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Personal Property Taxes For Business

There are two (2) types of property taxes in Michigan:

• taxes applicable to real property
• taxes applicable to personal property.

“Real property” is land, and includes any buildings that are on the land, things that are permanently attached to the land and things that are permanently attached to the buildings. “Personal property” is anything that is not permanently attached to land or to a building. (Think in terms of machinery used by a business, furniture, equipment, and so on.) The State of Michigan taxes the personal property of businesses, but the personal property of individuals and charitable institutions is not taxed. And, even for businesses, some categories of personal property are exempt from taxation.

Personal property statements (Form L-4175; Michigan Department of Treasury Form 632) are mailed to businesses by the local assessor in January of each year and must be completed and returned by February 20. Although some assessors may ask that the form be returned earlier, they have no statutory authority to do so. Personal property taxes are then assessed for personal property located within the assessor’s jurisdiction as of the preceding December 31 (”tax day.”) If the personal property statement is not returned, the local assessor will estimate the value of the personal property and assess the tax accordingly. In completing the personal property statement, businesses must divide their personal property into specified categories, and then report the true cash value of all personal property in each category. The assessor, however, is not bound by the values or the categories assigned by the business.

Taxpayers should then receive their assessment notice from their local assessor by March 1, but, in any event, by no later than ten (10) days before the March meeting of the local board of review. Any disputes must first be appealed to the local board of review at its March meeting. If not satisfied with that outcome, the taxpayer can file an appeal with the Michigan Tax Tribunal. Typically, that appeal must be filed by no later than May 31 of the assessment year. In some situations, the rules of the State Tax Commission and/or the Michigan Tax Tribunal may allow a direct appeal, without first going to the local board of review.

The Michigan General Property Tax Act requires that personal property be assessed based upon its true cash value. True cash value is presumed to be the usual selling price at private sale at the place where the personal property is located. Assessors are required to consider the advantages and disadvantages of location, along with the existing use of the personal property, in analyzing the values assigned by the taxpayer. The personal property statement (Form L-4175; Michigan Department of Treasury Form 632) requires that all items of personal property be listed by classification, and the responsibility for correct classification rests with the taxpayer. Classification is based on the nature of the property as opposed to how it is actually used by the taxpayer.

Prior to 2006, the net tax paid on personal property classified as “industrial” and on personal property classified as “commercial” was pretty much the same. However, as a result of Public Act 36 of 2007, which became effective on January 1, 2008, the Michigan legislature made personal property classified as “industrial” exempt from 24 mills of school tax, while personal property classified as “commercial” is exempt from just 12 mills of the 24 mill school tax. Stated simply, personal property taxed as “industrial” now receives an average 50% tax break when compared to personal property taxed as “commercial.” As a result, and, given the current economic climate, some assessors can be counted on to scrutinize closely the classifications assigned by taxpayers, looking for justification to re-classify industrial personal property as commercial.

If you are a business and you haven’t already received your personal property statement, you will. It needs to be completed and in the hands of the local assessor by no later than February 20. (Since February 20 is a Saturday this year, you actually have until Monday, February 22.) You will then receive the notice of your assessment in early March. Examine that notice carefully. If you dispute the classification of property or the assessment, the first step is the timely filing of an appeal with the local board of review. If you don’t file that appeal in a timely fashion, the right to dispute the assessment may be lost. The attorneys at Wright Penning & Beamer are here to help in any way we can.

Duane L. Reynolds

Beginning in 2008, the Michigan state legislature passed a large tax reduction for personal property classified as Industrial Property. As a result, personal property classified as Industrial Property receives an approximate 50% tax reduction when compared to personal property classified as Commercial Property. Thus, some assessing jurisdictions are reviewing the personal property tax reports of taxpaying businesses and are re-classifying tax-favored Industrial Property as Commercial Property on the assessors’ internal records.

Lee Flaherty

As you probably have heard, the federal estate tax rules changed radically in 2010 and will change radically again in 2011 unless Congress passes new legislation. This article will discuss what some of the changes can mean for you.

First, a little background:
The 2001 Tax Act. In 2001, Congress passed legislation which significantly increased the federal estate tax exemption and lowered tax rates. Among other things, the 2001 Act provided:

• In 2009, the estate tax exemption increased to $3.5 million per decedent, with a reduced 45% tax rate on any excess assets.
• In 2010, the estate tax is repealed for one year. In addition, the step-up in basis (which gave a “fresh-start” fair market basis for most assets of a decedent) is replaced with a more complex adjusted carry-over basis system.
• In 2011, the estate tax will be reinstated. However, the tax exemption will drop down to $1 million and the tax rate will jump up to 55%. In addition, carry-over basis will disappear and the step-up in basis will once again be the law of the land.

What Happened in 2009? Estate planners universally expected Congress to extend the favorable 2009 estate tax rules through 2010. However, unexpectedly in December, the House failed to enact a one-year extension and instead sent the Senate a bill to make the 2009 rules permanent. Because the Senate was focused on health care and there was broad disagreement in the Senate on what to do with estate taxes, it did nothing. Thus, effective January 1, 2010, there is no federal estate tax and the adjusted carry-over basis rules apply.

