Legacy Law Blog

Commercial and industrial property owners in Michigan will begin receiving the next round of assessments from their local property tax assessors in the first quarter.

In 2025, the inflation rate adjustment used by the state to determine property taxes will be 3.1%. Property owners who did not buy or finish a major renovation in 2024 can expect that the taxable value of their commercial or industrial property will increase by 3.1% for the 2025 tax year.

If you bought a property last year or completed a major renovation, the taxable value of your property will likely be going up more than 3.1%. Michigan law allows for the taxable value of a property to be uncapped during the year of conveyance or when the major renovation was completed such that the value will be equal to the assessed value in the following tax year.

Filing a property tax appeal will not absolve a property owner of their obligation to pay their property taxes for the year. Property taxes must be paid when they are due even if there is disagreement with the underlying taxable value determined by the tax assessor. However, there are options to appeal the assessed or taxable value if you feel that these values determined by the assessor are incorrect.

The property tax appeals process in Michigan for industrial and commercial properties involves several steps, from initial assessment to potential appeal at the state level.

Initial Assessment

The property taxation process begins with the initial assessment of the property's value. In Michigan, the assessed value is the value that a property tax assessor assigns to commercial and industrial real property each year based on similar property sales in the municipality for the last one to two years. Municipalities use the assessed value to determine the taxable value during years when the property is uncapped.

In the first quarter of each year, local tax assessors mail out a Notice of Assessment, Taxable Valuation and Property Classification to individual property owners. Many property owners file or throw out this notice without a second look because of the presence of the words “THIS IS NOT A TAX BILL” written at the top of the notice. 

When you receive your notice, it is important to thoroughly review the assessment to determine how your property taxes were adjusted when compared to the prior year.  You will do this by reviewing the assessed value and taxable value for your property.

The assessed value will be equal to 50% of what the assessor believes the true cash value of the property would be if it were sold. For reasons that are beyond the scope of this blog, the assessed value is often less than the property’s market value. Due to this lag, the assessed value will often not be the same as the value claimed on commercial real estate websites like loopnet.com.

The taxable value of a property will be the same as the assessed value in the subsequent tax year immediately following the sale of the property to a new owner. Once the taxable value is determined, the assessor will multiply the taxable value by the local millage rate to determine the annual tax due for the property.

If there was no conveyance of the property or major renovations during the prior tax year, the taxable value will be increased by the lesser of the inflation ratio or 5%. For this reason, it is not uncommon for the taxable value, or the value used by the state to determine the taxes for the year, to be different than the assessed value, or the market value of the property, the longer that the property is owned by the same individual(s) or entity.

For example, a property with a fair market value of $100,000 in the first year that it was purchased will also have a taxable value of $100,000. In year two, the taxable value cannot increase by more than 5% based on state law. In this example, the taxable value is capped at $100,000 + (100,000 * .05) or $105,000.

Since the assessed value is based on the current market value of the property, it can be much higher than $105,000. In this example, the value of the property based on prior sales for the last one to two years led to an increase of 7%. The new assessed value in the first full year of ownership is $107,000 while the taxable value is $105,000. In one year, there is already a difference of $2,000 between the assessed and taxable values because of the cap on the taxable value. This cycle often repeats over the course of several years. 

If the assessed value of your property is more than half of what you believe the market value of your property is or if the character of the property has changed (i.e., the size of the lot is different, the structures on the property are different, etc.), you can appeal the assessment to the local municipality. Only the current year may be appealed, and all property taxes due must be paid while the appeal is active.

Board of Review – Local Appeal

If a property owner believes their property’s assessment is too high, they can appeal to the local board of review. The first step in the appeals process is to speak with the local assessor about any concerns with the assessed value of the property. If there are discrepancies in the assessment, such as errors in the square footage or the number of rooms, these should be discussed with the assessor during this initial conversation. Most assessors will automatically correct errors of fact when they are discovered and brought to their attention.

