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Foster Swift Municipal Law News
January 2013
With March Board of Reviews quickly approaching, it is an important time for the municipality to review its poverty exemption guidelines in light of the State Tax Commission’s (STC) latest guidance on the subject. The STC issued updated guidance to assessors and equalization directors regarding property tax poverty exemptions on May 29, 2012 in Bulletin No. 5. The Bulletin enumerates several minimum requirements that local jurisdictions must follow in declaring poverty exemption guidelines. Most importantly, local jurisdictions are required to include both an income test and an asset test in their poverty exemption guidelines.
There are two important requirements that local jurisdictions must satisfy when setting their income test. First, under MCL 211.7u(2)(e), the income levels for poverty exemptions may not be lower than the federal poverty guidelines set by the US Department of Health and Human Services. The income that may be considered is broad and may include not just wages, but also Social Security payments, unemployment, and alimony. However, income may not include money received from the homestead property tax credit per the decision of the Michigan Court of Appeals in Ferrero v Twp. of Walton. Second, the income levels established by the municipality must be stated in their poverty exemption guidelines.
Just as with the income test, the asset test also has two important requirements. First, as required by statute, the local assessing unit must actually include an asset test in their guidelines. The test should calculate a maximum amount of assets that are permitted to qualify for the exemption. While the amount of the asset level and what personal or real property is considered in the calculation is left to the discretion of the local assessing unit, it cannot include the taxpayer’s equity in the home. Generally, the asset test should be comprised of a dollar amount or a percentage of income.
Given that there are two distinct tests, it is possible that a taxpayer may satisfy the criteria for one of the tests but not the other. For instance, the taxpayer may have household income well below the local jurisdiction’s established guidelines, but have assets that are greater than allowed under that jurisdictions asset test. In that case, the jurisdiction would be justified in denying the exemption. Another important procedural note addressed by the STC Bulletin is that the local governing unit may deviate from its guidelines, but they are required by statute to provide written notice to the claimant as to the substantial and compelling reasons for the deviation.
Reviewing the STC’s Bulletin along with the terms of a local jurisdiction’s poverty exemption guidelines can have important implications in not only administration of the exemption, but subsequent appeals of denials that taxpayers may make to the Michigan Tax Tribunal.