Township Law E-Letter

Transcription

1 August 2010 WINNING IN THE TAX TRIBUNAL 4151 Okemos Road Okemos MI With property values continuing to fall throughout Michigan, it is more important than ever for townships to protect their assessors determinations of value. Doing so in a cost efficient manner, with effective counsel, is equally important. This month s E Letter discusses recent Tax Tribunal and appellate opinions in Michigan tax assessment cases. Knowing about these recent developments in the law can help avoid long and expensive appeals in the Tax Tribunal. Estate Planning and Uncapping Revocable Living Trusts The Court of Appeals recently held that the death of a trust settlor (the person establishing a trust) uncaps the value of property held by the trust. The Court decided that the original transfer of property to the trust during her lifetime did not uncap the taxes, but when the settlor died a transfer of ownership occurred that uncapped the taxable value. The Court cited the following example, taken from a State Tax Commission bulletin: A husband and wife convey property to a trust and name themselves as beneficiaries and their children as contingent beneficiaries. The children do not become beneficiaries until the death of the parents. In this example, a transfer of ownership occurs upon the death of the parents, when the children actually become beneficiaries, NOT when the property is originally conveyed to the trust. Reese v Lyon Township, Court of Appeals... And Joint Tenancies Late last year, the Court of Appeals held that the death of one joint tenant does not constitute a transfer of ownership, and thus, does not uncap the property s taxable value. A father deeded property to himself and his son as joint tenants, and then died the next year. After the father s death, the son deeded the property to himself and his brother as joint tenants. The City uncapped the property s value after the father s death, finding that a transfer of ownership had occurred. The Court rejected the City s treatment of the taxable value, holding that there was no transfer of ownership when the father passed away and the taxable value should not have been uncapped. The Court added that the deed creating the joint tenancy also would not be a basis for uncapping the taxable value if (1) at least one of the persons was an original owner of the property before the joint tenancy was initially created and (2) if the property is held as a joint tenancy at the time of conveyance, at least one of the persons was a joint tenant when the joint tenancy was initially created, and that person has remained a joint tenant since that time. This case has been appealed to the Michigan Supreme Court, and the parties are in the process of filing briefs and arguing the case in that Court. Klooster v Charlevoix, Court of Appeals (2009). Unfunded Mandates Prohibited The Supreme Court recently reaffirmed the Headlee Amendment s prohibition of unfunded mandates to local units of government. According to the Headlee Amendment, a state mandated local

2 activity must be originated with sufficient state funding and that mandated local role cannot be increased by the state without funding for the increased costs. At issue in the case were new recordkeeping requirements for school districts. The Court held that, to prove a violation of the Headlee Amendment, a local unit must show that the state required a new activity or service or an increase in the level of activities or services. If the state has not appropriated funds to cover the increased burden on local government, it then becomes the state s burden to demonstrate that no state funding was required because the requirement did not actually increase costs or the increased costs were not necessary. The Court found that the new recordkeeping requirements constituted an increase in the level of activity beyond that previously required of school districts, and that the state had failed to prove that state funding was not required for the increase of required activity. Thus, the new recordkeeping requirements were held to be a violation of the Headlee Amendment s prohibition against unfunded mandates. In addition, the Court awarded attorney fees to the school districts, since their claim of a violation was sustained. Adair v Michigan, Supreme Court Faulty Assessment Notice The Court of Appeals recently discussed the notice requirements for assessments of section 24 of the general property tax act. An assessment notice must be addressed to the property owner and mailed at least 10 days before the board of review meets. Although the Court held that a township s failure to comply with the notice requirements does not invalidate the assessment, the increase in the assessed value was held to be invalid because the notice was mailed late. Oakhill v Shelby Township, Court of Appeals Exclusive Tax Tribunal Jurisdiction for Personal Property Assessment Challenges The Court of Appeals last month affirmed the Tax Tribunal s exclusive jurisdiction over personal property tax assessment challenges. The Township had initiated a lawsuit in district court to collect delinquent personal property taxes. The property owner defended the district court lawsuit by challenging the validity of its personal property assessment, claiming the Township failed to ascertain that the property was located in the Township. The Court of Appeals held that the property owner could not challenge its assessment in district court because that subject matter is within the exclusive jurisdiction of the Tax Tribunal. Ashland Township v Bam Excavating, Court of Appeals Substantial Evidence Required In the Tax Tribunal Recently, the Court of Appeals affirmed that townships must present competent, material, and substantial evidence of assessed values for the Tax Tribunal or a court to uphold them. In other words, even though a taxpayer has the burden of proof in a tax appeal, townships cannot simply rely on a taxpayer s failure to present sufficient evidence. The Court of Appeals agreed with the Tax Tribunal that the taxpayer failed to meet its burden with respect to proving the property s value. However, the Tribunal is required to make an independent finding of a property s true cash value. It could not simply accept the Township s assessed value, since the evidence presented by the Township was not substantial and competent. Inn at Watervale v Blaine Township, Court of Appeals Payment In Lieu of Taxes In a recent 2 1 decision, the Court of Appeals held that the Tax Tribunal has jurisdiction over the question of whether the tax exemption known as payment in lieu of taxes (PILOT) applies to particular property. Page 2

