State Tax Commission Bulletin No. 9 of 2000
DATE: July 12, 2000
TO: Assessors, Equalization Directors
FROM: State Tax Commission (STC)
RE: OBSOLETE PROPERTY REHABILITATION ACT
On June 6, 2000, Governor Engler signed into law Public Act (PA) 146 of 2000(copy enclosed) with an effective date of June 6, 2000. PA 146 of 2000 shall beknown as theObsolete Property Rehabilitation Act.
The purpose of this bulletin is to explain the administration of this newact.
PA 146 of 2000 provides an exemption from ad valorem property taxes tocommercialpropertyandcommercial housing propertyprovided they are located inaqualified local governmental unitand certain other conditions are met.These conditions and the definitions ofcommercial propertyandcommercialhousing propertywill be explained later in this bulletin.
QUALIFIED LOCAL GOVERNMENTAL UNITS
Section 2(k) of the act gives the qualifications which must be met in orderfor a local unit to be aqualified local governmental unit. There areseparate qualifications for cities, for townships, and for villages. Thefollowing arequalified local governmental unitsas of June 6, 2000.
|Cities:|| || || |
|Albion ||Ecorse ||Lansing||Saint Louis|
|Alma ||Escanaba||Lincoln Park||Sault St. Marie|
|Alpena ||Ferndale ||Livonia ||Southfield|
|Ann Arbor ||Flint||Ludington ||Stambaugh|
|Battle Creek ||Gladstone||Manistique ||Taylor|
|Bay City ||Grand Haven ||Marquette||Trenton|
|Benton Harbor ||Grand Rapids||Melvindale||Traverse City|
|Big Rapids ||Grayling||Midland||Vassar|
|Bronson ||Hamtramck|| Monroe||Wakefield|
|Burton ||Harbor Beach||Mt. Morris||Warren|
|Cadillac ||Harper Woods||Mt. Pleasant||Wayne|
|Carson City ||Hazel Park|| Muskegon|| Wyandotte|
|Caspian ||Highland Park||MuskegonHgts||Ypsilanti|
|Cheboygan ||Holland||Oak Park|| |
|Coleman ||Inkster ||Onaway|| |
|Dearborn ||Ionia ||Owosso|| |
|Dearborn Hgts. ||Iron River ||Pinconning|| |
|Detroit ||Ironwood||Pontiac|| |
|Dowagiac||Ishpeming||Port Huron|| |
|East Lansing||Jackson||River Rouge|| |
Benton Charter Township, Berrien County
Buena Vista Charter Township, Saginaw County
Genesee Township, Genesee County
Mt. Morris Charter Township, Genesee County
Redford Charter Township, Wayne County
Royal Oak Charter Township, Oakland County
Baldwin Village, Lake County
Important Note:If a local governmental unit isnot aqualified local governmental unit,this law and this bulletin doNOT apply to that unit.
In order to obtain the exemption provided by PA 146 of2000, there are 4steps which must be followed:
- Aqualified local governmental unitmust establish an Obsolete Property Rehabilitation District.
- The owner of obsolete property must file an application for exemption with the clerk of thequalified local governmental unit.
- Thequalified local governmentalunitmust approve the application.
- The State Tax Commission must also approve the application and issue the exemption certificate.
These steps will be explained in detail in the rest of this bulletin. There willalso be separate discussions of theexemption
provided by this act, thespecifictax
levied upon the owner of an exempt obsolete property, the procedures fortransferring
an Obsolete Property RehabilitationCertificate, and the duties of the assessor under section 9 of this act.
A) Establishing An Obsolete PropertyRehabilitation District
Aqualified local governmental unitmay establish 1 or more Obsolete Property Rehabilitation Districts.This must be done by resolution.A district may consist of 1 or more parcels or tracts of land or a portion of a parcel or tract of land PROVIDED THAT the parcel or tract is EITHER of the following:
Important Note:The resolution establishing the district shall set forth a finding and determination that the district meets the requirement set forth in a or b above.
- obsolete propertyin an area characterized by obsoletecommercial propertyorcommercial housing property.Please refer to the definitions ofobsolete property, commercial property,andcommercial housing propertyfound in the addendum to this bulletin.
