Wednesday, March 16 2011
For Property Tax Uncapping Two Conveyances of Property Create Different Tax Consequences
In Klooster v. City of Charlevoix, Michigan Supreme Court, No. 140423, March 10, 2011, a case involving two particular circumstances in which a conveyance of property may or may not permit a taxing authority to uncap and reassess the value of property for property tax purposes, the Michigan Supreme Court held that a "conveyance" did not require a written instrument.
The court also held that the January 2005 conveyance to the property owner of a fee simple was excluded from the definition of "transfer of ownership." However, the September 2005 conveyance from the property owner to himself and his brother in joint tenancy was not exempted from uncapping and, therefore, the city properly issued a notice of assessment, taxable valuation, and property classification in 2006, indicating that the property's taxable value had been reassessed using the true cash value of the property.
In this case, two persons acquired title to the property in 1959 and held it as tenants by the entirety. On August 11, 2004, one of the property owners quitclaimed her interest in the property to the other, leaving him as the sole owner. On that same day, the sole owner quitclaimed the property to himself and his son as joint tenants with rights of survivorship. On January 11, 2005, the father died, and the son became the sole property owner by operation of law. On September 10, 2005, the son quitclaimed the property to himself and his brother as joint tenants with rights of survivorship. As a result of the city assessor's reassessment in 2006, the taxable value of the property was increased.
The court held that the vesting of the fee simple in the son as a result of the death of his father met the original ownership requirement of the applicable statute because the father was a cotenant and was an original owner of the property before the joint tenancy was initially created. Because the property was held as a joint tenancy at the time of the conveyance, the court applied the continuous tenancy requirement that at least one of the persons be a joint tenant when the joint tenancy was initially created and that person remain a joint tenant from the time that the joint tenancy was initially created. Because the son was a joint tenant when his father originally created the joint tenancy in August 2004 and remained a joint tenant since the joint tenancy was initially created, and until the joint tenancy terminated, the January 2005 conveyance was not a transfer of ownership. Therefore, the January 2005 conveyance did not uncap the property.
When the son conveyed the property to himself and his brother in September 2005, the property went from a state of sole ownership into a new joint tenancy. Because the son who became the sole owner upon the death of his father was not an original owner of the property before he initially created the joint tenancy with his brother, the September 2005 conveyance did not satisfy the joint tenancy exception. Therefore, the September 2005 conveyance was transfer of ownership that uncapped the property.
Tuesday, March 15 2011
Manufacturer's Equipment Properly Valued by Personal Property Appraiser
In Spartech Polycom, Inc. v. City of St. Clair, Michigan Court of Appeals, No. 295334, March 8, 2011, the Court of Appeals ruled that the Michigan Tax Tribunal properly held that a manufacturer's personal property should be valued for property tax purposes at the lower true cash value that was proposed by the manufacturer's personal property appraiser, the Michigan Court of Appeals has held. The manufacturer's equipment was appraised using a market comparison approach that compared the appraised property to the prices paid for similar items in the current market. The appraiser generally relied on large websites like eBay or a conglomeration of market sellers. When using eBay, the appraiser looked at the Buy It Now price, rather than the auction price.
The city argued on appeal that the method used by the appraiser did not meet the statutory requirements in determining true cash value. Under the applicable statutory provision, auction prices could only be used to determine the true cash value if auction sales had become a common method of acquisition for that type of property in Michigan. The city also asserted that there was no evidence that the manufacturer or any other company ever bought any machinery through eBay and that the appraiser's valuation failed to account for freight, taxes, and installation on the value of the property.
The Michigan Court of Appeals noted that the appraiser identified the Buy It Now price as the price for which the seller would be willing to immediately part with the item. The Buy It Now price was a fixed price set by the seller, not a price offered by prospective buyers participating in an auction. As for the city's assertion that a valuation based on the market approach must be supported by evidence of verified sales, the city failed to identify any statute, case law, or administrative rule or regulation that required such a showing.
The court also previously held that installation, freight, and sales tax were appropriately included in true cash value unless there was evidence that these costs were not part of the market. In this case, the tribunal specifically found evidence that freight, installation, and taxes were not included in the market price of the goods at issue, and under those conditions, the tribunal was permitted to exclude the additional charges.
Monday, March 14 2011
Tax Tribunal Has No Jurisdiction When Appeal Period Had Expired
In JH Campbell, Inc. v. Township of Dexter, Michigan Court of Appeals, No. 295455, March 8, 2011, the Court of Appeals ruled that the Michigan Tax Tribunal did not obtain jurisdiction to review the taxable values of a taxpayer's real property for the 2004 property tax year when the taxpayer challenged the 2007 and 2008 values. The taxpayer's appeal was based on the underlying premise that the additions to the 2004 taxable values of its real property were unconstitutional and, therefore, its 2007 and 2008 taxable values should have been lowered as a result of the error. The applicable provision on which improvements were added to taxable value was declared unconstitutional in Toll Northville, Ltd v. Northville, 480 Mich. 6; 743 N.W. 2d 902 (2008).
The Michigan Court of Appeals held that the Tax Tribunal did not have jurisdiction to make changes to the 2007 and 2008 taxable values when those changes were initially reflected in 2004 and the time for filing a timely appeal with the tribunal based on the 2004 taxable values had long passed. Moreover, the taxpayer did not cite any authority that supported the proposition that the Tax Tribunal had the authority to examine taxable values when a provision that affected taxable values was subsequently declared unconstitutional. Consequently, the court concluded that the taxpayer did not demonstrate that the Tax Tribunal made an error of law or adopted a wrong principle with respect to the tax years on appeal in this case. The taxpayer also failed to cite any authority to support its proposition that because the provision adding improvements to taxable value was subsequently determined to be unconstitutional, the access road and other public improvements to its property could be removed from the taxable values as a loss.
