How Businesses May Contest Personal Property Tax Classifications
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