Reading your Property Assessment notice

2014 Assessment Notices have arrived! Be sure to look them over to make sure your local unit has the correct information and that you understand the taxable value of your property.

By the end of February of each year, all property owners in Michigan should receive a “Notice of Assessment, Taxable Valuation and Property Classification” form from their city or township government. Many taxpayers may be inclined to simply set this notice aside as it clearly states at the top of the form, in dark bold letters “THIS IS NOT A TAX BILL.” However, it is important to read this notice right away because it shows a property’s taxable value for the year. If you disagree with the amount, the opportunity to appeal comes up very quickly as the Board of Review will meet in mid-March.                                       

Our Michigan property tax system can be very confusing and the notice is a bit overwhelming. In order to provide a lot of information on one sheet of paper, the document is printed with very small print but is worth a complete overview. The notice explains how the numbers on the form were calculated, your rights as a taxpayer to appeal, how to communicate with your assessor and the dates when your Board of Review will be meeting to hear appeals.

The first table on the form shows the classification of your property. Your property classification is a descriptor given by assessors for purposes of equalization and does not affect the way you use the property. There are six real property classifications used by the State Tax Commission and each have a corresponding number. The categories of classification include residential, commercial, industrial, developmental, timber and utility.

The second table in the center of the page is the most important and also where property owners get most confused as they do not understand the difference between Taxable Value, Assessed Value and State Equalized Value:

Taxable Value is the number to pay the most attention to. It is the value to which the millage rate will be applied. Or said another way, the millage rate where the property is located, times the taxable value is what you pay in taxes. The taxable value can only increase at the rate of inflation established for the year or 5 percent, whichever is lower. So unless you have made significant improvements to the property in the last year, the rate will only go up that much. The increase is referred to as the “inflation rate multiplier” and set by the State Tax Commission. Read carefully, in the description just above the table, to see the current rate. If there has been a change of ownership in the last year the taxable value will reset and become “uncapped” and will be the same as the assessed value shown in the table. However, next year, the cap will go back on and the taxable value can only increase as I described above.

As you can see on your notice, the Assessed Value and State Equalized Value (SEV) are essentially the same. Assessed value is 50 percent of market value and the SEV is the assessed value multiplied by an equalization factor. To determine assessed value, the assessor first establishes a property’s true cash value which is the usual selling price obtained at a private sale. Several factors are considered when determining this value such as taxability, ownership, description of property, location of property and market value. The actual sale price of a property does not necessarily determine this value. (According to conversations I had with assessors over the last couple years, there was a noticeable difference between assessment and sale prices where sales prices were much lower. This resulted in new owners paying a visit to their Board of Review for re-evaluation, for example). The assessed value is then calculated at 50 percent of the market value. After the assessed value is reviewed and approved by the County and State, and an equalization factor is applied, if needed, the assessed value becomes the SEV. An equalization factor is used to help equalize inequities in assessments across local governments. The SEVs do not have a cap and will rise and fall with the market.

The next table shows the exemptions to taxation for which the property qualifies. It is important to make sure any exemptions are listed appropriately especially if a property has been recently purchased because, although rare, sometimes paperwork is not properly filed after a real estate sale “closing”. If the property is a principal residence, the resident exemption should by 100 percent. Likewise, if the property qualifies for the agricultural exemption the proper percentage of exemption should be indicated.

Michigan State University Extension encourages residents to contact their local assessor when they have a question about their assessment notice. From my experience, property assessors are very willing to discuss individual situations and offer advice to property owners if they have questions about their property classification, assessment or exemptions.

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