November 10, 2015 Category: Real Estate
Prior to 1995, real property in Michigan was taxed at its “assessed value”; that is, at 50% of its true cash value, which Michigan courts deem synonymous with fair market value. This meant that taxes on real property went up or down in tandem with increases or decreases in the property’s true cash value.
However, in 1994, Michigan voters approved Proposal A, which amended Michigan’s Constitution to require that, starting in 1995, Michigan real properties were to be (i) assigned a taxable value in addition to their assessed value, and (ii) taxed based on their taxable value–an amount that cannot exceed the property’s assessed value and that can only increase by the lesser of 5% or the rate of inflation. This is known as the Proposal A Cap. Thus, in a rising real estate market, assessed values will increase in tandem with the market, but taxable values will increase only by the rate of inflation which may be less than the rate indicated by the market.
There are two exceptions to the Proposal A mathematical formula for adjusting taxable value. One exception occurs when there is a statutory “addition” to the property, typically, new construction. In that case, the taxable value that would otherwise result is supposed to be increased by 50% of the market value of the addition.
Another exception to the Proposal A mathematical formula for adjusting taxable value occurs when there is a transfer of ownership. In that case, the taxable value of the property is uncapped in the year following the transfer of ownership and is set at 50% of the property’s true cash value as of tax day, which is December 31 of the year of the transfer. In a rising real estate market this can result in a significant increase in the property’s real estate taxes-something purchasers would like to avoid.
To ensure that assessors are aware of the transfer and that properties are properly assessed and taxed, purchasers of real estate in Michigan must file a Property Transfer Affidavit (PTA) with the assessor within 45 days of the transfer. The information required on the PTA is the street address, county, date of transfer, municipality where the property is located, purchase price, parcel identification number, seller’s/transferor’s name, buyer’s/transferee’s name and mailing address, and the buyer’s/transferee’s telephone number. This information is not confidential.
The PTA also requests but does not require the following additional information: the type of transfer (land contract, deed, [long-term] lease, some other conveyance [e.g. trust transfer]) whether the property was purchased from a financial institution, whether the transfer was between related parties, the amount of the down payment, if the purchase was financed, whether it was at a market rate of interest, and the amount financed/borrowed. This information is also not confidential. Although not required, it may be in the purchaser’s interest to provide the additional information to ensure the assessment is not based on erroneous data.
Lastly, certain types of real property transfers are exempt from having their taxable value uncapped as a result of the transfer. The PTA provides a list of brief descriptions of the types of exempt transfers, and gives the purchaser an opportunity to indicate whether the transfer at issue is exempt and the type of exemption claimed.
In the course of my property tax appeal practice, purchasers of real property sometimes comment that they might not file the PTA because that would put the assessor on notice about the transfer and give the assessor an opportunity to “uncap” the taxable value and increase the real property taxes. My response? Don’t even think it! There are statutory penalties and other more serious consequences for failing to file the PTA. The statutory penalties are as follows:
For properties that are not commercial or industrial:
$5/day for each day late, with a maximum penalty of $200.
For commercial and industrial properties where the sale price is $100 million or less:
$20/day for each day late, with a maximum penalty of $1,000.
For commercial and industrial properties where the sale price is more than $100 million:
$20,0000 unless the taxpayer demonstrates reasonable cause for the failure, in which case the penalties for properties where the sale price is $100 million or less apply.
Additionally (and this is the real kicker), the taxable value may be retroactively adjusted for the year following the transfer and any subsequent years affected by the purchaser’s failure to file, or timely file, the PTA. Any additional taxes that would have been due if the PTA had been timely filed will also be levied against the property, along with interest and penalties from the date the additional tax would have been due. These retroactive adjustments to taxable value, and correlative additional taxes, interest and penalties due on the adjusted taxable values, should alone be a powerful incentive to timely file the PTA. However, most purchasers contemplating not filing the PTA consider only the statutory penalties noted above, forgetting (or not knowing) that there are other far more serious consequences for failing to file. Bottom line: When purchasing real property in Michigan, file the PTA within 45 days after the closing, or risk paying substantially more in property taxes, interest, and penalties when the assessor subsequently discovers the purchase.
Blog posted by Eva T. Cantarella, a commercial property tax appeal attorney at the law firm Hertz Schram PC, 1760 S. Telegraph Rd., Ste 300, Bloomfield Hills, MI 48302, 248-335-5000, firstname.lastname@example.org Ms. Cantarella is also a continuing education instructor for the Commercial Board of Realtors and the International Council of Shopping Centers, and she formerly owned her own real estate appraisal business-experience that has proven invaluable in helping her successfuly resolve hundreds of property tax appeals in the Michigan Tax Tribunal. All appeals are handled on a contingency basis, meaning you pay only if the appeal results in tax savings. Call now if you have any questions concerning your commercial or industrial property tax assessment. Please note that Ms. Cantarella handles only commercial and industrial property tax appeals; she does not handle single family homes.