Opinion
No. 342324
03-21-2019
HC INVESTMENT HOLDINGS LLC, Petitioner-Appellant, v. TOWNSHIP OF SCIO, Respondent-Appellee.
If this opinion indicates that it is "FOR PUBLICATION," it is subject to revision until final publication in the Michigan Appeals Reports. UNPUBLISHED Michigan Tax Tribunal
LC No. 16-005259-TT Before: STEPHENS, P.J., and GLEICHER and BOONSTRA, JJ. PER CURIAM.
Petitioner appeals by right the order of the Michigan Tax Tribunal (the Tribunal) granting partial summary disposition in favor of respondent. We affirm.
I. PERTINENT FACTS AND PROCEDURAL HISTORY
Petitioner is the owner of a vacant parcel of residential real property in Washtenaw County. Petitioner purchased the property on September 30, 2015 for $3 million. For tax year 2015, respondent had assessed the property a taxable value (TV) of $591,300, an assessed value (AV) of $591,300 and a state equalized value (SEV) of $591,300. For tax year 2016, following the transfer of ownership to petitioner, respondent assessed the property a TV of $1,159,400; an AV of $1,159,400; and an SEV of $1,159,400. The 2016 assessments were based on the respondent's assessment of a true cash value (TCV) of $2,318,800 following the 2015 transfer of ownership.
Petitioner filed a petition with the Tribunal challenging respondent's 2016 assessment. Eventually, the issue before the Tribunal was narrowed to whether respondent had properly "uncapped" the property following the 2015 transfer to petitioner. Petitioner argued that respondent had improperly uncapped the TV of the parcel under Const 1963, art 9, § 3, and that the 2016 TV of the property "[could not] be increased to an amount greater than the 2015 [SEV]." Respondent argued that its assessor correctly applied MCL 211.27a(3), which states that "[u]pon a transfer of ownership of property after 1994, the property's taxable value for the calendar year following the year of the transfer is the property's state equalized valuation for the calendar year following the transfer." The Tribunal granted summary disposition in favor of respondent on this issue, holding:
Respondent is entitled to summary disposition on the first count, however, as this allegation has absolutely no legal merit whatsoever. Petitioner correctly notes that Constitution 1963, Article 9, Section 3, as amended by Proposal A, provides for "uncapping" at the SEV of the property for the year of the uncapping event, and somehow derives from this a contention that the 2016 taxable value cannot be increased to an amount greater than the 2015 SEV. In this case, 2016 is the year of the uncapping event, and therefore it is the 2016 SEV that determines the property's taxable value for that year, not the 2015 SEV. As such, an inasmuch as Petitioner's valuation appeal is properly dismissed due to its failure to timely file a valuation disclosure or show good cause or otherwise justify this failure and the resultant inability to meet its burden of going forward on the issue of true cash value, the sole issue for hearing is whether the property's taxable value was properly uncapped for the 2016 tax year. [Footnotes omitted.]The Tribunal denied petitioner's motion for reconsideration. Petitioner later voluntarily dismissed its remaining claims, and the Tribunal entered an order of dismissal of the petition. This appeal followed.
II. STANDARD OF REVIEW
"In the absence of fraud, review of a decision by the Tax Tribunal is limited to determining whether the tribunal erred in applying the law or adopted a wrong principle; its factual findings are conclusive if supported by competent, material, and substantial evidence on the whole record." Mich Bell Tel Co v Dep't of Treasury, 445 Mich 470, 476; 518 NW2d 808 (1994), cert den 513 US 1016 (1994) (citing Const 1963, art 6, § 28). We review de novo questions of constitutional and statutory interpretation. In re MCI Telecom Complaint, 460 Mich 396, 413; 596 NW2d 164 (1999).
Const 1963, art 6, § 28 provides:
All final decisions, findings, rulings and orders of any administrative officer or agency existing under the constitution or by law, which are judicial or quasi-judicial and affect private rights or licenses, shall be subject to direct review by the courts as provided by law. This review shall include, as a minimum, the determination whether such final decisions, findings, rulings and orders are authorized by law; and, in cases in which a hearing is required, whether the same are supported by competent, material and substantial evidence on the whole record. Findings of fact in workmen's compensation proceedings shall be conclusive in the absence of fraud unless otherwise provided by law.