- obsolete propertythat iscommercial propertyAND that was owned by the local governmental unit on June 6, 2000 AND was later conveyed to a private owner.
1) Establishing a District on Its Own Initiative Or At Request of Owner(s)
The legislative body of aqualified local governmental unitmay establish an Obsolete Property Rehabilitation District on its own initiative OR upon a written request filed by the owner or owners of property comprising at least 50% of all the taxable value of the property located within a proposed Obsolete Property Rehabilitation District. The written request must be filed with the clerk of thequalified local governmental unit.Before adopting a resolution establishing an Obsolete Property Rehabilitation District, the legislative body shall give written notice by certified mail to the owners of all real property within the proposed Obsolete Property Rehabilitation District AND shall afford an opportunity for a hearing on the establishment of the Obsolete Property Rehabilitation District. Any of the owners and any other resident or taxpayer of thequalified local governmental unitmay appear at the hearing and be heard. The legislative body shall give public notice of the hearing not less than 10 days or more than 30 days before the date of the hearing.B) Owner Files An Application for ExemptionThe following are procedures which must be followed when an owner files an application for an Obsolete Property Rehabilitation Exemption Certificate:
2) Written Notice by Certified Mail
1) Owner Files Application
If an Obsolete Property Rehabilitation District is established, the owner of obsolete property may file an application for an Obsolete Property Rehabilitation Exemption Certificate with the clerk of thequalified local governmental unitthat established the Obsolete Property Rehabilitation District (The definition of "obsolete property" is contained in the addendum to this bulletin.) The law requires that the application shall be filed on the form prescribed by the State Tax Commission.STC Form 3674has been developed for this purpose. This form requests all of the information required to be provided by PA 146 of 2000.Upon receipt of an application for an Obsolete Property Rehabilitation Exemption Certificate, the clerk of thequalified local governmental unitshall notify, in writing, the assessor and the legislative body of each taxing unit that levies ad valorem property taxes in thequalified local governmental unitin which the obsolete facility is located.C) Qualified Local Governmental UnitApproves or Disapproves Application
Important Note:If the application form (STC Form 3674) is not fully completed, it will be returned by the staff of the Property Tax Division prior to any processing being done by the State Tax Commission as described in paragraph D of this bulletin.
2) Notifications by Clerk
2) Approval or Disapproval
Before acting upon the application, the legislative body of thequalified local governmental unitshall hold a hearing on the application and give notice to the applicant, the assessor, a representative of the affected taxing units, and the general .The hearing on each application shall be held separately from the hearing on the establishment of the Obsolete Property Rehabilitation District.
The legislative body of thequalified local governmental unit, not more than 60 days after receipt of the application by the clerk, shallby resolutioneither approve or disapprove the application for an Obsolete Property Rehabilitation Exemption Certificate.D) State Tax Commission Approves orDisapproves Application
Important Note: Only those properties within the Obsolete Property Rehabilitation District which meet the definition ofobsolete propertyare eligible for an exemption certificate. Please see the definition ofobsolete propertycontained in the addendum to this bulletin.
The legislative body of thequalified local governmental unitshall not approve an application for an Obsolete Property Exemption Certificate unless the applicant complies with ALL of the following requirements:
- The commencement of the rehabilitation of the facility does not occur before the establishment of the Obsolete Property Rehabilitation District. (Please see the definition of "rehabilitation" contained in the addendum to this bulletin.)
- The application relates to a rehabilitation program that when completed constitutes a rehabilitated facility within the meaning of the act and that shall be situated within an Obsolete Property Rehabilitation District established in aqualified local governmental uniteligible under the act to establish such a district. (Please see the definition of "rehabilitated facility" contained in the addendum to this bulletin.)
- Completion of the rehabilitated facility is calculated to, and will at the time of issuance of the certificate, have the reasonable likelihood to accomplishone or moreof the following:
- increase commercial activity
- create employment
- retain employment
- prevent a loss of employment
- revitalize urban areas
- increase the number of residents in the community in which the facility is situated.
