I. Introduction
§2.1 Although the general property tax has been called the “worst tax,” see Glenn W. Fisher, The Worst Tax?: A History of the Property Tax in America 4 (1996), it is a significant source of revenue for Michigan governments. The property tax affects all “real and tangible personal property” that is not exempt, Mich Const 1963 art 9, §3, rendering it perhaps the most comprehensive and important tax in Michigan.
This chapter will address the General Property Tax Act (GPTA), MCL 211.1 et seq., including the nature of the tax, the definitions of real and personal property, exemptions, classification, incorrectly reported and omitted property, assessment notices, and transfers of ownership. Challenges to property assessment, including boards of review, appeals to the Michigan Tax Tribunal and its several divisions, and appearances before the Michigan State Tax Commission (STC), are discussed in chapter 3.
Finally, this chapter will discuss the Lessee-User Tax Act (LUTA), MCL 211.181 et seq., which applies to certain types of property to which the GPTA does not apply, and will discuss several other acts that apply in lieu of the GPTA to provide tax incentives in special circ*mstances.
II. The General Property Tax Act
A. Introduction
§2.2 The Michigan Constitution directs the legislature to provide for “uniform general ad valorem taxation of real and tangible personal property not exempt by law.” Mich Const 1963 art 9, §3. Ad valorem tax means “a tax or duty upon the value of the article or thing subject to taxation.” Continental Cablevision of Michigan, Inc v Roseville, 430 Mich 727, 730 n1, 425 NW2d 53 (1988) (citation omitted). The legislature carried out this directive when it adopted the GPTA, MCL 211.1 et seq. The GPTA identifies the property that is subject to taxation based on its true cash value, the means of determining true cash value, and other values that must be determined in Michigan’s property tax system.
B. Nature of Ad Valorem Taxation
§2.3 An ad valorem tax is a “tax levied on property or an article of commerce in proportion to its value as determined by assessment or appraisal.” Meijer Inc v City of Midland, 240 Mich App 1, 3 n1, 610 NW2d 242 (2000) (citation omitted). Thus, the first step in determining the amount of a property’s ad valorem taxation is determining the value that will provide the basis for calculating the tax. There are several steps in this process under the GPTA, including determining a property’s true cash value, its assessed value, and its taxable value.
C. The Amount of Tax: The Millage Rate
§2.4 The amount of property tax due for any given property in terms of dollars depends on both the applicable millage rate and the property’s taxable value. Michigan property taxes are calculated using a millage rate, meaning that property is taxed at a rate equaling a certain number of dollars for every $1,000 of the property’s taxable value. Taxable value is discussed in §2.28. In any event, the number of dollars per $1,000 of taxable value equals the “millage rate.” Black’s Law Dictionary (11th ed 2019). Thus, if a property has a taxable value equaling $100,000, and the annual millage rate that applies to that property is 54.321, the amount of property tax due for that property on an annual basis equals $5,432.10. It is calculated by dividing the taxable value by 1,000 and then multiplying the quotient by the applicable total annual millage rate.
The total annual millage rate that applies to any given property represents the sum of a number of millages that are levied against that property. For example, most counties, cities, and townships have operating millages that fund governmental functions. See, e.g., MCL 117.3; see also MCL 141.436. In some instances, there are special millages for municipal improvements like new fire or police stations. Other public entities, such as community colleges, MCL 389.144, school districts, MCL 380.1211, and recreational authorities, MCL 123.1141, also impose millages. Notably, if Michigan law did not authorize imposition of a millage before December 1978, a popular vote approving the millage in the jurisdiction where it would be imposed is generally necessary before the millage can be imposed. Mich Const 1963 art 9, §31; see also American Axle & Mfg, Inc v City of Hamtramck, 461 Mich 352, 356–357, 604 NW2d 330 (2000) (holding that because authorization for millage for judgment levy was adopted before December 23, 1978, even though no levy was ever imposed, no popular vote was necessary to impose levy). The vast majority of taxpayer property tax challenges relate to valuation, classification, or exemption, and the opposing party for these challenges is generally the assessing governmental unit. Challenges to the valid authorization for a millage are rarer and beyond the scope of this book.
D. Taxing Jurisdictions and Taxpayers Under the GPTA
§2.5 The GPTA provides the administration of ad valorem taxation to local municipal governments, usually cities and townships. Thus, the city or township assessor values property for tax purposes, MCL 211.27, and the city or township notifies the taxpayer of the value, MCL 211.24c. See §3.7 for additional information about notice requirements. The city or township is also responsible for billing and collecting property taxes. MCL 211.44–.46. Accordingly, the taxing jurisdiction for any given property is the government of the city or township where the property is located.
On the other hand, the taxpayer is generally the property’s owner or occupant. Under MCL 211.3, real property is taxed to its owner, if the owner is known, and the occupant, if there is an occupant: Real property shall be assessed in the township or place where situated, to the owner if known, and also to the occupant, if any; if the owner be not known and there be an occupant, then to such occupant, and either or both shall be liable for the taxes on said property, and if there be no owner or occupant known, then as unknown. A trustee, guardian, executor, administrator, assignee or agent, having control or possession of real property, may be treated as the owner. The real property which belonged to a person deceased, not being in control of an executor or administrator, may be assessed to his heirs or devisees jointly, without naming them, until they shall have given notice of their respective names to the supervisor, and of the division of the estate.