In the absence of fraud, error of law or the adoption of wrong principles, no appeal may be taken to any court from any final agency provided for the administration of property tax laws from any decision relating to valuation or allocation.
III. ANALYSIS
Petitioner argues that the Tribunal erred by holding that respondent properly set the 2016 TV of the property equal to its 2016 SEV. We disagree.
Petitioner contends that Const 1963, art 9, § 3 and the Michigan State Tax Commission Guide to Basic Assessing (the Guide) require that when a parcel of real property is transferred, the TV of the real property must be set equal to the SEV of the property in the year of the transfer of ownership. That is, respondent should have set the 2016 TV of the property in this case equal to the 2015 SEV of the property (rather than its 2016 SEV). The Tribunal rejected this argument, holding that it "has absolutely no legal merit whatsoever." We agree with the Tribunal.
Const 1963, art 9, § 3 provides in relevant part:
The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law except for taxes levied for school operating purposes. The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed, which shall not, after January 1, 1966, exceed 50 percent; and for a system of equalization of assessments. For taxes levied in 1995 and each year thereafter, the legislature shall provide that the taxable value of each parcel of property adjusted for additions and losses, shall not increase each year by more than the increase in the immediately preceding year in the general price level, as defined in section 33 of this article, or 5 percent, whichever is less until ownership of the parcel of property is transferred. When ownership of the parcel of property is transferred as defined by law, the parcel shall be assessed at the applicable proportion of current true cash value. [Emphasis added.]
Petitioner focuses on the above-italicized portion of § 3, and appears to contend that the term "current true cash value" in this phrase means the pre-transfer TCV, in which case the determinations (of TV, and presumably also the AV and SEV) for the post-transfer tax year would be based on the pre-transfer TCV. We disagree.
The assessment of taxes on real property is based on the TCV of the property. See Const 1963, art 9, § 3; MCL 211.27a(1). "True cash value" is synonymous with "fair market value" and reflects "the probable price that a willing buyer and a willing seller would arrive at through arm's-length negotiation." Pontiac Country Club v Waterford Twp, 299 Mich App 427, 434-435; 830 NW2d 785 (2013). The AV is calculated at 50% of the TCV. See MCL 211.27a(1). The SEV is the AV after having been adjusted by state and county equalization procedures, which attempt to prevent over- or under-assessment of property and to ensure that property is taxed at the 50% rate prescribed by the Michigan Constitution. See MCL 211.34; see also Plymouth Twp v Wayne Co Bd of Comm'rs, 137 Mich App 738, 749; 359 NW2d 547 (1984). As is the case here, the AV and SEV of a property may be identical for a given tax year.
Finally, a new valuation, the TV, was created by the 1994 passage of Proposal A, which amended Const 1963, art 9, § 3, as quoted earlier. The purpose of Proposal A was
to generally limit increases in property taxes on a parcel of property, as long as it remains owned by the same party, by capping the amount that the "taxable value" of the property may increase each year, even if the "true cash value," that is, the actual market value, of the property rises at a greater rate. However, a qualification is made to allow adjustments for "additions." [Toll Northville LTD v Township of Northville, 480 Mich 6, 12; 734 NW2d 902 (2008), quoting WPW Acquisition Co v City of Troy, 466 Mich 117, 121-122, 643 NW2d 564 (2002).
