Tax

Property Taxes in Michigan

Property Taxes in Michigan

Property Taxes in Michigan

aUp until 1994, Michigan state property taxes were levied based on a property’s assessed value or 50% of the property’s market value. This equation which was common around the country, quickly fell into disfavor because of the variable’s sensitivity towards macroeconomic changes, and shifts in property value. State property taxes were highly elastic to property values; if there was an increase or decrease in the housing market the state property tax would proportionately shift. 
This relationship was too sensitive and it created a financial burden for many landowners. If property values swelled, a drastic increase in state property taxes would be inevitable. More appropriately for Michigan, if the economy crumbled, the market value would fall precipitously. The decrease would lead to a lack of revenue for local governments, which in turn would disable the proper allotment of public services.
The close relationship between property values and state property taxes created widespread problems when the market experienced drastic shifts. Michigan’s answer for curbing these effects on landowners was to institute a new piece of legislation known as Proposal A.
This framework which was adopted in 1994, created a equation to determine state property tax. Proposal A based the state’s property tax on the land’s taxable value. Under Proposal A, the taxable value of a property is capped at either an increase of 5%, or at the rate of inflation. Whichever of these two is lower, will determine the amount of increase for the state property tax. If inflation was 6% for the given year, the state would increase property taxes by 5%. If inflation was 4% for the given year, the state would increase property taxes by the rate of inflation, or 4%.
Proposal A allowed property values to increase with corresponding boom in the housing market during the 90’s while maintaining  a stable level of state property taxes. The downside to Proposal A, unfortunately, is that it can also allow property values to decline without a corresponding decrease in state property taxes. The legislation only caps the increase of annual rates, it does not take into account a market that is declining.
For instance, if an individual owned a piece of land in Michigan for decades chances are there is a significant difference between the assessed value of the land and its taxable value. Generally, the taxable value of land increases more slowly than the property’s assessed value. 
Even with a sharp decline in the property values over the last couple of years, the assessed value is still likely higher than the taxable value. Since Proposal A bases the state property tax off of the property’s taxable value a decrease in the yearly rate is not likely. With inflation present odds are a landowner will actually see an increase in their annual state property taxes.
The only exception found in Proposal A in regards to tax caps is in regards to land that is sold or transferred. During the year after the property is sold or transferred, the cap enforced by Proposal A is lifted, and the taxable value is reset to the assessed value. 
Land that is transferred or sold, essentially adopt the state property tax laws from before 1994, or the institution of Proposal A. Following the reset back to the assessed value, the cap is then reapplied for the subsequent years. This scenario can lead to dubious circumstances. If an individual purchased land within the last couple of years, it is possible that his/her assessed value is less than the capped value.
Share

Related Articles

Tax News

Woman Sentenced to Five Years Following Tax Fraud Scheme The plan seemed perfect to the three young Sacramento women: use internet tax software like TurboTax, steal Social Security numbers, and start filing fraudulent tax returns in the hopes of getting large refunds.
Proposed Pregnancy Tax Break Creates Controversy Proposed Pregnancy Tax Break Creates Controversy Michigan lawmakers have proposed a controversial new law that would give tax breaks to some pregnant women.
Statistics of Income Bulletin Released Statistics of Income Bulletin Released The Internal Revenue Service (IRS) released the 2012 issue of the Statistics of Income Bulletin last Wednesday.
More Tax Relief for Victims of Hurricane Sandy More Tax Relief for Victims of Hurricane Sandy The Internal Revenue Service (IRS) has announced more tax relief for businesses and individuals affected by Hurricane Sandy in Connecticut, New Jersey, and New York.
2013 Inflation Adjustments and Pension Plan Limitations 2013 Inflation Adjustments and Pension Plan Limitations On October 18, 2012, the Internal Revenue Service announced the increase of certain tax benefits because of inflation adjustments and 2013 pension plan limitations.
Farmers Affected by Drought Have Time to Replace Livestock Farmers Affected by Drought Have Time to Replace Livestock According to the Internal Revenue Service, farmers and ranchers affected by the huge drought in the United States have an extension to replace livestock and defer tax on gains made through forced sales.
Executive Director Pleads Guilty to Illegal Campaign Contributions Executive Director Pleads Guilty to Illegal Campaign Contributions On October 1, 2012, the US Attorney’s Office for the District of New Jersey announced that Thomas J.
Filing and Payment Extensions End October 15th Filing and Payment Extensions End October 15th On September 28, 2012, the Internal Revenue Service announced that taxpayers who received tax-filing extensions will have to file the forms by October 15.
Much Awaited Statistics of Income Bulletin Much Awaited Statistics of Income Bulletin On September 24, 2012, the Internal Revenue Service released the Summer 2012 issue of the Statistics of Income Bulletin.
Victims of Straight-Line Winds in WV Eligible for Tax Relief Victims of Straight-Line Winds in WV Eligible for Tax Relief On September 20, 2012, the Internal Revenue Service declared that victims of severe storms in parts of West Virginia that occurred on or around June 29, 2012, may receive tax relief.
Update Tax Relief for Hurricane Isaac Update Tax Relief for Hurricane Isaac The Internal Revenue Service has announced tax relief for victims of Hurricane Isaac on September 5, 2012, and the IRS has updated the areas for tax relief on September 17, 2012.
Obama Calls for Tax Credits for Unemployed Veterans Obama Calls for Tax Credits for Unemployed Veterans Calling on all members of Congress to put the country ahead of politics, President Obama called for action to help unemployed and injured Veterans land jobs during the difficult economy.
Payroll Tax Cut May Not Be Extended Payroll Tax Cut May Not Be Extended Republicans, who have already blocked much of President Obama's $447 billion jobs creation bill, may now be moving towards not extending the payroll tax cut as it expires at the end of the year.
France to Increase Tax, Cut Budget During Financial Difficulty France to Increase Tax, Cut Budget During Financial Difficulty With the European financial crisis creating havoc among Euro Zone member's economy, France has been forced to re-tool their budget in light of an unbalanced budget.

Guide To: Tax Lawyers

Guide to Finding Tax Lawyer Guide to Finding Tax Lawyer How do I find a Tax Lawyer?Tax lawyers specialize in helping clients who need guidance in navigating the complex tax codes of the United States and local state taxes.