How Property Tax is Calculated

At the beginning of April each year the Michigan Department of the Treasury sends each property owner a Notice of Assessment (form 1019). This shows your property tax calculation. Below is an explanation of each item on the notice.
  1. The Notice of Assessment is sent from your local Township which is shown on the form. This is the level where you start when you appeal your taxes.
  2. Your name and Address is shown on the form.
  3. PROPERTY ID - This is the legal description of your property and what you will need to reference in the appeal process, along with the Property Address.
  4. PROPERTY CLASSIFICATION - This shows the classification of the property such as commercial or residential, etc. As a homeowner, it should be Property Class 401, Residential.
  5. TRANSFER OF OWNERSHIP – If you just purchased the property or it was transferred to you in the previous year, the value of the property will "uncap" and the property will be re-assessed. With this re-assessment the Taxable value and Assessed Value will change to this new amount.
  6. TAXABLE VALUE – This is the value that you are taxed on. This amount was originally based on your purchase price and, at that time, matched the assessed value.
  7. ASSESSED VALUATION - the "assessed value" of property shall be the value "Placed" upon the property by the local assessing officer, as equalized by the county and finally by the state. This is generally slightly less than the price you paid for the property (so you think you got a deal) unless it sold for less than it was previously assessed, then the assessor will try to justify the previous value.
  8. TENTATIVE EQUALIZATION FACTOR - Equalization is multiplier used to ensure that property owners in all parts of the county or school district pay their fair share of that unit's taxes.
  9. STATE EQUALIZED VALUE- This is assessed value multiplied by the equalization factor and represents 50% of the "true cash value" (as determined by the state not the market) of your property, plus annual increases as defined by the State of Michigan. Remember this has nothing to do with your taxable value, unless your property was transferred in this year.
  10. There WAS/WAS NOT a transfer on this property in 2007, if there was a transfer the taxable value would be changed to equal the Assessed Value. If there was not a transfer then the taxable value is changed by the inflation rate multiplier.
  11. Board of review, this shows the date and location of where you will start your appeal process.

PROPERTY CLASSIFICATION:

The property class we will deal with are related to the homeowner, is residential. Most homes are classified as residential and if they are your first home, they are exempt from some of the state school tax under the Homestead exemption Act. If it is a second home or an investment property you are not exempt and have to pay the additional school millage (non-homestead) on your taxable value.
Another classification is agricultural; this is generally for vacant land or land that is farmed. You may have a parcel that is farmed but classified as residential this is because the municipalities have a choice of classification if the property is 10 acres or less. Generally they will choose to classify it as residential rather than agricultural as this is taxed at a higher rate than agricultural property. If you have property that is farmed, you may challenge this classification at the board of appeals to change the classification to the lower agricultural rate.

UNDERSTANDING YOUR TAX BILL

This should be pretty self explanatory, as most of us are used to paying bills. The area of our concern is the "Computation of Tax" area. Here is where you will see the Assessed Value, Equalization Factor, State Equalized Value, and last but not least the one that really matters to us, the Taxable Value. Also you should see a definition of 1 mill. 1 mill equals $1.00 per $1,000.00 dollars. The tax rates are expressed in mills, and to calculate the amount of tax you owe, the state is dividing the Taxable Value by 1000 and multiplying this by the tax rate (which is expressed in mills). They then total the different tax items that were voted on by you (the real reason to vote) and determine what you owe.

Property Values

Every year you get an assessment of your property and they always go up. Generally, the only time the taxable value and SEV are the same is if the property was transferred in that year. Under current Michigan statutes, both the Taxable and State Equalized Values are "uncapped" when a transfer of ownership is made. The value of the transfer is then recorded as both the taxable and SEV, which is expressed as a 50% value of the transfer value. So when you purchase or transfer a property the tax collector gets to reevaluate your property based on this. If the property has not been transferred, both the "taxable" and SEV values usually go up but not by the same amount or percentage. The taxable value has little to do with the "Market Value" of your property, the taxable value is adjusted (raised) by the inflation rate. The SEV is entirely different, it is generally raised yearly, but not by the inflation rate. It is raised by the percentages determined by the local assessor and then equalized. This year the State is lowering the SEV (true cash value) as it should and raising your taxable value to the rate of inflation. Reading the articles in the news you would think this is a once in a lifetime anomaly, but it isn't an anomaly, it's fact, the state is losing jobs and people. This anomaly is only a decoy to placate you while your taxes are going up.

Evaluating if I can lower my Property Taxes

Let's first look at an evaluation method to see if you can justify the cost and time required to lower your taxes. Here is a list of questions that you must answer in order to accurately determine if there is a savings to be had. It is important to remember that "taxes are forever", so if you can save $100.00/year, this savings is for every year you own the property. As you know the government will raise taxes every year, so by reducing your taxable value, you are starting at a lower rate, hence the savings is realized year after year.