Estate Planning Is Now in Chaos. Congress’s failure to act in 2009 and the possibility that it will not act this year make for an unpredictable planning environment in which any number of radically different changes may occur.

Here are some of the possibilities:
Congress may do nothing this year. While you probably will not die in 2010, you still need to consider planning for that possibility because not doing so could be disastrous. For example:

• Trust language that allocates your estate tax exemption to a “family trust” could disinherit or place undesirable restrictions on a surviving spouse or other heirs.
• Conflicts could arise on asset basis issues.
• Passing assets directly to your spouse may result in higher estate taxes after 2010.
• Congress may retroactively adopt legislation to carry the 2009 rules over 2010. If a retroactive law is adopted, it will most likely be challenged as unconstitutional and it could take years for the Supreme Court to rule on the issue. Until such a ruling, uncertainty will prevail. In any event, your estate plan should contemplate your dying both before or after a potential retroactive enactment.

Congress may act to address the tax issues, in which case it may:

• Adopt a permanent estate tax exemption. If so, most commentators anticipate the tax exemption will fall between $2-5 million and tax rates will range from 35% to 45%.
• Adopt a temporary estate tax exemption.

What Should You Do? Uncertainty makes it difficult to plan, but waiting to see what happens next is not a good idea. The earlier you can implement flexible tax and estate planning to respond to these changes the better. Please call us to schedule a time to go over your current estate plan and determine what changes need to be made to minimize taxes and to reduce the possibility of future family conflicts in these chaotic times.

Lee Flaherty

You write a check, but, by the time it’s presented to your bank for payment, there’s not enough money in your account to cover it. You go to the ATM and make a withdrawal, or, use a debit card to make a purchase, but, unknown to you, there is not enough money in your account to cover the transaction. What happens? One would think that the check would be returned for nonsufficient funds and the ATM and debit card transactions would simply be denied. Not necessarily so. To the contrary, most banks will automatically advance the funds to cover the check, the ATM withdrawal and the debit card purchase. Then, the next time you make a deposit, they will pay themselves back, along with an overdraft fee.

With check writing going the way of the rotary dial telephone (industry sources estimate that 75% of financial transactions today are electronic), banks and credit unions are increasingly turning to overdraft fees on electronic transactions to bolster their bottom lines in these tough economic times. In fact, it is anticipated that the financial services industry will make $38 billion in income in 2009 from overdraft fees alone, which typically run about $35 per transaction.

While the idea that your bank will cover your overdraft transaction may sound like a good thing, the problem is that the $3 latte at your favorite coffee house that you paid for with your debit card may end up costing you as much as $40 once the overdraft fee is added. And, in many cases, due to the timing of transactions, you may have no idea that your account is overdrawn in the first place, which leads to even more fees. What began as a good idea for bank customers has led to consumer outrage, increasing government scrutiny and class action lawsuits across the country against the nation’s largest banks. While the US Congress considers legislation to reign in what it believes to be abusive and unfair practices involving overdraft fees, the Federal Reserve Board, on November 12, 2009, announced sweeping new rules regulating overdraft fees on ATM and one-time debit card transactions. Those rules, intended to enable consumers to limit their exposure to overdraft fees, include the following provisions:

1. Consumers must affirmatively consent to being enrolled in the institution’s overdraft protection service for ATM and one-time debit transactions (”opt-in”) before overdraft fees can be assessed. This is a marked change from the current policy of many institutions whereby the mere issuance of an ATM or debit card includes automatic enrollment in the institution’s overdraft protection program. The rule also affords the ongoing right to revoke such consent at any time;

2. The opt-in requirement applies to all consumers, including existing account holders;

3. The rules do not apply to overdraft protection for written checks and automatic on-line bill pay; banks may continue to enroll customers in those programs automatically. However, the new rules prohibit banks from tying overdraft protection for checks and automatic bill pay to a requirement that consumers also opt-in to overdraft protection for ATM and debit card transactions;

4. The rules require institutions to provide consumers who do not opt-in with the same account terms, conditions, features and prices, as those provided to consumers who do opt-in; and

5. Compliance by July 1, 2010 is mandatory.

Irrespective of this action by the Federal Reserve, Congress continues to draft and debate its own legislative response to this situation. Much can, and undoubtedly will, happen between now and July 1, 2010 as financial institutions react to these new mandates. (For more information, please visit the website for the Federal Reserve at: www.federalreserve.gov, or, simply keyword search “overdraft fees” using your internet browser.)

Duane L. Reynolds

Many of us sent kids off to college last month, and some of us even returned to school ourselves. Coincident with the start of the new school year, the Internal Revenue Service announced the launch of an interesting back-to-school feature on its website. If you have (or will soon have) kids in college, you will want to take a look at the new “Tax Benefits for Education” section on www.irs.gov.

The section highlights a number of tax breaks intended to help parents and students pay for higher education. In addition to describing how to take advantage of deductions and credits that have been in place for some time, the section features two significant changes that will be in effect just for 2009 and 2010.

The first change expands Section 529 plans to permit expenditures for a student’s computer equipment and computer-related services, such as software and Internet access. Previously, the qualified expenses were limited to tuition, fees, books, supplies, equipment, special needs services and, for those enrolled at least half-time, room and board.

