Part 1 of a 2-Part Property Tax Series
Commercial and industrial property owners in Michigan will begin receiving the next round of assessments from their local property tax assessors in the first quarter.
In 2023, the inflation rate adjustment used by the state to determine property taxes reached the 5% taxable value cap allowable under Michigan law. This increase, the largest in 28 years, was driven by red hot inflation numbers in 2022. While inflation in 2023 is down overall relative to the prior year, the state announced that the inflation rate adjustment for 2024 will be once again capped at 5%.
Property owners who did not buy or finish a major renovation in 2023 can expect that the taxable value of their commercial or industrial property will increase by 5% for the 2024 tax year.
If you bought a property last year or completed a major renovation, the taxable value of your property will likely be going up more than 5%. Michigan law allows for the taxable values for property to be uncapped during the year of conveyance or when the major renovation was completed.
Property owners must pay property taxes when they are due even if they disagree with the underlying taxable value determined by the tax assessor. However, there are options to appeal the taxable value if you feel that the property value determined by the assessor is incorrect.
The property tax appeals process in Michigan for industrial and commercial properties involves several steps, from initial assessment to potential appeal at the state level.
The property taxation process begins with the initial assessment of the property's value. In Michigan, the assessed value is the value that a property tax assessor assigns to commercial and industrial real property each year. Municipalities use the assessed value to determine your tax assessment. The assessed value is approximately half of what the value of the property would be if it were sold. The assessed value is calculated once per year and will often trail behind the actual market price for a property.
In the first quarter of each year, local tax assessors mail out a Notice of Assessment, Taxable Valuation and Property Classification to individual property owners. Many property owners file or throw out this notice without a second look because of the presence of the words “THIS IS NOT A TAX BILL” written at the top of the notice.
When you receive your notice, it is important to thoroughly review the assessment to determine how your property taxes were adjusted. You will do this by reviewing the assessed value and taxable value for your property.
The assessed value will be equal to 50% of what the assessor believes the true cash value of the property would be if it were sold. For reasons that are beyond the scope of this discussion, the assessed value is often less than the property’s market value. For this reason, the assessed value will often not be the same as the value claimed on commercial real estate websites like loopnet.com.
The taxable value of a newly acquired property will be the same as the assessed value immediately following the sale of the property to a new owner. However, in the following year, the assessor likely will adjust the property’s assessed value to be the same as the value of the property if it was sold in the open market. Once the assessed value is determined, the assessor will multiply the taxable value by the local millage rate to determine the tax due for the property.
By law, the taxable value can only increase annually by the rate of inflation or the 5% cap, whichever is lower. For this reason, it is not uncommon for the taxable value, or the value used by the state to determine the taxes for the year, to be different than the assessed value, or the market value of the property, over time.
For example, a property with a fair market value of $50,000 in the first year that it was purchased will also have a taxable value of $50,000. In year two, the taxable value cannot increase by more than 5% based on state law. In this example, the taxable value is capped at $50,000 + (50,000 * .05) or $52,500.
Since the assessed value is based on the current market value of the property, it can be much higher than $52,500. In this case, the value of the property increased to match inflation for the year, or 7%. The new assessed value in year two is $53,500 while the taxable value is $52,500. In one year, there is already a difference of $1,000 between the assessed and taxable values. This cycle often repeats over the course of several years.
If the assessed value for your property is more than half of what you believe the market value of your property is or if the character of the property has changed (i.e., the size of the lot is different, the structures on the property are different, etc.), you can appeal the assessment to the local municipality. Only the current year may be appealed, and all property taxes due must be paid while the appeal is active.
March Board of Review – Local Appeal
If a property owner believes their property’s assessment is too high, they can appeal to the local board of review. The first step in the appeals process is to speak with the local assessor about any concerns you have with the assessed value of the property. If there are discrepancies in the assessment, such as errors in the square footage or the number of rooms, these should be discussed with the assessor during this initial conversation. Most assessors will automatically correct errors of fact when they are discovered and brought to their attention.