Saturday, March 12 2011
Tax Tribunal Lacked Jurisdiction to Correct Tax Assessments When Petition Was Not Timely Filed
In C.A. Kime, Inc. v. Township of Van Buren, Michigan Court of Appeals, No. 295323, March 3, 2011, the Court of Appeals ruled that the Michigan Tax Tribunal lacked jurisdiction to correct the 2007 and 2008 assessments of 231 parcels of property for local property tax purposes because the taxpayer did not file a petition with the tribunal by either July 31, 2007, or July 31, 2008. Although the taxpayer recognized this, it invoked as the sole basis for granting jurisdiction to the tribunal the statutory provision pertaining to a qualified error of omission or inclusion of a part of the real property being assessed. The taxpayer argued that because the entire dispute revolved around the township and the county erroneously assessing the property based on a statute that was declared unconstitutional in 2006, it was necessarily an error of inclusion.
The Michigan Court of Appeals held that the assessing bodies did not err when they assessed the property on December 31, 2005, with a higher value because of the presence of public improvements. At that time, the statute at issue was a valid statute, and it permitted taxing authorities to increase the taxable value of real property because of the installation of public service improvements on or near the property. The court also rejected the taxpayer's argument that adding the public service improvements to the property's taxable value constituted an error of inclusion of part of the property being assessed. The plain language of the applicable statutory provision required that an error relate to the inclusion of a part of the real property that would occur, for instance, when the taxing authority accidentally omitted or included a part of the real property being assessed. Consequently, the public service improvements were not an error of inclusion of part of the real property because they were not erroneously made a part of the real property being taxed.
Friday, March 11 2011
The Tax Tribunal's Determination of True Cash Value Was Supported by the Evidence
In New Michigan, L.P. v. City of Norton Shores, Michigan Court of Appeals, No. 294678, March 3, 2011, the Michigan Tax Tribunal's determination that the highest and best use of a taxpayer's property for the local property tax years at issue was as an existing 58-unit apartment building was supported by competent, material, and substantial evidence, and the Tribunal satisfied its duty to make an independent determination of true cash value. The evidence that the taxpayer chose to operate the 58-unit apartment building jointly with another apartment complex, and that a sale of either property required a change in operations, did not establish that the Tribunal erred in determining the highest and best use of the property.
There was no doubt that the taxpayer purchased the two apartment complexes at the same time and operated the two properties as a single economic unit. However, because there was also evidence that each property could function and be sold separately, and that each had features that would attract different pools of buyers, the Tribunal did not commit an error of law or adopt a wrong principle by declining to apply a unitary approach to valuation. Although it was possible that the taxpayer could sell the properties together, or that a prospective buyer could desire to make a single purchase without assigning value to each parcel, the court could not conclude that the taxpayer established the type of value-enhancing influences that would require the Tribunal to apply a unitary approach.
The Tribunal found that the taxpayer's evidence lacked sufficient reliability to determine a value for the 58-unit apartment building under the income-capitalization or sales-comparison approach. Therefore, the Court of Appeals found the Tribunal was correct in looking to the cost approach and using some comparable sales information to evaluate the accuracy of the cost approach to determine the value of the 58-unit apartment building.
Thursday, March 10 2011
Lessor's Use of Aircraft Did Not Prohibit Collection of Tax Based on Rental Receipts
In Lakeshore Leasing Ltd. v. Department of Treasury, Michigan Tax Tribunal, No. 361200, January 24, 2011, an owner-lessor who used its aircraft for pilot training and certification and did not collect any rental income until five months after the aircraft's purchase, properly made a Rule 82 election to collect Michigan use tax on rental receipts because its use of the aircraft was consistent with its business activity of leasing the aircraft to others.
The Tax Tribunal said it was reasonable that an owner-lessor would need to obtain training for the pilots and himself in the operation of a sophisticated aircraft as a necessary part of its leasing business. Furthermore, Rule 82 does not require a lessor to immediately and completely surrender possession of an aircraft under lease or preclude a lessor from taking possession of its aircraft for purposes associated with its leasing business. Nothing in the documentary evidence supported the conclusion that the flights were for personal use.
Tuesday, March 01 2011
Michigan Governor's Tax Plan to be Introduced This Week
We have learned that Michigan Governor Rick Snyder plans to have his tax restructuring plan introduced in the House of Representatives this week. The bill, he plans to have all of his proposals incorporated into one bill, will be sent to the House Tax Policy Committee.
The Governor proposes to repeal the Michigan Business Tax and through a series of credit and exemption eliminations, to reduce business taxes by $1.8 Billion. The proposal also includes replacing the Michigan Business Tax with a Michigan Corporate Income Tax.
The proposed Michigan Corporate Income Tax would be imposed on only C Corporations at the rate of 6%. All of the credits currently in the Michigan Business Tax Act would be eliminated except for the Small Business Credit. The nexus, apportionment and unitary provisions currently in the Michigan Business Tax Act would be retained.
To pay for the $1.8 Billion reduction in business taxes, the Governor proposes to eliminate or reduce several Michigan individual income tax credits or deductions including the earned income credit, the homestead property tax credit and the exemption for pension income.
The bill will need to make it through the House Tax Policy Committee as well as the Senate Finance Committee before coming to a vote in both the House and Senate on its way to the Governor for signature and enactment. The Governor wants the tax reform bill as well as next year's budget on his desk before the first of June.