Tax Tribunal States Value of Home May Be Included in Asset Test for Poverty Exemption

Municipalities frequently are asked to determine if a landowner is eligible for a hardship or poverty exemption from property taxes. Under the tax laws, a poverty exemption is allowed for anyone deemed "unable to contribute toward" their taxes. To be eligible, the person must either (a) meet the federal poverty guidelines, or (b) meet alternative guidelines adopted by the municipality so long as the alternative guidelines do not provide income eligibility requirements less than the federal guidelines. MCL 211.7u. The first test is commonly called the income test; the latter test is commonly called the asset test.

In drafting their versions of the asset test, many municipalities direct that the poverty exemption is to be evaluated by considering, among other assets, the equity value of the landowner’s homestead. Others exclude the value of the homestead when evaluating if a landowner is eligible for the poverty exemption under the asset test.

We have recently observed some confusion out there as to whether the asset test may take into account the value of the owner’s homestead. For example, we have seen it reported that a 1997 Michigan Tax Tribunal ruling concluded that the asset test should not include the value of the homestead. And we have also seen it reported that a May 2010 State Tax Commission Bulletin cite that 1997 case for the same proposition. These two reports may have prompted some municipalities to consider revising their guidelines. Those municipalities might consider hitting the brakes.

In November 2010, the Michigan Tax Tribunal issued a ruling that states that a municipality may include the value of the owner’s homestead in the asset test. Kuneberg v Haring Twp (MTT Small Claims Division, Docket No. 324493, issued 11/10/10). The Tribunal judge reasoned that the Legislature granted municipalities fairly wide discretion in defining their asset test. She concluded that a municipality is fully within its rights to include an asset test that includes the homestead property as part or the net assets to be evaluated.

• Read Full January 2011 Foster Swift Municipal Law News