Property Tax Uncapping, Part 2 of 3: New Legislation

The legislature in Lansing, no doubt seeing the mess that the State Tax Commission (STC) had created, decided to pass a new law (codified at MCL 211.27a(7)(s)) that provided that transfers of “residential property” from one person to another person or persons who were related by “blood or affinity to the first degree” would be exempt from uncapping as long as the “use” of the property did not change. This new law went into effect on December 31, 2013, and by and large, it became clear that the legislature was attempting to clarify what they thought the desired result of Klooster should have been.

To no one’s surprise, the STC issued a new set of revisions to the Guidelines in December 2013. In this version, the STC stated that it was their opinion that:

(a) Any transfer that changed the “use” of the property (notwithstanding that it remained classified as residential) would cause uncapping.

(b) Transfers between siblings would NOT cause uncapping, because the STC created (out of thin air) a definition of “first degree of relationship” that provided that if you shared approximately 50% of the same genes as another person you were within one degree of blood relationship.

The definition that the STC created for the first degree of blood relationship is in contradiction with longstanding Michigan case law holding that siblings are related within two degrees, not one degree. Thus, more confusion has resulted, as the STC’s inclusion of siblings in the “first degree of affinity” is clearly not square with the new exemption adopted by the legislature.

Again, since the STC has the final say in governing the actions of local tax assessors, we must be mindful of what they have said until they are overruled by a court or by the legislature. That is the approach that much of the estate planning community takes, and here at Cunningham Dalman, we also advise clients to comply with their interpretation unless specific circumstances apply or they are willing to appeal a tax assessor’s decision.

To be continued …

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