How long do you plan on keeping your home?

The savings in tax dollars are saved every year you own your home along with the increase on the percentage of change to your new lower value.

What is the spread between your taxable value and SEV?

Generally, the closer the spread is the more likely you will save money, of course this is also based on how long you have owned your home.

How long have you owned your home?

We see from pricing trends that the group that purchased their homes 3-7 years ago will see the most savings in taxable value. 7-10 will see a pretty good savings and 1-3 may see savings depending on how good they were at negotiating their purchase price.

What is the local economy like? Are there lots of homes for sale? Is there lots of foreclosures in your area?

The reason we ask this is because unlike the state we are not interested in theoretical pricing. We want to know the "True Market Value". This means the value that your home will sell for today. This doesn't mean having it on the market forever, this means to sell in a reasonable time.

Are you willing to expend the effort to save money on your property taxes?

Appealing your taxes is a cumbersome task if you go it alone. The State has made it this way to hinder people from fighting. Granted, on the state website you can find most everything you need to appeal your taxes, but not in one area, or the tips and things to expect during the process.

Appraisals and Appraisers

There are different types of appraisers and appraisals. Most of us think of the appraisal we had the bank do when we purchased our home. This is a bank value appraisal. This generally has little to do with the actual value of the property and more to do with your personal credit rating. Market Value Appraisal is a better approach to appeal tax rates. There are two types of appraisers that can do this. They are both state certified, one is a general and the other is a residential property appraiser. We have a list of state certified appraisers that do market value appraisals for the purpose of tax appeals. These appraisers will stand behind their appraisal and defend it to the tax tribunal. Generally this type of appraisal cost around $400.00.

TAX TRIBUNALS

LOCAL

The local tax tribunals generally meet the first two days of the second full week of March, You must start the appeal process here. Some of the tips and tricks are.
  1. Being angry or belligerent doesn't help lower your taxes, only proof does. Showing them that they are wrong.
  2. You need to understand you are dealing with the government and they need the money, so expect to be turned down. Hopefully, with the proper documentation showing the true market value of your property, they will make the necessary changes to your taxable value, but don't be surprised if the reject it.
  3. Let them know when they reject your appeal that you will file a formal appeal with the tax tribunal. This won't help your immediate situation but the township appraiser who sits on this board will take note of this for later use, and possibly after hearing this enough they may start actually doing their job with honesty and integrity.
  4. Expect to be rejected, I say this twice because this is only the initial shot of the war so to speak, and it is a required part of the process.

COUNTY

The counties role in this is minimal at this point. They are the ones who have put together the values the local appeals board will use to prove your "True Market Value" is incorrect. Later in the appeals process they play a much bigger role in negotiating a settlement to avoid the State Tax Tribunal.

MICHIGAN TAX TRIBUNAL

You don't have to go to the Capitol to challenge the ruling of the local tax appeal board, generally the MTT has arranged locations in every county in the state, some may have to go to an adjoining county to meet with the MTT but with the information given here we will probably avoid this. The reason for this is when you send in your appeal form with the filing fee, the county also receives notification of your appeal. At this point the county will try to negotiate with you to avoid going to the MTT.
How this works is when you are in front of the MTT you may ask not only for the current year taxable value to be lowered but any previous years also, if your evidence shows you should have paid a lower amount, you are entitled to this and interest on this money owed to you. This is why the county will negotiate with you. Municipalities are a basically a non-profit organization, meaning they cannot profit, they must spend all of the money they receive, unless earmarked for special long term projects. They don't have money to refund your back taxes.
So know we have filed an appeal form with the MTT and paid our fee to fight our taxes. The county will contact you to negotiate, because they cannot afford to lose any previous years of tax money and interest. Negotiating with the county is a good thing but it bears in mind an old saying "don't ask of a man what he cannot do" meaning the county negotiators have guidelines they must follow, and if you ask for more than that, they cannot do it. Generally the county will lower your taxable value very close to your true market value. They will not match it as that will show they didn't do the job required of them, but again they will get very near to it. For most of us this is close enough because we know we will be doing this again in 5-7 years, unless the economy takes off and we sell our homes for a huge profit and move to a state with no property taxes. Sometimes, in rural counties, a representative from the county may come to your home to negotiate. . If you cut a deal with the county you're done. They will lower your taxable value and you will not only save this tax money for this year but for every year you continue to own this property.
If you cannot reach a deal, you continue with the fight and go for the tax adjustment from previous years with interest. This is a good thing to bring up while starting the negotiations with the county, but you must do it in a non-threatening way. You don't want them to not care. You want them to help you rectify this problem. Going in front of the MTT, this is where some of the questions you ask your appraiser are important. Will he represent his appraisal? What does he charge to go to the MTT? What was the value in previous years so you may go after them with accrued interest? The MTT is a formal process, so dress for it and present your case with confidence.