The clerk shall retain the original of the application and resolution. If APPROVED, the clerk shall forward a copy of the application and resolution to the State Tax Commission.A resolution is not effective unless approved by the State Tax Commission. If DISAPPROVED by thequalified local governmental unit, the reasons shall be set forth in writing in the resolution, and the clerk shall send a copy of the resolution by certified mail to the applicant and to the assessor.
- The applicant states, in writing, that the rehabilitation of the facility would not be undertaken without the applicant's receipt of the exemption certificate.
- The applicant is not delinquent in the payment of any taxes related to the facility.
There is NO provision in PA 146 of 2000 for an appeal to the State Tax Commission when a local unit disapproves an application. (This differs from the provisions of PA 198 of 1974 which allows such action.)
3) Exempt Taxable Values Which Exceed 5% of the Taxable Value of the Local Unit
There are separate requirements which must be met when the taxable value of the property proposed to be exempt, CONSIDERED TOGETHER with the total taxable value of property already exempt under certificates previously granted and currently in force under this act or under 1974 PA 198 (i.e. Industrial Facility Exemptions), exceeds 5% of the taxable value of the qualified local governmental unit. When this occurs, the legislative body of thequalified local governmental unitshall make a separate finding and shall include a statement in its resolution that exceeding that amount shall NOT have the effect of substantially impeding the operation of thequalified local governmental unitor impairing the financial soundness of an affected taxing unit.
4) Length of Certificate
Unless earlier revoked as provided in section 12 of the act, an Obsolete Property Rehabilitation Exemption Certificate shall remain in force and effect for a period to be determined by the legislative body of thequalified local governmental unit. The certificate may be issued for a period of at least 1 year, BUT NOT TO EXCEED 12 YEARS. The 12 year period may include the time during which the rehabilitation occurs.
Ifthe number of years determined is less than 12,the certificate may be subject to review by the legislative body of thequalified local governmental unitand the certificate may be extended. The review of the certificate, for the purpose of determining an extension, shall be based upon factors, criteria, and objectives that shall be placed in writing, determined and approvedat the time the certificate is approved by resolution of the legislative body of thequalified local governmental unitand sent, by certified mail, to the applicant, the assessor of the local tax collecting unit in which the obsolete property is located, and the State Tax Commission.
The total amount of time determined for the certificate including any extensions shall not exceed 12 years. The certificateshall commencewith its effective date and end on the December 31 immediately following the last day of the number of years determined. (Theeffective dateis December 31 immediately following the date of issuance of the certificate by the State Tax Commission.)
E) Other Matters
1) State Tax Commission Approves or DisapprovesNot more than 60 days after receipt of a copy of the application and resolution adopted by thequalified local governmental unit,the State Tax Commission shall approve or disapprove the resolution.
Important Note:If the application form (STC Form 3674) is not fully completed, it will be returned by the staff of the Property Tax Division prior to any processing being done by the State Tax Commission.
2) State Tax Commission Issues Exemption Certificate
Following approval of the application by the legislative body of thequalified local governmental unitand the State Tax Commission, the Commission shall issue to the applicant an Obsolete Property Rehabilitation Exemption Certificate which contains certain information required by section 6(2) of PA 146 of 2000.
3) Effective Date of Certificate
The effective date of the certificate is the December 31 immediately following the date of issuance of the certificate by the State Tax Commission.
4) Length of CertificateUnless earlier revoked as provided in section 12 of the act, an Obsolete Property Rehabilitation Exemption Certificate shall remain in force and effect for a period to be determined by the legislative body of thequalified local governmental unit. The certificate may be issued for a period of at least 1 year, BUT NOT TO EXCEED 12 YEARS.
If the number of years determined is less than 12, the certificate may be subject to review by the legislative body of thequalified local governmental unitand the certificate may be extended. (Please see the discussion regardingLength of Certificatecontained in paragraph C of this bulletin.)
The total amount of time determined for the certificate including any extensions shall not exceed 12 years. The certificate shall commence with its effective date and end on the December 31 immediately following the last day of the number of years determined.