If the property owner decides to appear before the local board of review, they should be prepared to document facts and any value they believe should be placed on the property. The board of review employs the local assessor that computed the assessed value of the property and has the power to make corrections to the value if the facts support that the assessor made a mistake when they determined the assessed value.
The board will review recent sales of comparable properties and the factual data (i.e., square footage, lots size, etc.) used to determine the assessed value of the property.
Property owners should be prepared to identify the exact issue(s) that led to the property tax appeals and be able to support their appeal with evidence. This includes a careful review of the factual data listed on the assessor’s website, a review of the local real estate market and recent sales and may possibly require hiring a professional real estate appraiser to give an opinion supporting why the value assessed is incorrect.
The deadline to file a petition for appeal will be included in the Notice of Assessment received in February. The board of review will review the petition and the supporting evidence during the hearing to determine if the value assigned by the assessor accurately reflects the fair market value of the property. If the petition supports a lower assessed value, the board will correct the value. For many property owners, this adjustment is sufficient to end their property tax appeal.
Skipping the Local Board of Review
Unlike property tax appeals for residential property, appeals for commercial and industrial property can skip this initial appeal to the March board of review. If this step is skipped, the initial appeal is made to the Michigan Tax Tribunal.
A commercial or industrial property owner may elect to skip an appeal to the board of review for a variety of reasons:
- Efficiency – The owner may conclude that because of the complexity of the issues underlying the appeal, a direct appeal to the Tax Tribunal simply makes more sense, particularly if it appears likely that a ruling of the Tax Tribunal may be needed.
- Expertise – Local boards of review consider and resolve many assessment appeals, but they may lack the expertise found at the Tax Tribunal. Again, the complexity of the issues being raised may render a direct appeal to the Tax Tribunal the better option..
- Strategic Considerations – A property owner may also simply believe that a stronger case will be presented at the state level. As such, the owner may want to avoid a potentially unfavorable initial decision by a board of review prior to consideration by the Tax Tribunal.
Skipping the board of review at the local level is certainly possible for owners of commercial and industrial property. Business should carefully consider whether the outcome of their appeal may be more favorable by appealing directly to the Tax Tribunal. It is important to note that once a business elects to appeal directly to the Tax Tribunal, it can no longer appeal to the board of review.
Michigan Tax Tribunal
If the property owner is not satisfied with the decision of the local board of review, they can appeal to the Michigan Tax Tribunal. The tribunal is an agency that has the authority to interpret laws and make decisions that are like those made by a court. It can hold hearings, fix problems and even levy penalties. Its decisions must be followed, just like a court's decision. The Michigan Tax Tribunal hears tax appeals for all state and local taxes that are not resolved during the March board of review at the local level.
For commercial properties, the deadline to file a written petition with the Michigan Tax Tribunal is May 31 of the tax year involved.
The petition should include the petitioner’s name and contact information, the classification of the property (commercial or industrial), the location of the property and the reasons for the appeal.
The appeals hearing is typically scheduled for early the following year, but it may be heard sooner depending on the schedule of the tribunal. The property tax appeal will be heard by the tribunal members, who will render a final determination. This will effectively end the property tax appeal for that year.
While the decision of the tax tribunal is not final, it may only be appealed to the Michigan Court of Appeals on a limited basis. Michigan law states that the tax tribunal “…is the final agency for the administration of property tax laws.” An appeal to the Court of Appeals is rare because an appeal to that court would typically be based on legal grounds, such as an error in applying the law or in the tribunal's legal procedures.
Michigan’s property tax appeals process can be complex, but understanding the steps involved can help commercial and industrial property owners navigate it more effectively. It's important to note that each case is unique, and the process may vary depending on the specifics of the property and the appeal. Therefore, it may be beneficial to seek legal advice when considering a property tax appeal.
In the next installment of this series, we will examine what homeowners can do through the Michigan property tax appeals process to protect against the over valuation of their residential property by local assessors.
- Senior Attorney
Joseph A. Peterson is a member of Plunkett Cooney's Business Transactions & Planning Practice Group and serves as leader of the firm's Tax Law Practice Group. He has extensive experience with tax law, risk management and litigation.
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