State law requires that property be uniformly assessed and not exceed 50% of the usual selling price, which is often referred to as the True Cash Value (TCV). Each year, the local assessing unit determines the Assessed Value (AV) of each parcel of real property based on the condition of the property on December 31 (Tax Day) of the previous year.
If property values are increasing in your neighborhood, your Assessed Value will likely increase, and if they are decreasing your Assessed Value will likely decrease.
True Cash Value
The assessor’s determination of a property’s worth or what the assessor believes the usual selling price may be. A property’s true cash value is usually not the same as its sale price for a variety of reasons. An assessor must determine the true cash value of a property which has sold in the same manner that the assessor determines the true cash values of properties which have not sold. Therefore, an assessor may not automatically set an assessed value or a taxable value at half of a property’s selling price.
State Equalized Value
The State Equalized Value (SEV) is the Assessed Value after adjustment following the County and State Equalization process. Often the AV and SEV are the same. The County Board of Commissioners and the State Tax Commission must review local assessments and adjust, or ’Equalize’, them by class (Residential, Commercial, Agricultural, Industrial, etc.) if the class is above or below the constitutional 50% level of assessment.
Taxable Value (TV) is the lesser of the SEV or Capped Value (CV). TV can not be higher than the SEV. The CV limit does not apply if you purchased your property during the previous year. The TV will be used for the calculation of property taxes.
Capped Value (CV) is the product of a formula that uses several numbers: last years taxable value, additions, losses, and the Consumer’s Price Index (CPI).
Capped Value = (Prior Years Taxable Value - Losses) x (1+CPI) + Additions
- CPI = The Consumers Price Index or 5%, whichever is less.
- An example of Additions would be some type of new construction.
- An example of Losses would be if a garage was removed or torn down.
Transfer of Ownership
When a property (or interest in a property) is transferred, your TV the following year will be the same as the SEV. The TV will then be ’Capped’ again in the second year following the transfer of ownership. By State of Michigan Law, a home’s AV is not half of the purchase price, but half of its Market Value (or ’usual’ selling price). The purchase price may or may not be the same as the Market Value.
State Equalized Value (SEV) vs. Taxable Value (TV)
The SEV moves with the market. If the SEV moves at a higher rate than the TV for multiple years then when the market begins to decline the TV may still be able to increase without being higher than the SEV. With the TV capped by the SEV, eventually both the SEV and TV will decrease in a declining market.
Principal Residence Exemption (PRE)
A PRE is an exemption from paying approximately 18 Mills of School Tax. This exemption is for those who own and occupy their home as their principle residence. You must own and occupy your home before June 1 to receive the exemption for that year. If you own and occupy your home prior to November 1 you will receive the exemption beginning on your winter tax bill, if you receive a winter tax bill.
From then on you receive the exemption until you sell or move to a different home. There are forms that need to be filled out to receive and remove this exemption.
Property taxes are based on TV. Property taxes are calculated by first taking the millage rate of the property and dividing it by 1,000. Then this number is multiplied by the current TV. Since 1994, while property values were increasing rapidly, the CV provided for a slow and steady increase in the TV. Prior to this the taxes were based on the SEV.
The State Tax Commission has issued guidelines regarding foreclosure sales. These guidelines prevent the Assessing Office from considering these sales in the annual sales study.
For this reason, sales involving mortgage foreclosure, or transfers to or from relocation companies are not considered typical sales and are not a reliable indicator of Market Value when making market comparisons for current AV.
Notice of Assessment
Each year, in February before the meetings of the local Boards of Review, informational notices are mailed out. The notices will contain the current year’s AV, TV, and Property Class. It will also include the percent exemptions of either a Principle Residence or a Qualified Agricultural Property and whether there was or was not a transfer of ownership. Also listed on the form are the dates and times of the March Board of Review. If you disagree with the information on this form, please contact the Assessor or follow the instructions on the form to appeal to the Board of Review.
For this example we will use a house and property valued at $210,000. The 2015 SEV was $105,000 and the TV was $98,063. For 2016 the Market Value of the house went up slightly and the SEV was determined to be $110,000. Nothing was done to the house, no new construction (Additions) and no Loss.
- 2015 SEV = $105,000
- 2015 TV = $98,063
- CPI = 0.30%
- 2016 SEV = $110,000
- 2016 Capped Value: 2015 TV x (1+ CPI) = $98,357
- 2016 CV is less than the 2016 SEV
- 2016 TV = $98,357
If there was $20,000 ($10,000 AV and SEV) in new construction during 2015:
- 2015 SEV = $105,000
- 2015 TV = $98,063
- CPI = 0.30%
- 2016 SEV ($105,000 + $10,000) = $115,000
- 2016 Capped Value: (2015 TV x (1 + CPI)) + NEW = $108,357
- 2016 TV = $108,357