1) The Exemption From Ad Valorem Property TaxesPA 146 of 2000 provides an exemption from ad valorem property taxes for the rehabilitated facility for which the exemption is granted INCLUDING buildings and improvements located on leased land. The exemption from ad valorem property taxes DOES NOT apply to:
- the land on which the rehabilitated facility is located.
- personal property other than buildings on leased land.
2) The Specific Tax Levied Upon the Owners of Exempt Obsolete Property
Section 10 of PA 146 of 2000 provides that a specific tax, known as the Obsolete Properties Tax, shall be levied upon the owner of every rehabilitated facility exempt under the act.
The amount of Obsolete Properties Tax is calculated using a 2-step process.
Step 1:Multiply the mills levied by all taxing units for the current year by the"frozen" taxable valueof the rehabilitated facility INCLUDING the"frozen" taxable valueof buildings on leased land BUT EXCLUDING the"frozen" taxable valueof the land and of the other personal property.
The"frozen" taxable valueis the taxable value for the December 31 immediately preceding the effective date of the Obsolete Property Rehabilitation Exemption Certificate.
EXAMPLE OF FROZEN TAXABLE VALUE: If the effective date of the Obsolete Property Rehabilitation Exemption Certificate is December 31, 2000, the frozen taxable value is the 2000 taxable value.
EXAMPLE OF CALCULATION IN STEP 1:
Assume the following regarding the rehabilitated property:
Current Total Millage for All Units = 50 millsCalculation of Tax
"Frozen" Taxable Valueof Total Real and
Personal Property (including buildings
on leased land) = $125,000
"Frozen" Taxable Valueof Buildings on
Leased Land = $ 20,000
"Frozen" Taxable Valueof Land = $ 10,000
"Frozen" Taxable Valueof Other
Personal Property = $ 15,000
. 050 (50 mills)Step 2:Multiply the mills levied for school operating purposes by a local school district for the current year plus the mills levied for the State Education Tax for the current year times theCURRENT taxable valueof the rehabilitated facility INCLUDING buildings on leased land BUT EXCLUDING the CURRENT taxable value of the land, the CURRENT taxable value of the other personal property and the"frozen" taxable valueused in the final calculation in Step 1.
X $100,000 ($125,000 MINUS $10,000 MINUS $15,000)
$5,000 Tax for Step 1
EXAMPLE OF CALCULATION IN STEP 2:
Assume the following:
Current Millage for School Operating
Purposes and for State Education Tax = 24 mills
CURRENT Taxable Value of Total
Real and Personal Property of
Rehabilitated Facility = $150,000
CURRENT Taxable Value of
Buildings on Leased Land = $ 22,000
CURRENT Taxable Value of Land = $ 10,100
CURRENT Taxable Value of
Other Personal Property = $ 16,000
Calculation of Tax
.024 (24 mills)
X $23,900 ($150,000 MINUS $10,100 MINUS $16,000 MINUS
$100,000 from Step 1)
$573.60 Tax for Step 2
Total Obsolete Properties Tax = $5,000 (from Step 1) + $573.60 (from Step 2) = $5,573.60.
Note: Exclusion of Some Mills from the Specific Tax by the State Treasurer
The State Treasurer may exclude from the Specific Tax up to ½ of the mills levied for local school operating purposes and for the State Education Tax. This may be done if the State Treasurer determines that reducing the millage is necessary to reduce unemployment, promote economic growth, and increase capital investment in Qualified Local Governmental Units. This exclusion is for a period not to exceed 6 years. Only 25 exclusions can be granted each year. An exclusion must be granted within 60 days after the STC approves an Obsolete Property Rehabilitation Exemption Certificate. (Please see section 17 of PA 146 of 2000 included with this bulletin.) Requests for consideration for this exclusion should be made by the applicant on line 10 of the application (Form 3674).
3) Transferring the Obsolete Property Rehabilitation Exemption Certificate
An Obsolete Property Rehabilitation Exemption Certificate may be transferred and assigned by the holder of the certificate to a new owner of the rehabilitated facility if thequalified local governmental unitapproves the transfer after application by the new owner.
