Trying to Make Sense of Proposal A Effect on Your Property Tax Bill Change?
Boards of Review Scheduled March 12 in Some Units of Government
February 26, 2012
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By: Dave Rogers
Why are my property taxes going up even though the market is down?
That is a frequent question by homeowners in Bay and other counties.
Likely more questions will be raised in boards of review scheduled during March in local governmental units. Homeowners are urged to make appointments if they wish to protest property tax assessments.
Local governments recently sent out notices stating "This Is Not a Tax Bill," purportedly explaining changes in taxable, assessed and state equalized values of properties.
This is perhaps the most confusing situation faced by homeowners, and one they can do little about but question officials who often are at a loss for words themselves.
Bay County Treasurer Richard Brzezinski has this explanation authored by Dean Babb, assessor of Farmington Hills, adapted and posted on the county website:
"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 Inflation Rate Multiplier (IRM) until ownership in the property was transferred.
"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 IRM as calculated by the State of Michigan and cannot increase by more than 5 percent. For 2012, the IRM has been calculated at 2.7 percent.
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 IRM, the current years Taxable Value will increase by the IRM.
With evidence of declining market values, the Michigan State Tax Commission has allowed the units to consider a 12 month sales study to determine values for the 2011 assessment cycle. For 2011 assessments, the 12 month sales study begins October 1, 2010 and ends September 30, 2011.
Use of a 12 month study allows 2012 assessments to more accurately reflect current market conditions, however, there may be a the limited number of current sales in some areas.
Actual Sale 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 values 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.
William J. Sowerby, the treasurer of Clinton Charter Township in Macomb County, has posted his attempt at explaining the property tax changes owners have been notified about:
"On March 15, 1994, the voters of Michigan passed a state constitutional amendment known as Proposal A. This proposal created a new term called Taxable Value (TV), or the figure against which millage would be multiplied to determine property taxes.
"Proposal A requires that:
"Assessments (State Equalized Value or SEV) be calculated yearly at 50 percent of the true cash value, as determined by 1-2 year studies of market sales that occur during a time frame that is outlined by the State Tax Commission. (2009 assessments were based on a single year study of sales occurring between October 1, 2007 thru September 30, 2008)
"Taxable Value (TV) for parcels be determined using a methodology mandated by the State legislature, and which can not be changed by any local community. The calculation formula takes the previous year's taxable value, minus any physical losses to the property, plus any physical additions to the property, multiplied by 5 percent or the rate of inflation - whichever is less. Rate of inflation is determined by the state (4.4% for 2009).
"Proposal A "caps" the growth in TV in those years when market values (Assessed Values) are increasing faster than inflation. Over the course of many years, Proposal A allows many taxpayers to pay property taxes on significantly less than the market value of their property.
"Proposal A's Relationship to Housing Market Downturns: As long as the TV of a property remains less than the SEV, TV will increase under Proposal A's formula. If there is a significant gap between the SEV and TV figures for owners, it would take several years of depressed market conditions for the TV to catch up to SEV. Thus, a tax increase could occur for many homeowners even in a market downturn."
Government Article 06792
Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
respected journalist/writer in and around Bay City.
(Contact Dave Via Email at firstname.lastname@example.org)
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