Understanding the Tax Notice of Assessment
Around February each year, property owners receive annual property tax Notices of Assessment for each parcel of real property in Michigan. If the value is not challenged, then the value becomes final for that year, and the property taxes assessed on the property are calculated based on that value.
When Notices of Assessment are sent out every year, property owners should review carefully. Some of the key components of the Notice are explained in more detail below.
“Assessed Value” and “Taxable Value” Explained
A property owner should review two values on a Notice of Assessment: the assessed value and taxable value. Both values are provided from last year as well as “tentative” values for this year, so a property owner can see any changes. The Notice of Assessment also provides a state equalized value which will almost always equal the assessed value.
The assessed value and taxable value serve different purposes:
- The assessed value equals 50% of what the city of township believes is the property's market value – called “true cash value.”
- The taxable value is equal to or less than the assessed value. The tax assessed is calculated based on the taxable value.
The city or township in which the property is located determines the value of every parcel of real property each year as of December 31 of the prior year. For example, if the city or township assessor believes a property is worth $500,000 on December 31, 2021, the assessor sets an “assessed value” for tax year 2022, of $250,000, reflecting 50% of the property's market value or true cash value.
The other value on a Notice of Assessment is the taxable value which will either be equal to or lower than the assessed value. In the year after a property transfers to a new owner, the taxable value is “uncapped” to equal the assessed value. In years that the property does not transfer, the taxable value will increase by the rate of inflation only, in general. When market values increase year after year, and a property does not change owners, it is common for the taxable value to be significantly lower than the assessed value. For example, if a property was purchased for $300,000 in 2011, and the purchaser still owned the property 10 years later, if the market increased such that the property was worth $500,000 as of December 31, 2021, the taxable value would generally only increase from $150,000 in 2011 to around $207,536 in 2022, which is significantly lower than the assessed value of $250,000 in 2022. If the property sold in 2022 and the assessor determines the property is worth $520,000 as of December 31, 2022, the assessed value will be $260,000 for 2023 (or 50% of the market value or true cash value), and the assessor will “uncap” the taxable value from $207,526 to $260,000 in 2023.
The taxable value may also increase or decrease if there were significant changes to the property that are present as of the December 31 prior to the year at issue. For example, if a building was torn down, the property “lost” value attributable to the building. If a building was constructed, the property “added” value attributable to the new building. When there is a significant “loss” or “addition” to the property, present as of December 31, then the assessor may add value to the taxable value for an addition and subtract value from the taxable value for a loss. These additions or subtractions to the taxable value are independent of the calculation of the assessed value (which is 50% of the market value), except that the taxable value can never be higher than the assessed value.
“Principal Residence Exemption”
Homeowners should also review their “principal residence exemption” status on their Notice of Assessment each year. In Michigan, a property occupied as the property owner’s principal residence is exempt from up to 18 mills of tax levied by the local school district. When a property owner owns multiple homes, they may claim the principal residence exemption only on their principal residence. The Notice of Assessment states whether the property is 100% exempt under the principal residence exemption. If you have questions about your exemption, or believe you are entitled to the exemption and not receiving it, consider consulting with a property tax attorney.
Calculating Property Tax
Property tax each year is calculated based on the taxable value. Each city and township imposes a different tax rate, called a millage. Rates differ by city and township because each imposes different mills for local services, such as, for example, schools, fire, police, and library. There are also mills imposed for county services and state education. The mills combined reflect the total annual millage rate imposed by the city or township. Each year, the city or township issues a summer tax bill due by September and a winter tax bill due by February of the following year. The total mills assessed are split between the summer and winter tax bills. The tax imposed on the summer and winter tax bills is calculated based on the property’s current taxable value which is reflected on the Notice of Assessment mailed in February.
Annual property tax is calculated as follows: taxable value x (summer millage + winter millage)/1000.