There is NO provision in PA 146 of 2000 for approval by the STC of the transfer of a certificate. Likewise, there is no provision in PA 146 of 2000 for an appeal to the STC when a local unit does not approve the transfer of a certificate.
4) Revocation of the Obsolete Property Rehabilitation Exemption Certificate
The legislative body of the QUALIFIED LOCAL GOVERNMENTAL UNIT may, by resolution, revoke the Obsolete Property Rehabilitation Exemption Certificate of a facility if:
There is NO provision in PA 146 of 2000 for an appeal to the STC when a local unit revokes an Obsolete Property Rehabilitation Exemption Certificate.
- it finds that the completion of rehabilitation of the facility has not occurred within the time authorized by the legislative body in the exemption certificate or a duly authorized extension of that time.
- it finds that the holder of the Obsolete Property Exemption Certificate has not proceeded in good faith with the operation of the rehabilitated facility in a manner consistent with the purposes of this act and in the absence of circumstances that are beyond the control of the holder of the exemption certificate.
5) Duties of the Assessor As Required by Section 9 of the Act
Section 9 of PA 146 of 2000 requires the assessor to perform the following duties:
6) Additional Matters Covered by PA 146 of 2000
- The assessor shall annually determine the value and taxable value as of December 31, of each exempt rehabilitated facility. This determination shall be made separately for each facility and shall be broken down by both real and personal property.
- Upon receipt of notice of the filing of an application for an exemption certificate, the assessor shall determine and furnish to the local legislative body the value and the taxable value of the property to which the application pertains and other information as may be necessary to permit the local legislative body to make the determinations required by section 8(2) of the act.
The following are additional items covered by PA 146 of 2000. The sections of the law where they can be found are also noted. Please refer to the enclosed copy of PA 146 of 2000 for more information about these items.
|ITEM||SECTION OF PA 146 OF 2000|
|1) ||Disbursement of Obsolete Properties Tax Payments||Section 10(4)|
|2) ||Disbursement of Intermediate School's Share of Tax to the State Treasury||Section 10(5)|
|3) ||Disbursement of Local School's Share of Tax to the State Treasury||Section 10(6)|
|4) ||Report by Collection Officer to the State Tax Commission||Section 10(7)|
|5) ||Rehabilitated Facility Located in a Renaissance Zone||Section 10(8)|
|6) ||Tax is a Lien||Section 11|
|7) ||Annual Report by the Local Unit to the State Tax Commission on the Status of Each Exemption||Section 14|
|8) ||Reports by the Treasury Department||Section 15|
|9) ||No New Exemptions after 12-31-2010||Section 16|
Definitions Contained In or Referenced In Pubic Act 146 of 2000
(Please see the copy of the act enclosed with this bulletin for additionaldefinitions.)
"Commercial housing property"means that portion of realproperty not occupied by an owner of that real property that is classified asresidential real property under section 34c of the general property tax act,1893 PA 206, MCL 211.34c, is a multiple-unit dwelling, or is a dwelling unit ina multiple-purpose structure, used for residential purposes. Commercial housingproperty also includes a building or group of contiguous buildings previouslyused for industrial purposes that will be converted to a multiple-unit dwellingor dwelling unit in a multiple-purpose structure, used for residential purposes.
"Commercial property"means land improvements classified bylaw for general ad valorem tax purposes as real property including real propertyassessable as personal property pursuant to sections 8(d) and 14(6) of thegeneral property tax act, 1893 PA 206, MCL 211.8 and MCL 211.14, the primarypurpose and use of which is the operation of a commercial business enterprise.Commercial property shall also include facilities related to a commercialbusiness enterprise under the same ownership at that location, including, butnot limited to, office, engineering, research and development, warehousing,parts distribution, retail sales, and other commercial activities. Commercialproperty also includes a building or group of contiguous buildings previouslyused for industrial purposes that will be converted to the operation of acommercial business enterprise or a multiple-unit dwelling or a dwelling unit ina multiple-purpose structure, used for residential purposes. Commercial propertydoes not include any of the following:
(ii) Property of a utility
, except as otherwise provided in this act, means abuilding or group of contiguous buildings.