3 The PILOT exemption applies to non profit housing projects that are financed with federally aided or authority aided mortgages, advances, or grants, and exempts the property from all ad valorem property taxes. The property owner claimed that it was wrongfully denied a PILOT exemption for its non profit housing concern. The Tax Tribunal dismissed the case for lack of jurisdiction because the PILOT exemption is part of the State Housing Development Authority Act, not the General Property Tax Act. The Court of Appeals reversed, holding that the Tribunal has exclusive and original jurisdiction over any action relating to a property tax assessment, including an assessment that may or may not be subject to the PILOT exemption. Kasberg v Ypsilanti Township, Court of Appeals Tax Assessment Based On Market Rents The Court of Appeals recently affirmed a Tax Tribunal decision holding that, in certain circumstances, the true cash value of a property must be determined on the basis of actual rents received, rather than market rent. Importantly, the lease at issue was entered into prior to MCL , which states that actual rental income is not the controlling indicator of a property s true cash value in all cases, does not apply to leases entered into before January 1, The Court found that the property was subject to an existing disadvantageous or unfavorable long term lease, and thus, must have its true cash value determined on the basis of the property s actual rental income. In addition, the Court agreed with the Tax Tribunal that the petitioner s (lessee s) technical ability to purchase the property, by exercising a purchase option in the lease, was of no practical value. JC Penny v Ann Arbor, Court of Appeals Poverty Tax Exemption The Court of Appeals affirmed the Tax Tribunal s denial of a property tax poverty exemption to students. The property owners were students with significant monthly financial obligations, parttime jobs that provided income below the federal poverty guidelines, and student loans that paid for some of their expenses. They applied for, and were denied, a poverty exemption for property taxes. MCL 211.7u provides certain criteria for a property owner to qualify for the poverty exemption, such as meeting the federal poverty guidelines. The Court of Appeals affirmed the poverty exemption denial because it was never the intent of the statute to allow persons who have the ability to work to be granted poverty exemptions because they chose not to work. The Court noted that the local governing body has the discretion to depart from the guidelines (i.e., meeting the federal poverty guidelines) when it finds substantial and compelling reasons to do so. The Court found that the student/property owners chose what to pay first, such as their tuition, mortgage, and other expenses, and left property taxes as an expense left over after they had paid other things. Thus, they did not qualify for the poverty exemption. Grant v Delta Township, Court of Appeals Special Assessment and Usage Fee The Court of Appeals recently affirmed the Tax Tribunal s decision to refund payments made on an invalid special assessment, and denying the property owner s requests to cancel a sewerusage fee and capital cost assessment. The property owner argued that the monthly sewer user fee and capital costs assessed by the Township were invalid under Bolt v City of Lansing. However, the Court affirmed the Tax Tribunal s conclusion that it did not have jurisdiction over the monthly sewage user fee issue. If a user fee is invalid under Bolt, it is a tax violating the Headlee Page 3

