UNDERSTANDING PROPOSAL A IN A DECLINING MARKET
On March 15, 1994, Michigan voters approved the constitutional amendment known as Proposal A.
Proposal A was designed to limit the growth in property taxes by the Consumer Price Index (CPI) until ownership in the
property was transferred.
HOW IT WORKS
Prior to Proposal A, property taxes were based upon State Equalized Value (SEV). With the implementation of
Proposal A, property taxes are now based upon Taxable Value.
Each year, the Assessing Office must calculate the SEV for every property based upon the time frame as outlined by
the State Tax Commission. A property's taxable status is determined as of December 31, which is called Tax Day.
Additionally, each property has a Capped Value. Capped Value is calculated by multiplying the prior year's Taxable
Value, with adjustments for additions and losses, by the CPI as calculated by the State of Michigan and cannot
increase by more than 5%. For 2008, the CPI has been calculated at 2.3%.
Taxable Value (TV), which property taxes are based on, is defined as the lower of State Equalized Value or Capped
Value.
Generally speaking, this means that unless the current year SEV is less than the previous year Taxable
Value multiplied by the CPI, the current years Taxable Value will increase by the CPI.
SEV= 50% of True Cash Value
Capped Value= (Prior TV-Losses)x (1+ CPI*) + Additions
*Percent of change in the rate of inflation or 5%, whichever is less, expressed as a multiplier
Taxable Value= The lesser of State Equalized Value or Caped Value unless there is transfer of ownership.
THE EQUALIZATION TIMETABLE
The State Tax Commission rules establish that a local Assessing officer use a 12 month sales study to calculate
assessments for 2008.
For 2008 Assessments, the 12 month sales study begins October 1, 2006 and ends September 30, 2007.
Sales that occur in the current calendar year after September 30th will not be considered in the sales study until the
following year.
In a normally inclining market, this process generally helps taxpayers since current sale prices are higher than those
analyzed in the sales study and assessments will tend to lag current market conditions. However, if sale prices are
declining, it will take time for the assessment cycle to recognize the falling prices as well, to the detriment of
taxpayers under Proposal A.
ACTUAL SALE PRICE IS NOT TRUE CASH VALUE
The law defines True Cash Value as the usual selling price of a property. The Legislature and the Courts have very
clearly state that the actual selling price of a property is not a controlling factor in the True Cash Value or
State Equalized Value as calculated by the Assessor.
For this reason, when analyzing sales for the purpose of determining assessment changes, the Assessing Office will
review sales and exclude non-representative sales from the assessment analysis. Inherent in the definition on usual
selling price is the assumption that the sale does not involve any element of distress from either party.
For this reason, all distressed sales, such as sales involving mortgage foreclosure or sales involving transfers to or
from relocation companies are not considered as typical sales in the valuation of property for assessment purposes.
TRANSFERS OF OWNERSHIPS AND UNCAPPING OF ASSESSMENTS
According to Proposal A, when a property (or interest in a property) is transferred, the following year's SEV becomes
that year's Taxable Value. In other words, if you purchased a property in 2007, the Taxable Value for 2008 will be the
same as the 2008 SEV. The Taxable Value will then be "capped" again in the second year following the transfer of
ownership.
It is the responsibility of the buyer in a transfer to file a Property Transfer Affidavit with the Assessors Office within 45
days of the transfer. Failure to file a Property Transfer Affidavit will result in a penalty of $5 per day for each day
after the 45 day period with a maximum penalty of $200. Property Transfer Affidavit forms are available from your
Township and/or City Assessor.
Again, it is important to note that a property does not uncap to the selling price but to the SEV in the year
following the transfer of ownership.
PRINCIPAL RESIDENCE EXEMPTION
If you own and occupy your home as your principal residence, it may be exempt from a portion of local school
operating taxes. You may check your percentage of principal residence exemption on your "Notice of Assessment".
If the percentage exempt as "Principal Residence" is 0% on your assessment notice and you wish to claim an
exemption for the current year, a Principal Residence Exemption Affidavit must be completed and filed with Assessors
Office prior to May 1.
Furthermore, if you currently have a Principal Residence Exemption on your property and you no longer own and
occupy the property as your primary residence, you must rescind the Principal Residence Exemption with the
Assessors Office.
Forms to claim a new exemption or to rescind a current exemption are available from the Township Assessor.
SO WHAT DOES IT ALL MEAN?
HOW CAN MY ASSESSMENT GO UP WITH THE CURRENT MARKET CONDITIONS?
As stated in the Equalization Timetable, for 2008, the time period of the sales study for assessment review is
October 1, 2006 through September 30, 2007. Sales occurring after September 30, 2007 will not be reviewed until
the 2009 assessment cycle.
In determining assessment adjustments for a neighborhood, the sale prices of homes are compared to exiting
assessed vales to determine the level of assessment. State law requires this level to be an average of 50% of value
for the time period under review. Individual market areas within the Township tend to appreciate (or decline) at
different rates. Generally speaking, assessments tend to increase or decrease at a more stable pace. As such, it is
quite possible that, even with current market conditions, assessment reviews of sales indicate levels of assessment in
certain areas of the Township at levels less than 50% and increases in 2008 assessments are necessary.
HOW CAN MY TAXABLE VALUE GO UP WHEN MY SEV GOES DOWN? (OR STAYS THE SAME AS LAST YEAR?)
Remember that the definition of Taxable Value is the lesser of SEV or last year's Taxable Value (adjusted for physical
changes) times the CPI. (2.3% for 2008).
Since the beginning of Proposal A in 1994, overall increases in SEV have generally been greater than the increase in
Taxable Value capped at the CPI. The longer a property has been owned and capped, the greater the gap between
SEV and Taxable Value. Even with no change in SEV for 2008, or with a decrease in SEV for 2008, if there is still a
gap between SEV and Taxable Value, and the 2008 SEV is greater than the Taxable Value in the previous year the
Taxable Value will increase to the limit of the CPI cap. If, however, the 2008 SEV is lower than the calculation of last
year's Taxable Value multiplied by the CPI, then the 2008 Taxable Value will be the same as the 2008 SEV.
YEAR CPI
1995 2.6%
1996 2.8%
1997 2.8%
1998 2.7%
1999 1.6%
2000 1.9%
2001 3.2%
2002 3.2%
2003 1.5%
2004 2.3%
2005 2.3%
2006 3.3%
2007 3.7%
2008 2.3%