Information on Michigan Property Tax Breaks and Incentives

Links to specific exemptions for homeowners and businesses are located at bottom of this page

General History of the Michigan property tax, exemptions and incentives

The current status of property taxation evolved from conditions set in 1835 when Michigan was a territory. Michigan became a state in 1837 and incorporated some existing financial circumstances into its accouterments as a new state. Among them was a large debt (for the time) of about $5.3 million. Unfortunately, 1837 was the year a severe banking panic swept across the U.S. A bank in Pennsylvania, acting as temporary custodian and sale guarantor for almost $4 million of Michigan?s bonds, failed before full payment from the sale of the bonds was received. Innocent bond purchasers were hurt and the state?s credit was harmed. The state paid off its debt. However later constitutions of the state of Michigan would reflect the negative impact of this unfortunate fiscal episode.

For example, except for repelling invasion, state debt was limited to $50,000. Furthermore, the 1850 constitution prohibited granting state credit to any private party, subscription or stock company and state involvement or interest in works of internal improvements.

Tax laws, enacted while Michigan was still a territory were carried forward into the constitution of 1850. Vestiges of that early tax structure exist today. During life as a territory, when fees and the federal government paid territorial expenses, local governments were permitted to pay expenses through a local tax levy. The expenses of local government were coordinated at the county level. At ?quarter sessions? of the county court, expenses of the county were estimated. Judges appointed commissioners who apportioned taxes among the townships. Township assessors apportioned the tax against individuals in proportion to their wealth and ability to pay in kind or in money. The county sheriff collected the tax.

The 1850 constitution provided for a uniform rate of taxation on all property, the continuation of specific existing taxes and the use of assessments predicated on the tax value of property. Of course, today's property tax levy is still based upon the value (ad valorem) of taxable real and personal property. The current law guiding property taxation is known as the General Property Tax Act (Public Act 206 of 1893). Real property is real estate. Personal property is the machinery, equipment, furniture and fixtures and other property taxed as personalty or personal property in the state.

General history of tax incentives and tax capturing authorities

While it is true, following World War II, the state created a public law (1945) to fight blight within cities, modern tax incentives and tax capturing legislation were not adopted in Michigan until the early 1970s. It was becoming easier and easier for companies to open branches or start business operations in any of the U.S. states. By then all states had infrastructure, including reliable power. They had people looking for work and communities looking for ways to attract new jobs. After all, the demographic shift created by the movement to suburban living which began in earnest in the 1950s and the implementation of new enclosed shopping "malls" (beginning in 1956) was very clear. Urban centers were showing decay - suburban areas shined.

Michigan's leaders began the modern property tax era with an attack in 1974 on urban decay when the state passed its first tax capturing legislation, the Downtown Development Authority Act. Tax capturing authorities enabled a community to "capture" property taxes above a protected "base". The captured taxes could be used for certain public improvements such as correcting and preventing deterioration in business districts, encouraging historic preservation and to promote economic growth. In 1975, the first of the modern tax abatements (a partial exemption from property taxation) was passed in the form of Public Act 198 (Industrial Facilities Exemption). This form of tax incentive preserves an existing tax base, while encouraging development with partial or full tax exemptions for developers. A property tax on an abated or exempted investment is limited either by a modified permitted millage rate or in the amount of specific value to be taxed.

Tax capturing legislation contemplates financing public improvements over a time period often encompassing decades. Property tax incentives consisting abatements and exemptions usually last no more than 15 years and are often limited to 10 to 12 years. Tax capturing authorities are transparent to the taxpayer, because they have no impact on the tax burden. They affect the distribution of property taxes once they are collected. Tax abatements and exemptions have an immediate effect and usually begin in the tax year following the granting of the incentive.

Note: Credit for much of the foundation research on the history of early taxation goes to Barbara Moss, instructor for the State Assessors Board (Now State Tax Commission)

This document and entire web site copyrighted by Michigan Property Consultants L.L.C. Use of the material is limited to only that granted by written consent of Michigan Property Consultants L.L.C.

  1. Tax breaks, exemptions and incentives for home owners

  2. Tax breaks, exemptions and incentives for commercial, industrial and other nonhomestead property owners

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