What
are ?mills?, ?Taxable Value? and those other terms?
Lets begin by saying that all ad valorem taxes
except ?special assessments? are
calculated by multiplying a millage rate times a property value.
Thus ?X? number of mills
times some property value in dollars produces a property tax -
expressed in dollars.
Q.
What
is a
?mill? anyway?
A.
One
mill is equal to one tenth of one penny or one 1/1000 of a dollar.
Mills are used to calculate property taxes.
When a ?millage rate? is used to calculate a property tax the
formula is always:
The Millage Rate times ?Taxable Value? Equals the tax levy.
Example:
If you live in an area where the total millage levied on all
homes is 32 mills and if the ?Taxable Value? of your home were
$50,000
Then:
Your property tax would be equal to
.032 X $50,000 =
$1,600
Often
people involved in taxation on a routine basis will refer to the millage
rate in terms of ?dollars per thousand?.
This type of reference tends to simplify the tax calculation by
making big numbers smaller and decimal numbers whole numbers. For
example, the same tax calculation could
be expressed as $32 of taxes for every $1000 of taxable value.
Thus
the formula used becomes:
$32 X 50 = $1,600
?Value?
According to Michigan property tax statutes, there are several
kinds of ?value.? There
are ?assessed values, county equalized values, state equalized values,
capped values, and taxable values.
"True cash value" is a constitutional term used in Const 1963, art 9, ? 3:
The legislature shall provide for the uniform general ad valorem taxation
of real and tangible personal property . . . . The legislature shall provide for the
determination of true cash value of such property; the proportion of true cash
value at which such property shall be uniformly assessed . . . ; and for a system of
equalization of assessments.
The statutory definition of "true cash value," provided by MCL 211.27(1), is "the usual
selling price at the place where the property to which the term is applied is at the time of
assessment, being the price that could be obtained for the property at a private sale," as opposed
to an auction or forced sale. The Legislature has provided guidelines for the determination of
true cash value as follows:
In determining the true cash value, the assessor shall also consider the
advantages and disadvantages of the location; quality of soil; zoning, existing use;
present economic income of structures, including farm structures; present
economic income of land if the land is being farmed or otherwise put to income
producing use; quantity and value of standing timber; water power and privileges;
and mines, minerals, quarries, or other valuable deposits known to be available in
the land and their value. [MCL 211.27(1).]
On the basis of this broad statutory definition, our Supreme Court has determined that "true cash
value" is synonymous with "fair market value." CAF Investment Co v State Tax Comm, 392
Mich 442, 450; 221 NW2d 588 (1974). Therefore, the assessment must reflect the probable
price that a willing buyer and a willing seller would arrive at through arm's length negotiation.
See Safran Printing Co v Detroit, 88 Mich App 376, 382; 276 NW2d 602 (1979).
Further complicating the idea of the correct value for a property
is the application of two
fundamental principles that must be honored in any determination of a
property?s value for taxation: Equity
and Uniformity.
For the purposes of calculating taxes, we are only concerned with
?Taxable Value?. ?Taxable Value? is the value used to calculate
taxes. But to understand taxable value one should at least be familiar
with the intertwined factors cited above.
?Uniformity? means the rules used to
determine one property?s value must be ?uniformly? applied to all
similar properties. The
value per square foot for similarly built homes must similar.
The contributing value of a swimming pool or hot tub must be
equivalent.
?Equity? means that the value estimate
must consider all factors effecting value. Imagine
one finds two families that each decide on the same contractor and house
plan for a new home. One
family lives in an area where pollution
is discovered shortly after their home was constructed.
The other home is located in a peaceful and well maintained
neighborhood.
Issues of pollution can greatly reduce the
value of a property. Application
of the "principle of equity" means that the assessor must take
into account any factors effecting immediate and long term changes in
market values. So,
according to the principle of "uniformity" the initial costs
per square foot used by an Assessor to estimate the value of both homes
will be identical. However, the value of the home effected by pollution
will be reduced according to the constitutional mandate that an
assessment must be "equitable." Final ?Taxable Values? for
these two properties might be very different.
The term ?Taxable Value? came into being in 1994 under what
is commonly called Proposal A amendments.
Taxable Value is defined by law to mean the lesser of, State
Equalized Value or ?Capped? Value.
?Taxable Value? is the value that by law must be used to
calculate taxes. ?Taxable
Value? usually differs from SEV or State Equalized Value.
Michigan?s constitution mandates that
each property must be assessed at one half of True Cash Value.
This fractional value is known as State Equalized Value or SEV.
It must be calculated each year and must always be ? of True
Cash Value. SEV is never
?capped?. The
?equalization process? mandated under Michigan?s Constitution
requires that local assessment procedures are ?uniform? across the
state. Thus following
specific rules, local assessment values undergo a ?County
Equalization? process and County Equalization undergoes a ?State
Equalization? process. When
the whole thing is done, local values are transformed into State
Equalized Values or SEV.
1994
and 1995 saw a flurry of amendments to state property tax laws that
added limitations or ?caps? on annual growth of both taxable value
and millage rates used by local jurisdictions.
These caps apply to both increases in property value and taxes
levied.
Remember, Taxable Value is usually less than SEV.
Pursuant to Proposal A (Public
Act 415 of 1994) annual increases in Taxable Value are capped at either
the rate of inflation or 5 percent, whichever is lower.
SEV is never capped and is always one half of a property?s
market or True Cash Value. The
distinction between SEV and Taxable Value is that SEV always represents
one half of a properties ?True Cash Value? and a Taxable Value may
be one half of ?True Cash Value? in the beginning, but usually over
time factors such as inflation cause ?caps? to kick in and the
Taxable Value becomes smaller than the SEV.
An important point to remember is that the Taxable Value gets
?reset? so it equals the SEV when a property is sold. This is
important, because it causes a new owner of a property to potentially
have much higher taxes than the former owner did. The former owner might
have had the advantage of the caps on "taxable value" holding
down potential increases. Individuals contemplating the purchase of
property in Michigan should determine the amount of both the State
Equalized Value and Taxable Value on any property being considered.
