Michigan real estate owners are required to pay property taxes every year to the county taxing authority. Failing to pay these taxes can result in your home being forfeited to the county treasurer on March 1 in the second year of the delinquency. After forfeiture, you will have approximately one additional year to pay off the tax debt on the property (during the so-called “redemption period”) or else your home can be foreclosed upon and lost forever. If you fall into economic hard times (e.g. lost your job, crushing personal debt or medical emergency), then it may be impossible to pay these taxes when they become due. It will be just a matter of time until the government seizes your home. Is there anything that can be done to prevent this if you fall into poverty?
Fortunately, Michigan law provides an exemption from property taxes for individuals who, in the sole judgment of the supervisor and board of review, are unable to wholly or partially contribute to public funds by reason of poverty. This exemption exists ONLY for individuals, not corporations, and ONLY for the principal dwelling, not second houses or vacation homes. MCL 211.7u(1). To be eligible for exemption, a person must comply with ALL of the following EACH TAX YEAR:
- “Be an owner of and occupy as a principal residence the property for which an exemption is requested.” MCL 211.7u(2)(a).
- “File a claim with the supervisor or board of review on a form provided by the local assessing unit, accompanied by federal and state income tax returns for all persons residing in the principal residence, including any property tax credit returns, filed in the immediately preceding year or in the current year. Federal and state income tax returns are not required for a person residing in the principal residence if that person was not required to file a federal or state income tax return in the tax year in which the exemption under this section is claimed or in the immediately preceding tax year. If a person was not required to file a federal or state income tax return in the tax year in which the exemption under this section is claimed or in the immediately preceding tax year, an affidavit in a form prescribed by the state tax commission may be accepted in place of the federal or state income tax return. The filing of a claim under this subsection constitutes an appearance before the board of review for the purpose of preserving the claimant’s right to appeal the decision of the board of review regarding the claim.” MCL 211.7u(2)(b).
- “Produce a valid driver’s license or other form of identification if requested by the supervisor or board of review.” MCL 211.7u(2)(c).
- “Produce a deed, land contract, or other evidence of ownership of the property for which an exemption is requested if required by the supervisor or board of review.” MCL 211.7u(2)(d).
- Meet the federal poverty guidelines updated annually by the U.S. Department of Health and Human Services, or alternative guidelines adopted by the governing body of the local assessing unit provided the alternative guidelines do not provide income eligibility requirements less than the federal guidelines. MCL 211.7u(2)(e).
- “The application for an exemption under this section shall be filed after January 1 but before the day prior to the last day of the board of review.” MCL 211.7u(3).
“The governing body of the local assessing unit shall determine and make available to the public the policy and guidelines the local assessing unit uses for the granting of exemptions. The guidelines shall include but not be limited to the specific income and asset levels of the claimant and total household income and assets.” MCL 211.7u(4).
Local government units must adopt guidelines every year which specify the total household income that will be used to approve or deny poverty exemptions. These standards cannot be lower than the federal poverty levels, but they can be set higher. According to Michigan State Tax Commission Bulletin No. 6 of 2017, income includes, but is not limited to:
- “Money, wages, salaries before deductions, regular contributions from persons not living in the residence.”
- “Net receipts from non-farm or farm self-employment (receipts from a person’s own business, professional enterprise, or partnership, after business expense deductions).”
- “Regular payments from social security, railroad retirement, unemployment, worker’s compensation, veteran’s payments, public assistance, supplemental security income (SSI).”
- “Alimony, child support, military family allotments.”
- “Private and governmental retirement and disability pensions, regular insurance, annuity payments.”
- “College or university scholarships, grants, fellowships, assistantships.”
- “Dividends, interest, and net income from rentals, royalties, estates, trusts, gambling or lottery winnings.”
Reverse mortgage payments may also be considered part of an applicant’s income. Grant v Delta Twp, unpublished per curiam opinion of the Court of Appeals, issued February 25, 2010 (Docket No. 290220). Note that many of these income items may not be considered taxable income by the Internal Revenue Service (e.g. child support, scholarships) or the State of Michigan (e.g. social security payments), but CAN be considered for determining a poverty exemption. The Michigan State Tax Commission set the following household income guidelines in Bulletin No. 16 of 2018 for boards of reviews to consider:
- For a 1-person family unit, annual income should not exceed $12,140.