Proposal A placed a cap on increases in TV, except where a transfer of ownership has occurred. In that event, the property is "uncapped," although still subject to an AV of 50% of TCV. Consequently, the TV of a "capped" property is calculated as the lesser of (1) the TV of the property for the previous year multiplied by the lesser of 1.05 or the inflation rate, plus adjustments for additions to the property, or (2) the current SEV. MCL 211.27a; MCL 211.34d(1). The TV for the previous year adjusted for additions and inflation is also referred to as the "capped value." See State Tax Commission, Guide to Basic Assessing <https://www.michigan.gov/documents/treasury/Guide_to_Basic_Assessing_1-16_511508_7.pdf> (accessed March 6, 2019). The capped value is then compared to the current SEV, and the lower value becomes the TV for the property. In other words, if a property has not been transferred and remains capped, the TV can only increase by a certain amount each year, even if the fair market value of the property increases at a greater rate. See Kok v Cascade Charter Twp, 255 Mich App 535, 539; 660 NW2d 389 (2003). What happens when a property is "uncapped" is the subject of the parties' dispute in this case.
In essence, petitioner argues that the "applicable portion of current true cash value" described in § 3 refers to the pre-transfer SEV. We disagree. Section 3 provides in relevant part that when ownership of a property is transferred, it "shall be assessed" at the applicable portion of the current true cash value. The use of the word "shall" generally indicates a "mandatory directive." Smitter v Thornapple Twp, 494 Mich 121, 136; 833 NW2d 875 (2013). In this case, § 3 directs the relevant assessor to do something in response to the transfer, i.e., to assess the property at the applicable portion of the TCV. In other words, when property is transferred, the assessor must, subsequent to that transfer, calculate a new AV, SEV, and TV based on "the current" TCV. Nothing about this language implies any relation back to the time before the transfer. Rather, a reasonable reading of the language of § 3 is that, when property is transferred so as to trigger an uncapping, the subsequent assessment of the property must be based on the TCV of the property at the time of that assessment. See In re Requests of Governor and Senate on Constitutionality of Act No 294 of Public Acts of 1972, 389 Mich 441, 477; 208 NW2d 469 (1973) ("constitutional language must be given reasonable and practical interpretations").
Petitioner maintains that the Guide supports its position. Specifically, petitioner points to language found on page 43 of the Guide:
Proposal A placed a cap on increases in taxable value for every parcel. There is an exception for property whose ownership has transferred. Beginning with the 1996 tax year, properties where ownership has transferred are "uncapped." This uncapping is still subject to the 50% of true cash value constitutional requirement. This is why we must still calculate an assessed value each year for each property. When the property transfers, the assessed value becomes the taxable value for the following year. It is then recapped until the next transfer of ownership.
But as the Tribunal noted in its order denying reconsideration, while the portion of the manual cited by petitioner (and in particular its use of the word "becomes") is arguably somewhat ambiguous in isolation, the manual clearly states elsewhere that "When a property sells it is uncapped and the state equalized value and the taxable value are the same for the next year." We do not interpret the Guide to require that those values be assessed according to the pre-transfer assessments; to the contrary, the Guide requires only that in the year following the transfer, the AV, the SEV, and the TV will be the same for that taxable year.
More significantly, as discussed, Const 1963, art 9, § 3 expressly provides that the Michigan Legislature "shall provide for the uniform general ad valorem taxation of real and tangible personal property." The Legislature accordingly enacted MCL 211.27a to implement the requirements of § 3. The statute provides, in pertinent part:
(3) Upon a transfer of ownership of property after 1994, the property's taxable value for the calendar year following the year of the transfer is the property's state equalized valuation for the calendar year following the transfer. [MCL 211.27a(2), (3).]
The statute could not be clearer in stating that the TV in the year following a transfer is the same as the SEV in that post-transfer year. Id. And nothing in the language of the statute implies that the post-transfer TV and SEV are to be based on the pre-transfer TCV.
Additionally, respondent's assessor did in fact assess the property an identical TV, SEV, and AV for 2016, based on the newly-assessed TCV after the transfer. Therefore, the AV indeed "became" the TV for "the following year" when the uncapped property was newly assessed in 2016, and the TV for the calendar year following the year of the transfer was indeed equal to the property's SEV for that year. In other words, respondent's assessor appears to have complied with both the Guide and MCL 211.27a(3).