The second change is called the “American opportunity credit” and is designed to help students pay for the first four years of college. It expands the existing Hope credit, making it available to more families and adding course materials to the list of qualified expenses.

LeClair Flaherty

In addition to the new Web section, you can find out more about school-related tax breaks in IRS Publication 970, Tax Benefits for Education. Download it from www.irs.gov or call 1-800-TAX-FORM (829-3676) to have a copy sent to you.

The relief from the minimum distribution requirements, as outlined in the article below, is welcome news to older folks who don’t need to take the minimum distribution in order to get by. This new requirement is especially timely for those participants who would like the chance to let their retirement plans recover somewhat from the recent market decline before they make further withdrawals.

LeClair L. Flaherty, Esq.
Direct Dial: (248) 893-1402
lflaherty@wrightpenning.com

The original source of this information is from http://www.omf.org/omf/us:

Pension Bill Waives 2009 IRA RMDs

On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act of 2008. (H.R. 7327). This bill includes a key provision that will waive IRA, 401(k), 403(b) and some other types of required minimum distributions (RMDs) for 2009.

Under the IRS rules, individuals over age 70½ are required to take required distributions each year from their IRAs. For most IRA owners, the distributions are paid out under the following Uniform Table. Payouts equal the balance the previous December 31 multiplied by a factor based upon age. More senior persons must take a larger withdrawal.

Age IRA Approximate Payout
71 3.8%
75 4.4%
80 5.3%
85 6.8%
90 8.8%
95 11.6%

Because the value on December 31 of 2007 was used for RMDs in 2008 and the stock markets declined in late 2008, a number of IRA owners had to take larger distributions than would be expected in normal years. In order to enable individuals to rebuild their IRAs and other qualified plans, Congress has created an “RMD holiday” for 2009. During 2009, individuals may choose to not withdraw any amount even if they are over age 70½. Of course, IRA owners over age 59½ may still voluntarily withdraw without penalty and pay income tax on amounts from an IRA.

Several members of Congress also asked the IRS to make changes for year 2008. Because many individuals had already taken withdrawals in 2008, the IRS declined to make any changes for year 2008. The “RMD holiday” applies only to year 2009.

GiftLaw Weekly Editor’s Note: This provision will be helpful to many persons who are attempting to rebuild their IRA. Hopefully, the markets will also recover in 2009 and IRAs will begin to grow again. While the requirement to take a distribution in 2009 does not exist, it still will be possible for charitably-minded persons to make direct transfers from IRAs to qualified charities in 2009.

Personal Management

Protecting your wealth and property for your family’s benefit

Many people don’t realize that if you don’t make a plan for yourself, the government will step in and make a plan for you! We help our clients realize their dreams for themselves and their loved ones. We help them to save money and maintain privacy and control, and to minimize court involvement wherever possible. When court involvement is unavoidable, we help them navigate that road, too.

Probate Administration and Litigation

Services offered: We help you to navigate the maze of probate court rules and reporting requirements in conservatorships, guardianships and decedent’s estates. Should disputes arise, we protect your interests through mediation, arbitration or probate litigation.

Taking care of a loved one’s affairs when there has been a death or incapacity can be emotionally and physically exhausting. We have the experience and know-how to help make what can be a very difficult time as stress free as possible, whether we’re handling a mundane task like filing court forms or a more challenging one like uncovering wrongdoing or resolving a family dispute. As a result of her skill in this area of the law, Julie Pfitzenmaier recently spoke on probate litigation at a Michigan Trial Lawyers Association seminar.

Trust Administration

Services offered: We provide extensive advice to trustees in a wide variety of contexts, including revocable trusts, irrevocable trusts, charitable trusts, educational trusts, and others.

It can be intimidating when you’re asked to be trustee of a trust, especially if the trust is to continue for any length of time. We routinely assist clients in carrying out their duties as trustees. We can be very “hands on” if you need close support, or we can simply work in the background, ready to give direction when you call on us. We also have many years of experience in preparing federal estate tax returns in larger estates, and a proven track record in achieving quick and favorable results from the IRS upon review of those returns.

Residential Real Estate

Services offered: We represent the unique needs of both buyers and sellers, from first-time home purchasers to sale-by-owner to investors, in a timely and efficient manner.

We’ve been doing real estate transactions for many years, and it’s an area of practice that we enjoy. A real estate transaction can be a pleasure for all parties, as long as everyone is fully informed of the laws and alert to possible errors. Whether we prepare the purchase documents or review documents prepared by others, we protect our clients against mistakes that could prove costly.

Tax Planning

Services offered: We provide guidance on a broad range of tax questions because sometimes clients need to talk to someone in addition to their accountant – especially in matters of real property, estate and gift taxation.

We often work in conjunction with clients’ accountants to find favorable solutions to issues having both tax and legal consequences. When people don’t have a skilled accountant that they can turn to, our input is all the more valuable. We’ve often saved clients headaches and heartaches when they’ve come to us with an idea that they didn’t realize had hidden tax consequences, such as adding children to a deed or an account.