Determining the taxpayer for personal property is somewhat more complicated; generally it is the property’s owner or user, not including persons holding security interests in the property: All tangible personal property, except as otherwise provided in this act, shall be assessed to the owner of that tangible personal property, if known, in the local tax collecting unit in which the tangible personal property is located on tax day as provided in section 2. If the owner is not known and a person is beneficially entitled to tangible personal property or has possession of tangible personal property, the tangible personal property shall be assessed to that person. However, a person with only a security interest and no ownership interest in tangible personal property without possession shall not be assessed as an owner of that tangible personal property.
MCL 211.13(1). Additional details concerning the persons that may be taxed for personal property are set forth in MCL 211.14.
In any event, the taxpayer for any given property is determined as of the tax day, which is December 31 of the year preceding the tax year. MCL 211.2(2) (“The taxable status of persons and real and personal property for a tax year shall be determined as of each December 31 of the immediately preceding year, which is considered the tax day.”).
E. Significance of Distinction Between Real Property and Personal Property Under the GPTA
§2.6 Both real and personal property have their taxes determined based on taxable value, and the GPTA sets forth definitions for real property and personal property. Historically, the primary distinction between real and personal property under the GPTA was that personal property is generally valued using a depreciation analysis that results in decreasing taxable values as time passes, see, e.g., County of Wayne v Michigan State Tax Comm’n, 261 Mich App 174, 181, 682 NW2d 100 (2004), while real property value may increase or decrease over time depending on the property’s characteristics and market conditions, Edward Rose Bldg Co v Independence Twp, 164 Mich App 324, 331, 416 NW2d 433 (1987), aff’d, 436 Mich 620, 462 NW2d 325 (1990). For additional discussion of this topic in the context of real property transfer taxes, see §§5.20–5.23.
The distinction between real and personal property became more important beginning in 2008, when Michigan law began to apply a lower millage rate to certain kinds of personal property. Beginning in that year, while real property continued to be taxed at the same millage rates that had applied in the past, personal property classified as industrial became exempt from up to 18 mills, while personal property classified as commercial became exempt from up to 12 mills. MCL 380.1211. Accordingly, whether an item is considered real or personal property, in addition to its classification, can have a significant effect on the applicable tax rate. For additional discussion on classification of property, including how to appeal an erroneous classification, see §§2.23–2.24, 3.10, 3.24, and 3.30.
F. Definition of Real Property Under the GPTA
§2.7 The GPTA generally defines real property to include land, buildings, and fixtures on the land; appurtenances to the land; and certain other property: (1) For the purpose of taxation, real property includes all of the following: (a) All land within this state, all buildings and fixtures on the land, and all appurtenances to the land, except as expressly exempted by law. (b) All real property owned by this state or purchased or condemned for public highway purposes by any board, officer, commission, or department of this state and sold on land contract, notwithstanding the fact that the deed has not been executed transferring title. (c) For taxes levied after December 31, 2002, buildings and improvements located upon leased real property, except buildings and improvements exempt under section 9f or improvements assessable under section 8(h), if the value of the buildings or improvements is not otherwise included in the assessment of the real property. However, buildings and improvements located on leased real property shall not be treated as real property unless they would be treated as real property if they were located on real property owned by the taxpayer.
MCL 211.2(1). The GPTA generally provides that improvements on leased property must be considered real property. MCL 211.2. But property that fits the definition of leasehold improvements under the GPTA’s definition of personal property was excepted from this change and remains personal property under the GPTA so long as its value is not attributed to the underlying real property. MCL 211.2.
G. Definition of Personal Property Under the GPTA
§2.8 The GPTA’s definition of personal property is broader than its definition of real property. Personal property generally includes all goods, chattels, and effects located in Michigan as well as a number of other items: For the purposes of taxation, personal property includes all of the following: (a) All goods, chattels, and effects within this state. (b) All goods, chattels, and effects belonging to inhabitants of this state, located without this state, except that property actually and permanently invested in business in another state shall not be included. … . (f) All other personal property not enumerated in this section and not especially exempted by law. (g) The personal property of gas and co*ke companies, natural gas companies, electric light companies, waterworks companies, hydraulic companies, and pipe line companies transporting oil or gas as public or common carriers, to be assessed in the local tax collecting unit in which the personal property is located. The mains, pipes, supports, and wires of these companies, including the supports and wire or other line used for communication purposes in the operation of those facilities, and the rights of way and the easem*nts or other interests in real property by virtue of which the mains, pipes, supports, and wires are erected and maintained, shall be assessed as personal property …. (h) During the tenancy of a lessee, leasehold improvements and structures installed and constructed on real property by the lessee, provided and to the extent the improvements or structures add to the true cash taxable value of the real property notwithstanding that the real property is encumbered by a lease agreement, and the value added by the improvements or structures is not otherwise included in the assessment of the real property …. Leasehold improvements and structures assessed under this subdivision shall be assessed to the lessee. … . (k) For taxes levied after December 31, 2002, a trade fixture.
