A Guide to Your Property Taxes and Proposal "A"
PROPOSAL A
On March 15, 1994, Michigan voters approved the constitutional
amendment known as Proposal A.
Proposal A was designed to limit the growth in property taxes by the
Consumer Price Index (CPI) until ownership in the property was
transferred.
HOW IT WORKS
Prior to Proposal A, property taxes were based upon State Equalized
Value (SEV). With the implementation of Proposal A, property taxes are
now based upon Taxable Value.
Each year, the Assessing Office must calculate the SEV for every
property based upon the time frame as outlined by the State Tax
Commission. A property’s taxable status is determined as of December
31, which is called Tax Day.
Additionally, each property has a Capped Value. Capped Value is
calculated by multiplying the prior year’s Taxable Value, with
adjustments for additions and losses, by the CPI as calculated by the
State of Michigan and cannot increase by more than 5%. For 2009,
the CPI has been calculated at 4.4%.
Taxable Value (TV), which property taxes are based on, is defined
as the lower of State Equalized Value or Capped Value.
Generally speaking, this means that unless the current year SEV
is less than the previous year Taxable Value multiplied by the CPI,
the current year’s Taxable Value will increase by the CPI.
SEV = 50% of True Cash Value
Capped Value = (Prior TV-Losses) x (1+ CPI*) + Additions
*Percentage of change in the rate of inflation or 5%, whichever is
less, expressed as a multiplier
Taxable Value = The lesser of State Equalized Value or Capped
Value unless there is a transfer of ownership.
THE EQUALIZATION TIMETABLE
With significant evidence of declining market values, the County
Equalization Department has allowed local Assessing Offices to
consider a 12 month sales study to determine values for the 2009
assessment cycle. For 2009 assessments, the 12 month sales study
begins on October 1, 2007 and ends September 30, 2008.
Use of a 12 month study allows 2009 assessments to more accurately
reflect current market conditions, however, the reduced number of
current sales also means that many areas have limited data for the
Assessor to calculate current assessments. It may be necessary for the
Assessor to expand areas for reviewing neighborhood analysis or
estimate market changes based upon area trends.
ACTUAL SALES PRICE IS NOT TRUE CASH VALUE
The law defines True Cash Value as the usual selling price of a
property. The Legislature and the Courts have very clearly stated that
the actual selling price of a property is not a controlling factor
in the True Cash Value or State Equalized Value as calculated by
the Assessor. For this reason, when analyzing sales for the purpose of
determining assessment changes, the Assessing Office will review all
sales but exclude non-representative sales from the assessment
analysis.
FORECLOSURE SALES
Inherent in the definition on usual selling price is the assumption
that the sale does not involve any element of distress from either
party.
The State Tax Commission has issued guidelines concerning
foreclosure sales and generally speaking, these guidelines preclude
the Assessor from considering foreclosure sales when calculating value
for assessment purposes.
For this reason, all distressed sales, such as sales involving
mortgage foreclosure or sales involving transfers to or from
relocation companies are not considered as typical sales in the
valuation of property for assessment purposes nor are they reliable
indicators of value when making market comparisons for current
assessed values or appeals.
TRANSFERS OF OWNERSHIP AND UNCAPPING OF ASSESSMENTS
According to Proposal A, when a property (or interest in a
property) is transferred, the following year’s SEV becomes that year’s
Taxable Value. In other words, if you purchased a property in 2008,
the Taxable Value for 2009 will be the same as the 2009 SEV. The
Taxable Value will then be “capped” again in the second year following
the transfer of ownership.
It is the responsibility of the buyer in a transfer to file a
Property Transfer Affidavit with the Assessor’s/Treasurer’s Office
within 45 days of the transfer. Failure to file a Property Transfer
Affidavit can result in a penalty. Property Transfer Affidavit forms
are available at the local Assessing Office.
Again, it is important to note that a property does not uncap to
the selling price but to the SEV in the year following the transfer of
ownership.
PRINCIPLE RESIDENCE EXEMPTION
If you own and occupy your home as your principle residence, it may
be exempt from a portion of local school operating taxes. You may
check your percentage of principle residence exemption on your “Change
of Assessment Notice”.
