Spouse Owned Residential Property in Illinois
In Levenfeld v. County of Berrien, Michigan Court of Appeals, No. 300358, January 12, 2012, a Michigan taxpayer was denied a local Michigan principal residence property tax exemption because her husband owned residential property in Illinois and received an exemption in Illinois that was similar to the Michigan principal residence exemption, and the taxpayer and her husband did not file separate income tax returns for the tax years at issue. The Michigan Tax Tribunal found that the exemptions in the two states were substantially similar despite the large discrepancy between the resulting tax savings.
The taxpayer argued that her husband's Illinois homestead exemption resulted in a property tax savings that was substantially less with respect to his separately titled home in Illinois than the tax savings to which she would have been entitled if she received a principal residence exemption on her Michigan house. The taxpayer contended that the Illinois exemption applied automatically to her husband's property, nominally reducing his tax burden, unlike in Michigan where a property owner must affirmatively elect a principal residence exemption, resulting in a substantial monetary gain. According to the taxpayer, the tax tribunal's interpretation of the principal residence exemption provision effectively read out the language "substantially similar." The taxpayer believed that this language reflected an intention to have a quantitative analysis performed.
The Michigan Court of Appeals noted that the Illinois homestead exemption simply operated differently than the Michigan principal residence exemption because the Illinois exemption reduced a property's equalized assessed value, resulting in a tax savings that typically was fairly minimal. On the other hand, Michigan's principal residence exemption did not reduce a property's tax value. Instead, it more directly reduced the tax liability on a home by lowering the mills. In this case, the dramatic difference in tax savings, when the Michigan principal residence exemption was compared to the Illinois homestead exemption, resulted because of the fairly high taxable value of the taxpayer's house in Michigan.
According to the court, the question was whether the two states' exemption provisions were substantially similar, not whether the application of the provisions resulted in tax savings that were substantially similar. The court noted that each state used different methodologies in calculating the tax benefit. The court held that substantial similarity did not equate with comparative monetary benefit because that would result in varying conclusions depending on the particular value of the homes being examined.