Proposal "A" / Property Taxes

The most often expressed frustration the past two years has been the fact that the property tax burden was increasing for most taxpayers when they were in the midst of a declining real estate market. Another frustration is the time lag between the date range of the sales used to set the assessed valuation compared to the date the taxes are billed. Following is a good illustration of this issue. The mid-point of the one-year sales study setting the 2011 valuations was March 2010 and the 2011 Summer Tax Bill is mailed in June 2011, almost 15 months later. The market in this case has change substantially to the negative.

An individual's tax burden is calculated on two things: First, a parcel's Taxable Value (TV); and, Secondly, the local aggregate Millage Rate. The TV is a product of Proposal A and is the lower of the Assessed Value (AV) and the Capped Value (CV). The CV is a mathematical calculation limiting the yearly increase in the burden of the property tax, by parcel, by the rate of inflation, adjusted for additions and losses to the property. Suffice it to say, the property tax burden cannot increase year over year by greater than the rate of inflation (assuming there are no additions to the property and no additional millages are levied).

If your AV and TV are the same on your 2010 tax bill (and this is the case for over 90% of our taxpayers), then it is possible you will see your property tax bill decrease slightly for 2011. Currently, we are estimating an average residential property value decline of roughly 4% from 2010 to 2011 and the CPI number has been calculated at +1.7%. However, if your AV is greater than the TV on your 2010 tax bill, there is a chance you will see your property tax bill decrease only slightly for 2011, even with a declining property value. An increase in the millage rate for 2011 will affect the calculated change in the property taxes to be paid.

Some generalized examples are as follows:

Assumptions: No change in millage rate for the 2011 Tax Year. The CPI for 2011 is +1.70%. The property does not incur any additions or losses.

If your assessed value and taxable value are the same for 2010 and the assessed value is lowered for 2011, then your property taxes will be lowered by the same proportion. If the property assessment drops 10%, then the property tax would fall 10%. (again, assuming no change in the millage rate levy)

However, under Proposal A, if your assessed value was 20% higher than your taxable value in 2010, a reduction of 10% in the assessed value for 2011 would not in itself reduce your tax burden. In fact, the tax burden for 2011 would increase due to the inflation rate influence of +1.70% in the capped value calculation, or +1.70% in this example.

Also, under Proposal A, if your assessed value was 100,000 and your taxable value was 90,000 in 2010, a reduction of 10% (-10,000) in the assessed value for 2011 (2010 TV now equal to the 2011 AV) would generate a tax bill for 2011 equal to the 2010 tax bill.

Finally, remember that the Michigan General Property Tax Law requires assessed values to be based upon a property's "true cash value" as of Tax Day, the December 31st prior to the Tax Year. Sales used to establish "true cash value" must be arms length open market transactions. The State Tax Commission requires assessors to use sales in the date range of October 1, 2009 through September 30, 2010 in setting assessments for the 2011 Tax Year. This requirement and a declining market is what generate the variation in values between the assessment date and the valuation at the time taxes are billed.

The sale of foreclosed properties is having an impact on the real estate market in general. Recent changes in State Guidelines have occurred which allow for the use of foreclosed sales in our analysis if certain conditions are met. If the foreclosure sale has been analyzed, properly verified and meets the conditions of a fair and representative market transaction, it can be included in the State Tax Commission One-Year sales study. Sales not considered reliable indicators of value when making market comparisons are not to be considered for assessment purposes.

Assessment Notices for 2011 are scheduled to be mailed on February 23, 2011 and the Assessing Department will hold an Assessor's Review through March 11, 2011. During this Assessor's Review period, the Assessing department will remain open until 6:00 PM on weekdays. Should you have any questions, the Assessing Department can be reached at (248) 656-4605. 

Email Updates

Join us on Facebook

Follow us on Twitter

Sign up for Alerts