If the percentage exempt as “Principle Residence” is 0% on your
assessment notice and you wish to claim an exemption for the current
year, a Principle Residence Exemption Affidavit must be completed and
filed with the Assessor’s/Treasurer’s Office on or before May 1.
Furthermore, if you currently have a Principle Residence Exemption
on your property and you no longer own and occupy the property as your
primary residence, you must rescind the Principle Residence Exemption
with the Assessor’s/Treasurer’s Office.
Forms to claim a new exemption or rescind a current exemption are
available at your local Assessor’s or Treasurer’s Office during normal
business hours.
SO WHAT DOES IT ALL MEAN?
How can I expect my assessment to change in 2009?
As stated in the Equalization Timetable for 2009, the time period
of the sales study for assessment review is October 1, 2007 through
September 30, 2008. Sales occurring on or after October 1, 2008 will
not be reviewed until the 2010 assessment cycle.
Using more current sales data means that almost every SEV will be
reduced for 2009. The problem, however, is that there is limited sales
data in the current 12 month study so many neighborhoods have little
or no sales for the Assessor to use for the 2009 assessment roll.
Therefore, many neighborhood adjustments will be based on market
activity in the surrounding areas, general market trends or be frozen
until market levels can be determined. Without sufficient sales to
make proper calculations, you may find that your 2009 assessment may
not go down as much as you think it should.
How can my Taxable Value go up when my SEV goes down?
Remember that the definition of Taxable Value is the lesser of SEV
or last year’s Taxable Value (adjusted for physical changes) times the
CPI (4.4% for 2009).
Since the beginning of Proposal A in 1994, overall increases in SEV
have generally been greater than the increase in Taxable Value capped
at the CPI. The longer a property has been owned and capped, the
greater the gap between SEV and Taxable Value. Even with a decrease in
SEV for 2009, if there is still a gap between the SEV and Taxable
Value and the 2009 SEV is greater than the Taxable Value in the
previous year, the Taxable Value will increase to the limit of the CPI
cap.
If, however, the 2009 SEV is lower than the calculation of last
year’s Taxable Value multiplied by the CPI, then the 2009 Taxable
Value will be the same as the 2009 SEV.
EXAMPLE OF DECLINING STATE EQUALIZED VALUE AND INCREASING TAXABLE
VALUE
This example illustrates a property purchased in 1997 and uncapped
in 1998. In 1998 the SEV becomes the new Taxable Value and then the
property is subsequently recapped at the CPI. The SEV will increase or
decrease based on market conditions. The Capped Value is adjusted by
the CPI in the following year. Taxable Value is determined by using
the SEV or Capped Value, whichever is less.
In this example, the property experiences a loss in the SEV from
2006 to 2009. Although the loss was due to market conditions, the
Taxable Value continues to increase by the CPI during 2006-2009. The
Taxable Value will continue to increase at the CPI until the SEV falls
below the Capped Value.
| |
SEV |
CAPPED |
TAXABLE |
CPI |
| 1997 |
$ 50,000 |
$48,500 |
$48,500 |
2.80% |
| 1998 |
$ 55,000 |
$49,810 |
$55,000 |
2.70% |
| 1999 |
$ 65,000 |
$55,880 |
$55,880 |
1.60% |
| 2000 |
$ 76,650 |
$56,942 |
$56,942 |
1.90% |
| 2001 |
$ 83,000 |
$58,764 |
$58,764 |
3.20% |
| 2002 |
$ 86,250 |
$60,644 |
$60,644 |
3.20% |
| 2003 |
$ 90,000 |
$61,554 |
$61,554 |
1.50% |
| 2004 |
$ 93,000 |
$62,970 |
$62,970 |
2.30% |
| 2005 |
$ 98,000 |
$64,418 |
$64,418 |
2.30% |
| 2006 |
$ 97,000 |
$66,544 |
$66,544 |
3.30% |
| 2007 |
$ 94,100 |
$69,006 |
$69,006 |
3.70% |
| 2008 |
$ 84,700 |
$70,593 |
$70,593 |
2.30% |
| 2009 |
$ 74,500 |
$73,699 |
$73,699 |
4.40% |
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