Money Received From Homestead Tax Credit Not Treated as Income
In Ferrero v. Township of Walton, Michigan Court of Appeals, No. 302221, February 23, 2012, the Court of Appeals held that money received by a taxpayer in 2009 was not treated as income for purposes of determining whether the taxpayer qualified for a local Michigan homestead property tax poverty exemption because the money was characterized as a refund and a tax refund was not income. The township denied the taxpayer's application for the exemption because it considered her homestead property tax credit as income which, when added to her Social Security, placed her above the income threshold amount for claiming the poverty exemption. The Michigan Court of Appeals held, however, that although there was a distinction between a tax refund and a tax credit, a tax credit can function like a tax refund in some cases.
In this case, the 63-year-old taxpayer claimed a homestead property tax credit when filing her 2008 tax return in early 2009. Her 2008 property taxes were paid and she qualified to receive the homestead tax credit for 2008. Because she had no state income tax liability, the amount of the credit against her property taxes paid could not be returned to her as a reduction in her income tax. Therefore, the sum was paid to her after she filed her 2008 income tax return in 2009.
The taxpayer's homestead property tax credit plainly functioned as a refund. A tax refund is not income because a refund returns money to the taxpayer that need not have been paid. The tax credit did not confer income, nor was it a program to transfer new monies to individuals. Rather, it was to rebate a portion of the property taxes a person had already paid. When the taxpayer's income was properly calculated, it fell below the threshold amount for claiming the poverty exemption.
A dissenting opinion noted that the homestead property tax credit was an age and means-tested program to distribute money to recipients based on their need in order to ameliorate the burden of their homestead property taxes and was not a refund of taxes incorrectly paid. Therefore, according to the dissent, the homestead property tax credit was income for purposes of calculating eligibility for the poverty exemption.