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The assessed value is a yearly estimation performed to decide the reasonable market value for your home based upon prevailing local real estate market conditions. The Michigan Constitution requires that property be uniformly assessed and not exceed 50% of the usual selling price, often referred to as True Cash Value. Each tax year, the local assessor determines the Assessed Value (AV) of each parcel of real property based on the condition of the property as of December 31 (Tax Day) of the previous year.
The State Equalized Value (SEV) is the Assessed Value as adjusted following County and State equalization. The County Board of Commissioners and State Tax Commission must review local assessment jurisdictions and adjust (equalize) them so that they do not exceed 50%. This value represents 50% of estimated market value as mandated by state law.
Taxable Value (TV) is the lesser of State Equalized Value (SEV) or Capped Value (CV) unless the property experienced a Transfer of Ownership in the prior year. It is the value used for determining the property owner’s tax liability and can never be higher than the Assessed Value.
Capped Value is the value established when the TV of the prior year, with adjustments for additions and losses, is multiplied by the Inflation Rate Multiplier (IRM). The multiplier is capped and cannot be greater than 1.05 (1 + 5%). It represents the change in the rate of inflation during the previous year. The final product is Capped Value (CV). The value is computed as last year’s taxable value minus losses, multiplied by the Consumer Price Index (Rate of Inflation) or 5% (whichever is lower) plus any additions.
How Your Final Yearly Taxable Value is Determined
The taxable value (TV) is determined by comparing the state equalized value (SEV) and the capped value (CV) of a given property. The lower value is determined to be the taxable value as mandated by the statewide voter-approved Proposal A of 1994. This computation will produce your new taxable value for the upcoming tax tear. The Consumer Price Index (rate of inflation) for 2016 is 1.003.
Taxable Value is Adjusted When Property is Sold
When a property is sold, Proposal A MANDATES that the taxable value of that property is RESET to the state equalized value (SEV) for the following year. Since the state equalized value (50% of market value) may be different than the taxable value, the property value for that sold property will be adjusted. The Board of Assessors has NO CONTROL over this mandated increase.
The sales price of a property may not be the same as "market value". Each year a study of sales in every neighborhood assists the Assessor in arriving at a fair and equitable property value.
In the State of Michigan we are required to assess property at 50% of True Cash Value. True cash value in other words is the Market Value of a property. To accurately assess the properties in the City of Detroit, the Office of the Assessor studies the real estate market throughout the City. The City is divided into geographical areas. Sales of similar homes are compared to determine the overall market change which allows a closer evaluation process. The sales in each category are evaluated to establish the percentage by which the values will change, up or down depending on the market. This percentage is then applied to each property within that area.
On March 15, 1994, Michigan voters approved the constitutional amendment known as Proposal “A”. Prior to Proposal “A”, property tax calculations were based on Assessed Value. Proposal “A” established “Taxable Value” as the basis for the calculation of property taxes. Increases in Taxable Value (following increases for additions and losses) are limited to the percent change at the rate of inflation or 5% whichever is less.
The General Property Tax Act defines “Tax Day” as December 31 of the immediately preceding year and states that the taxable status of persons and of real and personal property for a tax year shall be determined as of that day. The location, condition and attributes of assessable property and the ownership of that property for property tax assessment purposes during the subsequent tax year are determined as of Tax Day. No change in ownership, location, taxable status or condition of the assessable property after Tax Day affects either the assessment or the liability for taxation of the assessable property, except as otherwise specifically provided by statute.
Reference: Michigan Compiled Laws 211.2(2) and Michigan Compiled Laws 211.17
Taxes are calculated through the use of the mill levy and the taxable value.
The mill levy is simply the tax rate levied on your taxable value, with one mill representing one tenth of one cent. So, for $1,000 of taxable value, one mill would be equal to one dollar. Tax levies for each tax jurisdiction in an area are calculated separately and then all the levies are added together to determine the total mill rate for an entire region. Generally, the city, county and school district each have the power to levy against the properties in their boundaries. So each entity would calculate its required mill levy and it would be tallied up to equal the total mill levy.
The formula to estimate taxes is:
(Taxable Value x mills)/1000 = estimated taxes
This formula does not include any fees or special assessments
There may be physical characteristic differences such as size, age and condition and quality of construction. Also, if the property was uncapped per Proposal A, there could be a difference in the actual tax obligation.
When the assessed value is higher than taxable value, Proposal "A" allows for an annual increase equal to the CPI (Consumers Price Index) up to 5%.
In 1995, Proposal "A" was implemented throughout the State of Michigan. Proposal "A" requires that all local assessing units do the following:
- Uncap all transfers of ownership
- When the Assessed Value is higher than the Taxable Value, the Taxable Value will
increase each year by the rate of inflation but no more than 5%
A special assessment is an assessment against real property calculated on a benefit or ad valorem basis. Special assessments can include demolition of a property privately owned or sidewalk repair.