4 Amendment, and the tax tribunal does not have jurisdiction to entertain a claim of such a violation. Further, the property owner had missed its opportunity to present a Headlee Amendment violation claim, since the property owner had begun paying the sewer usage fee over one year prior to initiating the claim. Rema Village Mobile Home Park v Ontwa Township, Court of Appeals No Separate Taxation of Common Elements Earlier this year, the Court of Appeals reversed the Tax Tribunal and held that a municipality cannot tax the common elements of a condominium development independent from the individual condominium units. The property owner developed a residential condominium project, reserving the development rights to a general common area comprised of the land not part of any condominium unit. The property owner appealed the City s assessment of the common area, arguing that it was not subject to taxation separate from the condominium units. The City argued that the common area was really a separately taxable convertible area, to which the property owner had the exclusive right to develop with additional condominium units. The Court of Appeals agreed with the property owner, holding that the disputed property was a common element, in which the co owners of the condominium units held an undivided, inseparable interest. The developer s retention of the right to withdraw or develop the property for six years did not vitiate this fact. However, the Court noted that the disputed property, as a common element, was subject to ownership and taxation via the individual condominium units, since the individual units are owned and taxed as individual units plus their inseparable and appurtenant shares of the common elements. Paris Meadows v City of Kentwood, Court of Appeals Inspection Fee, Not Tax Page 4 The Court of Appeals recently held that a Solid Waste Inspection Fee charged to the owners of certain commercial and industrial properties is a valid regulatory fee, not a disguised tax. The Court examined the City s new inspection fee for enforcement of its solid waste ordinance. The inspection fee was charged only to those businesses that contracted with licensed private solid waste collectors, and not to those who contracted with the City s Department of Public Works. The plaintiff challenged the inspection fee, arguing that it constituted a disguised tax and, therefore, violated the Headlee Amendment because the City imposed the tax without a vote of the City s electorate. The City countered that the inspection fee was for a regulatory purpose, namely, ensuring of efficient removal of solid waste from commercial generators and to protect the public health. The City also argued that the inspection fee benefited the fee payer by permitting the property owner to use private refuse collection companies and by guaranteeing that the property owner will comply with the City s solid waste collection and disposal requirements. The Court of Appeals applied the Supreme Court s opinion in Bolt v Lansing, which earlier explained the difference between a tax and a fee. Generally, a fee is exchanged for a service rendered or a benefit conferred, and some reasonable relationship exists between the amount of the fee and the value of the service or benefit. A tax, on the other hand, is designed to raise revenue. The Court found that the inspection fee furthers a regulatory purpose, as opposed to being merely a revenue generating purpose, since the purpose of the inspections is to assure that property owners have made arrangements for trash disposal service, and that businesses have an appropriate level of solid waste collection service. The fee is based on the City s costs of providing the inspections. The property owner determines whether that owner s property is subject to the inspection fee by the owner s choice of waste disposal service provider (license private contractor or DPW). Therefore, the inspection fee was a permissible regulatory fee, rather than a tax. Wolf v City of Detroit, Court of Appeals Case Summaries Prepared By Ross Bower and Bill Fahey, Your Township Attorneys

5 Your Tax Tribunal Attorneys We are a team of experienced attorneys who are well versed in property tax law. Our team includes a former tax tribunal hearing referee, Mark Burzych, an experienced attorney real estate appraiser, Stacy Hissong, and attorneys who have been successful at trial, in pretrial negotiations, and in defending property tax appeals: Steve Schultz, Bill Fahey, Steve Rhodes, Matt Drake and Ross Bower. Just as important as successful outcomes, our team uses a streamlined expert system to litigate property tax appeals. Keeping township costs down while defending property assessments before the Tax Tribunal should be a high priority. Townships need attorneys to represent them before the Tax Tribunal who have experience in trials, prehearing negotiations, and appeals; who stay up to date with recent tax tribunal and appellate opinions; and who utilize expert systems for routine pleadings and discovery to keep costs down. If you have any questions about Tax Tribunal litigation or wish to discuss any of the matters in this E Letter, please feel free to contact a member of our property tax team. Bill Fahey wfahey@fsblawyers.com (517) Steve Schultz sschultz@fsblawyers.com (517) Mark Burzych mburzych@fsblawyers.com (517) Steve Rhodes srhodes@fsblawyers.com (517) Stacy Hissong shissong@fsblawyers.com (517) Matt Drake mdrake@fsblawyers.com (517) Ross Bower rbower@fsblawyers.com (517) , Your Township Attorneys, is a Michigan law firm specializing in the representation of Michigan townships. Our lawyers have more than 100 combined years of experience in township law, and have represented more than 100 townships across the state of Michigan. This publication is intended for our clients and friends. This communication highlights specific areas of law, and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation. Copyright 2010