Michigan Tax Values Go Down, But Property Taxes Go Up

These are very different times we live in. Last week at the Broadway Theatre Guild office, I ran into Ken Parrish, a CPA, long time friend and the Kent County Treasurer. I asked him his opinion on the current state of property taxes in Michigan. What's going to happen with declining property values and the resulting loss of property taxes. He said for most homeowners, property taxes in 2009 will probably go up. How can that happen?

This is how the property tax system works based on current law. This past year residential property values declined by 20% to 30% in some areas. Tax day in Michigan is December 31st. All property is to valued on December 31, 2008 for purposes of the 2009 property taxes. A logical person may conclude that all residential property taxes will go down in 2009. Not so.

The 1994 ballot proposal, known as Proposal A, specifies that property taxes cannot increase by more that the rate of inflation or 5%. Since 1994, because of low rates of inflation, property values for purposes of the property tax, known as Taxable Value, have increased at very low rates (the inflation rate) even at a time when property values were increasing at double digit rates. Now its payback time.

Property owners who have owned their homes for a large number of years have seen their state equalized value (SEV) go up while increases in Taxable Value have been held back by the Proposal A limitation. Now the reverse is happening. Property values are declining while inflation is up. The social security inflation adjustment will be 5.8%. We can expect the rate of inflation in Michigan to be up. For a long term property owner, this means their Taxable Value will increase even though their SEV will decrease. As long as the Taxable Value does not exceed the SEV, they will experience an increase in tax in 2009. New home owners may not experience a property tax increase.

In the 1990s, no one ever thought property values would decline while inflation is increasing. But, we are now living in a very different time. A ballot proposal which would have frozen the taxable value when the SEV goes down failed to make the ballot.

Ed Kisscorni Blog