
these audit tests do not substitute for “the law.”

60. Snowbirds and the
PRE…Continued
• Renting a garage apartment or similar rental unit will result in a pro
rata reduction of the PRE.
• Renting a room to a boarder does not decrease the PRE unless the
boarder is renting more than 50% of the home, in which case there
is a pro rata reduction.
• Rental of the primary house for part of the year does not result in a
pro rata reduction in the PRE based upon the portion of the year the
rental occurs.
• Instead, renting the house for 15 days or more during a calendar
year results in complete loss of the PRE according to STC
guidelines.*
• PRE will be in danger if the homeowner owns a home in another
state and enjoys a tax benefit from that state similar to the Michigan
PRE.
*STC guidelines are not “the law” but are used by assessors in making
determinations.

61. PRE for Nursing Home and
Assisted Living Residents
The definition of “principal residence” for the PRE involves a person’s intent to
return home when away.
MCL 211.7cc(5) Excerpt: A person who previously occupied property as his or
her principal residence but now resides in a nursing home or assisted living
facility may retain an exemption on that property if the owner manifests an
intent to return to that property by satisfying all of the following conditions:
•
The owner continues to own that property while residing in the nursing
home or assisted living facility.
•
The owner has not established a new principal residence.
•
The owner maintains or provides for the maintenance of that property while
residing in the nursing home or assisted living facility.
•
The property is not occupied, is not for sale, is not leased, and is not used
for any business or commercial purpose.
Neither “nursing home” nor “assisted living” are defined
by the General Property Tax Act.

62. Payment Deferral
for Age 62 and Over
•
Seniors age 62 or over, the un-remarried surviving spouse of someone who
was 62 or older, parapalegic, quadriplegic, hemiplegic, eligible
servicepersons, eligible veterans, eligible widow or widower, or a person
who is totally and permanently disabled or blind.
•
Must have income in the prior tax year less than $40,000 (not indexed).
•
May delay payment of Winter taxes to April 30 of the first year of
delinquency and may delay summer taxes until the following February 15.
•
Allows taxpayers to apply for and receive the homestead property tax
rebate before the taxes are due.
•
Apply through county treasurer.

63. Planning Opportunities
and Pitfalls
By: Timothy M. White
twhite@shrr.com | (231) 486-4512

64. Estate/Business Planning
and Property Taxes
• Must be one consideration among many.
• Should not (normally) be the primary
consideration.
• Ways to avoid “uncapping”.
• Other issues related to “uncapping”.
• Other considerations.

65. Ways to Transfer Property
But Avoid “Uncapping”
• Joint Tenancy with full rights of
survivorship.
• Public Act 497 of 2012 - “First Degree
Transfers”.
• Other Considerations.

66. Advantages & Disadvantages to
Joint Tenancy
• Advantages
• Avoids uncapping
• Avoids probate
• Can be implemented with little cost
• Disadvantages
–
–
–
–
Debtor/creditor issues
Other obligations: Taxes, Maintenance, Liability & Insurance
Family issues
Loss of control
• Other Considerations
• Joint Contract among the joint tenants may mitigate but not completely
resolve these disadvantages.
• Federal Income and Estate Tax Issues.
• Does it make sense in the context of the overall plan?

67. More Than Just a Deed
Joint Tenancy Agreements should address:
• Responsibility for taxes, repairs, upkeep.
• “Buyout” provisions & Succession.
• Ongoing joint ownership/management.
• Transfer restrictions.
• Trigger provisions for debtor/creditor issues.

68. Public Act of 497 2012
“First Degree Transfers”
MCL 211.27a(7)(s) Beginning December 31, 2013, a transfer of residential real
property if the transferee is related to the transferor by blood
or affinity to the first degree and the use of the residential
real property does not change following the transfer.
•
STC Guidelines:
• “Blood or affinity of the first degree” includes: spouse, parents,
stepparents, spouse’s parents, children (including adopted and
stepchildren), and siblings.
• Does not apply to transfers from Probate, Trust, or LLC, but will apply if
transferor retains a life estate.
• Same Use, “there are numerous changes that could be considered a
change in use and a change in use is not limited to a change in property
classification.”

69. “First Degree Transfers”
Examples
•
Mother transfers vacation home in June 2014, to Daughter who continue to
use it as a vacation home. No transfer of ownership, because parties are
related by blood or affinity to the first degree.
•
What if Mother had previously (2011) transferred property, but retained a life
estate?
•
Mother and Father transfers primary residence to Son, retaining a life
estate. Both parents die in 2014. No transfer of ownership if use does not
change. Does Son have to use the property as a primary residence?
•
What if Son wants to use it as a vacation rental? What if only rented for a
few weeks a year?

70. Advantages & Disadvantages to
Retained Life Estates
• Advantages
• Avoids uncapping – provided transferee is related by blood or affinity to
the first degree and use remains the same.
• Avoids probate.
• Can be implemented with little cost.
• Disadvantages
•
•
•
•
Continued Uncertainty – Particularly regarding “use”.
Creditor Issues (no LLC or Trust protections).
Family issues (Sharing among members of later generation).
Pending legislative proposals.
• Other Considerations
• Federal Income and Estate Tax Issues.
• Does it make sense in the context of the overall plan?

71. Other Issues Related to
Uncapping
Entities
• Transfer Between Entities.
– Not a transfer of ownership if made between
entities under “common control”.
• Michigan RAB 1989-48 (parent/subsidiary,
brother/sister, combination).
• Trade or business.

72. Other Issues Related
to Uncapping…Continued
Entities, cont.
• Transfer into an Entity
– “Mirror-Image” Rule: Not a transfer of ownership if same owners
in same percentages (also would apply to transfers between
entities).
• Lakewood Decision
• Follow the letter of the rule!
– Example: A and B own vacation property as joint tenants (or as
tenants in common); A and B convey property to XYZ, LLC, and
A and B jointly own 100% of the membership interest in the XYZ
(or 50% each if the property is owned as tenants in common).
– Uncapping Within the Entity: Transfer of >50% interest.

73. Other Issues Related
to Uncapping…Continued
Miscellaneous
• Trusts & the “Sole Present Beneficiary” Requirement:
Grantor or Grantor’s spouse.
– “Spray Provisions”: Make sure that these contain language that
real property is held solely for the benefit of the Grantor’s
spouse.
• Partial Uncapping.
– Transfer of tenant in common interest.
• Unrecorded Deed.
– Still a transfer!

74. Cost/Benefit Considerations
Some common considerations in any analysis:
• Tax savings
• Estate and gift tax implications
• Debtor/creditor issues
• Family issues
• Other estate planning goals and objectives
• Government benefits/Medicaid
• Plans of heirs/beneficiaries for the property

75. Principal Residence
(PRE) Considerations
• Must be “owned” and “occupied”.
• “Owned”
– Any % of ownership (e.g., 1%) can qualify for PRE.
– Cannot qualify if owned by an entity (e.g., LLC).
– Trusts are generally ok (as long as the person claiming the PRE is
one of the trust’s beneficiaries).
• “Occupied”
–
–
–
–
–
Principal residence.
Resident of MI.
Haven’t filed a non-resident MI tax return.
Haven’t filed a tax return as a resident of another state.
You (or your spouse) don’t claim an exemption in another state
(unless you don’t file joint tax returns, in which case you may be
able to claim PRE in both states).

76. Questions?
Thank you for attending!
© 2014 Smith Haughey Rice & Roegge. All rights reserved.