Michigan Taxable Value Increases

Michigan's General Property Tax Act (GPTA) establishes a process for valuing properties for purposes of property tax assessments. A tax assessor must annually estimate a property's true cash value (TCV) and divide this number by two, the result of which is called the state equalized value (SEV); by law a property's SEV cannot exceed 50% of the property's TCV. At one time, the property tax was calculated on the SEV.

In a special election held in 1994, Michigan citizens approved "Proposal A" to amend the Michigan Constitution. This amendment became effective in 1994 and applicable to all property assessments beginning in 1995. The amendment created a new term, "taxable value," on which the property tax is now calculated.

As with the SEV, a property's taxable value cannot exceed 50% of the property's TCV. Further, if the property remains owned by the same owner, annual increases in taxable value are limited ("capped") to the percentage increase in the Consumer Price Index (CPI) or 5%, whichever percentage is less.

There's a special qualification to the taxable value "cap" that permits additional taxation based on increases in value arising from "additions" when they're added to the land. When Proposal A was adopted, the GPTA defined "additions" as "all increases in value caused by new construction or a physical addition of equipment or furnishings . . . ." Curiously and despite the fact that Proposal A was a tax revolt, it amended the definition of "additions" to also include "public services," such as water, sewer, roads, natural gas, electricity, telephone, sidewalks and street lighting. In other words, the amendment allowed an assessor to now increase a property's taxable value to reflect the value added by these public services!

Additionally, once the property is sold or transferred to a new owner, the cap is lifted and the taxable value is reset to the assessed value.

If you want to see what your property taxes would be on a new purchase, you would divide the purchase price by 2 to come up with the SEV. You could then enter the SEV in the Michigan Department of Treasury Property Tax Estimiator. If you already own the property, you would enter the taxable value.

This Blog is not intended to be legal or tax advice and readers of this Blog should consult their own lawyer or tax preparer for legal or tax advice, as applicable.