|
|
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.
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 ½ 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 for taxpayers 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.
|