While petitioner asserts that the Guide's language means that the 2015 AV of $591,300 must "become" the 2016 TV, this construction would essentially mean that once a property is assessed, it will never again be simply assessed at 50 percent of its TCV; rather, all future assessments, regardless of a transfer of ownership, will be based on a previously-assessed SEV. There would therefore be no opportunity for real property taxation to keep pace with real-world market changes, and all assessments under the GPTA would quickly stray from our Constitution's directive that real property be subject to "ad valorem" taxation, i.e., tax levied on property in some proportion to its value. See WPW Acquisition Co v City of Troy, 250 Mich App 287, 296; 646 NW2d 487 (2002) (citation omitted) (defining ad valorem taxation). In WPW Acquisition Co, this Court noted that and the Legislature, when discussing amendments to the GPTA following the passage of Proposal A, were aware that the "capping" of property taxes would result in a TV that was unrelated to market value, and understood that "uncapping" as a result of a transfer of ownership would provide a chance to reset the TV according to a newly-assessed TCV:
Typically, [before Proposal A,] property has been assessed for tax purposes based on market value; the millage rate is applied to the state equalized valuation (SEV), which is supposed to be set at 50 percent of market value. But with the [Proposal A] assessment cap in place, a parcel of property will have both a state equalized valuation and a taxable value, which might or might not be the same amount. Property whose value is increasing faster than the rate of inflation will, due to the cap, have a taxable value below (perhaps, over time, far below) state equalized valuation. Upon its sale or other transfer of ownership, the property's taxable value and SEV would be the same until the cap was applied once again. [Id. at 301, alterations in the original, citation omitted.]
We therefore reject petitioner's interpretation of the Guide. For the reasons noted, we also conclude that the Guide is consistent with the statute. But even if the Guide conflicted with the statutory language, the language of MCL 211.27a(3) would control.
Although petitioner argues that MCL 211.10e ("All assessing officials, whose duty it is to assess real or personal property on which real or personal property taxes are levied by any taxing unit of the state, shall use only the official assessor's manual or any manual approved by the state tax commission, consistent with the official assessor's manual, with their latest supplements, as prepared or approved by the state tax commission as a guide in preparing assessments") requires all assessing officials to use the Guide approved by the State Tax Commission in preparing their assessments, the Tribunal correctly observed that the Guide does not have the force of law. See In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 117-118; 754 NW2d 259 (2008). Our Supreme Court's footnoted statement in Mich Props, LLC v Meridian Twp, 491 Mich 518, 534 n 22; 817 NW2d 548 (2012), that "[i]n preparing assessments, an assessor is limited to using approved assessment manuals to carry out his or her duties," does not contradict this principle. This footnote (which petitioner deems to be "critical to this issue") must be read in the unremarkable (for our purposes) context in which it was made, i.e., the Supreme Court's observation that "once an assessment has been entered, an assessor is powerless to change that assessment." Id., 491 Mich at 534. Mich Props does not stand for the proposition that the language of the Guide somehow supersedes the clear language of the statute duly enacted by the Legislature. Rather, an agency's interpretation of a constitutional or statutory provision is binding on neither the Tribunal nor this Court, and it cannot conflict with the Legislature's intent as expressed in the clear language of the statute at issue. Rovas Complaint, 482 Mich at 117-118; see also Boyer-Campbell Co v Fry, 271 Mich 282; 260 NW 165 (1935).
Petitioner also makes the cursory argument that MCL 211.27a is unconstitutional because it conflicts with Const 1963, art 9, § 3. Petitioner raises this issue for the first time on appeal; therefore, it is not properly preserved and we need not address it. See Toaz v Dep't of Treasury, 280 Mich App 457, 463; 760 NW2d 325 (2008). Moreover, we find no conflict between the constitutional provision and its implementing statute.
For all of these reasons, we conclude that the Tribunal was correct in finding no merit to petitioner's contention that the 2016 TV should be set equal to the 2015 SEV.
Affirmed.
/s/ Cynthia Diane Stephens
/s/ Elizabeth L. Gleicher
/s/ Mark T. Boonstra