"Functionally obsolete"means that the property is unable tobe used to adequately perform the function for which it was intended due to asubstantial loss in value resulting from factors such as overcapacity, changesin technology, deficiencies or superadequacies in design, or other similarfactors that affect the property itself or the property's relationship withother surrounding property. (See MCL 125.2652)
Note:The STC offers the following as examples of functionalobsolescence:
1) A floor plan which is inappropriate for the highest and best use of the property."Obsolete property"
2) A heating system which is inadequate for the highest and best use of the property.
3) Excessively high or low ceilings for the highest and best use of the property.
4) Partition walls which restrict the highest and best use of the property.
5) Mechanical systems (e.g. electrical, plumbing, etc) which are inadequate for the highest and best use of
means commercial property or commercialhousing property, that is 1 or more of the following:
(i) "Blighted property". Blighted property means property that meets 1 or more of the following criteria:
(ii) A facility as that term is defined below:
- Has been declared a nuisance in accordance with a local housing, building, plumbing, fire, or other related code or ordinance.
- Is an attractive nuisance to children because of physical condition, use, or occupancy.
- Is a fire hazard or is otherwise dangerous to the safety of persons or property.
- Has had the utilities, plumbing, heating, or sewerage permanently disconnected,
destroyed, removed, or rendered ineffective so that the property is unfit for its intended use.
- Is tax reverted property owned by a qualified local governmental unit, by a county, or by this state. The sale, lease, or transfer of tax reverted property by a qualified local governmental unit, county, or this state after the property's inclusion in a brownfield plan shall not result in the loss to the property of the status as blighted property for purposes of PA 145 of 2000. (See MCL 125.2652)
"Facility" as defined in PA 451 of 1994 means any area, place, or property where a hazardous substance in excess of the concentrations which satisfy the requirements of section 20120a(1)(a) or (17) or the cleanup criteria for unrestricted residential use under part 213 has been released, deposited, disposed of, or otherwise comes to be located. Facility does not include any area, place, or property at which response activities have been completed which satisfy the cleanup criteria for the residential category provided for in section 20120a(1)(a) and (17) or at which corrective action has been completed under part 213 which satisfies the cleanup criteria for unrestricted residential use. (See MCL 324.20101)
"Obsolete property rehabilitation district"
(iii) Functionally obsolete. Please see the definition of "functionally obsolete".
means an area of aqualified local governmental unit established as provided in section 3. Onlythose properties within the district meeting the definition of "obsoleteproperty" are eligible for an exemption certificate issued pursuant tosection 6 of PA 146 of2000.
"Rehabilitation"means changes to obsolete property OTHERTHAN REPLACEMENT that are required to restore or modify the property, togetherwith all appurtenances, to an economically efficient condition. Rehabilitationincludes major renovation and modification including, but not necessarilylimited to, the improvement of floor loads, correction of deficient or excessiveheight, new or improved fixed building equipment, including heating,ventilation, and lighting, reducing multistory facilities to 1 or 2 stories,improved structural support including foundations, improved roof structure andcover, floor replacement, improved wall placement, improved exterior andinterior appearance of buildings, and other physical changes required to restoreor change the obsolete property to an economically efficient condition.Rehabilitationshall not include improvements aggregating less than 10% of the true cash valueof the property at commencement of the rehabilitation of the obsolete property.
"Rehabilitated facility"means a commercial property orcommercial housing property that has undergone rehabilitation or is in theprocess of being rehabilitated, including rehabilitation that changes theintended use of the building. A rehabilitated facility does not include propertythat is to be used as a professional sports stadium. A rehabilitated facilitydoes not include property that is to be used as a casino. As used in thissubdivision, "casino" means a casino or a parking lot, hotel, motel,or retail store owned or operated by a casino, an affiliate, or an affiliatedcompany, regulated by this state pursuant to the Michigan gaming control andrevenue act, the Initiated Law of 1996, MCL 432.201 to 432.226.
"Taxable value"means the value determined under section 27aof the general property tax act, 1893 PA 206, MCL 211.27a.