If the property owner decides to appear before the local board of review, they should be prepared to document facts and the correct value of the property. The board of review represents the municipality that employs the local assessor that completed the annual assessment of the property. It has the power to make corrections to the taxable or assessed value if supported by the evidence presented during the appeal.

The board will review recent sales of comparable properties and the factual data (i.e., square footage, lots size, etc.) used to determine the assessed value of the property.

Property owners should be prepared to identify the exact issue(s) that led to the appeal and be prepared to support their appeal with evidence. This includes a careful review of the factual data listed on the assessor’s website, a review of the local real estate market and recent sales and may possibly require hiring a professional real estate appraiser to give an opinion supporting why the value assessed is incorrect.

The deadline to file a petition for appeal will be included in the Notice of Assessment received in February. The board of review will review the petition and the supporting evidence during the hearing to determine if the value assigned by the assessor accurately reflects the fair market value of the property. If the petition supports a lower assessed value, the board will correct the value. For many property owners, this adjustment is sufficient to end their property tax appeal.  

Skipping the Local Board of Review

Unlike property tax appeals for residential property, appeals for commercial and industrial property can elect to skip the initial appeal to the board of review. If the board of review is skipped, the initial appeal is made to the Michigan Tax Tribunal.

A commercial or industrial property owner may elect to skip an appeal to the board of review for a variety of reasons:

1. Efficiency – The owner may conclude that because of the complexity of the issues underlying the appeal, a direct appeal to the Tax Tribunal simply makes more sense, particularly if it appears likely that a ruling by the Tax Tribunal may be needed.
2. Expertise – Local boards of review consider and resolve many assessment appeals, but they may lack the expertise found at the Tax Tribunal. Again, the complexity of the issues being raised may render a direct appeal to the Tax Tribunal the better option.
3. Strategic Considerations – A property owner may also simply believe that a stronger case will be presented at the state level. As such, the owner may want to avoid a potentially unfavorable initial decision by a board of review prior to consideration by the Tax Tribunal.

Skipping the board of review at the local level is certainly possible for owners of commercial and industrial property. Businesses should carefully consider whether the outcome of their appeal may be more favorable by appealing directly to the Tax Tribunal. It is important to note that once a business elects to appeal directly to the Tax Tribunal, it can no longer appeal to the local board of review. 

Michigan Tax Tribunal

If the property owner is not satisfied with the decision of the local board of review, they can appeal to the Michigan Tax Tribunal. The tribunal is an agency that has the authority to interpret laws and make decisions that are like those made by a court. It can hold hearings, fix problems and even levy penalties. Its decisions must be followed, just like a court's decision. The Michigan Tax Tribunal hears tax appeals for all state and local taxes that are not resolved during the board of review appeal at the local level.

For commercial properties, the deadline to file a written petition with the Michigan Tax Tribunal is May 31 of the current tax year.

A petition to the Michigan Tax Tribunal should include the petitioner’s name and contact information, the classification of the property (commercial or industrial), the location of the property and the reasons for the appeal.

The appeals hearing is typically scheduled for early the following year, but it may be heard sooner depending on the schedule of the tribunal. The property tax appeal will be heard by the tribunal members, who will render a final determination. This will effectively end the property tax appeal for that year.

While the decision of the tax tribunal is not final, it may only be appealed to the Michigan Court of Appeals on a limited basis. Michigan law states that the tax tribunal “…is the final agency for the administration of property tax laws.” An appeal to the Court of Appeals is rare because an appeal to that court would typically be based on legal grounds, such as an error in applying the law or in the tribunal's legal procedures.

Conclusion

Michigan’s property tax appeals process can be complex, but understanding the steps involved can help commercial and industrial property owners navigate it more effectively. It's important to note that each case is unique, and the process may vary depending on the specifics of the property and the appeal. Therefore, it may be beneficial to seek legal advice when considering a property tax appeal.