- For a 2-person family unit, annual income should not exceed $16,460.
- For a 3-person family unit, annual income should not exceed $20,780.
- For a 4-person family unit, annual income should not exceed $25,100.
- For a 5-person family unit, annual income should not exceed $29,420.
- For a 6-person family unit, annual income should not exceed $33,740.
- For a 7-person family unit, annual income should not exceed $38,060.
- For an 8-person family unit, annual income should not exceed $42,380.
- For each additional person beyond 8 people, add an additional $4,320 to $42,380.
In addition, the governing body of the local assessing unit must consider the liquid asset available to the applicant. Assets, for the purposes of the poverty exemption, means the amount of cash, fixed assets or other property that can be used, or converted to case for use in the payment of property taxes. According to Michigan State Tax Commission Bulletin No. 6 of 2017, assets that can considered in the annual guidelines include, but are not limited to:
- “A second home, land, vehicles.”
- “Recreational vehicles such as campers, motor-homes, boats and ATV’s.”
- “Buildings other than the residence.”
- “Jewelry, antiques, artworks.”
- “Equipment, other personal property of value.”
- “Bank accounts (over a specified amount), stocks.”
- “Money received from the sale of property, such as, stocks, bonds, a house or car (unless a person is in the specific business of selling such property).”
- “Withdrawals of bank deposits and borrowed money.”
- “Gifts, loans, lump-sum inheritances and one-time insurance payments.”
- “Food or housing received in lieu of wages and the value of food and fuel produced and consumed on farms.”
- “Federal non-cash benefits programs such as Medicare, Medicaid, food stamps and school lunches.”
However, the following items are NOT considered assets for the purposes of the poverty exemption:
- The value of the equity of the homestead (“If the equity of the homestead is included, it would require the Petitioner to sell his homestead or borrow against the equity to pay the taxes.”). Taylor v Sherman Twp (MTT Small Claims Division, Docket No. 236230, August 13, 1997).
- Any amount received from the taxpayer claiming a homestead property tax credit. Ferrero v Walton Township, 295 Mich App 475; 813 NW2d 368 (2012).
The applicant must fully complete the application and provide all of the information requested. The applicant may have to appear at a hearing of the board of review to answer questions and provide further verification of income and assets. The taxpayer has the burden of proof on showing by a preponderance of the evidence that he or she is entitled to a tax exemption. ProMed Healthcare v Kalamazoo, 249 Mich App 490, 494-495; 644 NW2d 47 (2002). “The board of review shall follow the policy and guidelines of the local assessing unit in granting or denying an exemption under this section unless the board of review determines there are substantial and compelling reasons why there should be a deviation from the policy and guidelines and the substantial and compelling reasons are communicated in writing to the claimant.” MCL 211.7u(5).
It is invalid and unlawful for any taxing unit to impose limitations that are more restrictive than the statute. For example, it was illegal for the City of Oak Park to impose a limitation that the poverty exemption will not be granted more than two consecutive years, or more than two times in any five year period. Mandel v City of Oak Park (After Rehearing)(MTT Docket No. 274378, Aug 15, 2002). In addition, “[a] person who files a claim under this section is not prohibited from also appealing the assessment on the property for which that claim is made before the board of review in the same year.” MCL 211.7u(6).
Taxpayers denied a poverty exemption by the supervisor or the local board of review may file an appeal with the Michigan Tax Tribunal. The local circuit court does NOT have the authority to hear appeals based on the poverty exemption. Nicholson v Birmingham Board of Review, 191 Mich App 237; 477 NW2d 492 (1991). While local proceedings are relatively informal, procedures at the Michigan Tax Tribunal follow rules and procedures that the taxpayer must be aware of. Failure to adhere to these rules and deadlines can cause your appeal to fail. At this stage, it is advantageous to have a skilled tax lawyer in your corner to make sure that your appeal does not fail on its merits.
If you have further questions about the poverty tax exemption or need legal representation, then do not hesitate to contact the experienced lawyers at Kershaw, Vititoe & Jedinak PLC for assistance today.