MCL 211.8. The definition of personal property also reiterates that improvements on leased real property are generally considered real property, subject to the exceptions provided in the definition of personal property. MCL 211.8(d).
The STC, which generally supervises the administration of Michigan tax laws, MCL 209.104 (see §§3.27–3.33 for more about the STC), has stated that the GPTA’s definition of personal property is, in fact, more of a listing. The probable reason is that “there are thousands of different items” that may qualify as personal property, and, therefore, personal property defies easy definition. Mich State Assessors Bd, Assessor’s Training Manual 12-1 (1998). Under Michigan law, definitions from a standard dictionary may generally be used to give meaning to terms that are not defined in statutes. See, e.g., TMW Enters v Department of Treasury, 285 Mich App 167, 172, 775 NW2d 342 (2009). Such an analysis of the terms within the definition of personal property, however, does not provide any valuable insight. For example, the dictionary definitions of chattel are “a movable article of personal property” and “any tangible property other than land and buildings.” Webster’s College Dictionary 206 (2005). Likewise, in other contexts, the Michigan courts have applied the legal definition of chattel, which is generally an “article of personal property.” Clancy v Oak Park Vill Athletic Ctr, 140 Mich App 304, 308 n2, 364 NW2d 312 (1985). Thus, the GPTA’s definition of personal property may be best understood as meaning all property that is not real property, as well as all property that the GPTA specifically identifies as personal property. See, e.g., Mich State Tax Comm’n, Instructions for Completing Form 632 (L-4175), 2022 Personal Property Statement (stating in its “General Explanation” that personal property encompasses “tangible property that is not real estate”).
Other components of the personal property list, however, do have established meanings under Michigan law. One item on the list, for example, is trade fixtures. Under Michigan law, fixtures are items of property that have “a possible existence apart from realty, but which may, by annexation, be assimilated into realty.” Wayne Cty v Britton Tr, 454 Mich 608, 615, 563 NW2d 674 (1997). Trade fixtures are a subcategory of fixtures that are installed by a tenant on leased property and that may be removed by the tenant at the lease’s termination even though, as a fixture, the item might otherwise have become part of the underlying real property. Id. Because the tenants can remove their trade fixtures, Michigan courts have held that trade fixtures are personal property as between a tenant and landlord. But the courts had historically held that, as to third parties, trade fixtures are real property just as any other fixture would be. Therefore, in Michigan Nat’l Bank v City of Lansing, 96 Mich App 551, 555–556, 293 NW2d 626 (1980), the Michigan Court of Appeals held that although certain items in a bank building may have qualified as the bank’s trade fixtures, “for the purpose of taxation, trade fixtures are properly classified as real property.” The legislature effectively overruled cases like Michigan Nat’l Bank beginning in 2003, as it amended the GPTA to provide that trade fixtures are personal property for taxation purposes. See MCL 211.8(k).
Finally, intangible personal property is excluded from taxation under Mich Const 1963 art 9, §3, as this section authorizes only ad valorem taxation of “real and tangible personal property not exempt by law.” See Michigan Bell Tel Co v Department of Treasury, 445 Mich 470, 486, 518 NW2d 808 (1994) (holding that Mich Const 1963 art 9, §3 distinguishes “between tangible and intangible property, and it limits the application of the general ad valorem property tax to real and tangible personal property”). Property subject to taxation under other tax structures, such as certain public service property, can include intangible property. Id.
H. Distinguishing Between Real and Personal Property Under the GPTA
1. Fixture Analysis
§2.9 To distinguish between real and personal property, Michigan law applies the analysis that governs whether an item is a fixture. Under the GPTA, if an item is a fixture, it is real property and taxable as such; on the other hand, if the item is not a fixture, the item is personal property. See, e.g., Continental Cablevision of Michigan, Inc v Roseville, 430 Mich 727, 735, 425 NW2d 53 (1988). In Continental Cablevision, the Michigan Supreme Court addressed whether wires extending from utility poles to residences were fixtures that were taxable to the owners as real property or personal property that was taxable to the cable television company that had installed them. In doing so, the court explained the three-step analysis that applies to determine whether such an item is a fixture: Courts of this state have consistently applied a three-factor test to determine whether an item of property constitutes a fixture. The factors are: [1] annexation to the realty, either actual or constructive; [2] adaptation or application to the use or purpose to which that part of the realty to which it is connected is appropriated; and [3] intention to make the article a permanent accession to the freehold.
430 Mich at 735–736. Michigan courts have developed analyses for each of the factors in the fixtures analysis.
2. Annexation
§2.10 Annexation refers to whether an item is physically attached to the underlying real estate. The Michigan Supreme Court explained the requirements for annexation in the condemnation action Wayne Cty v Britton Tr, 454 Mich 608, 615, 563 NW2d 674 (1997) (quoting 35 Am Jur 2d Fixtures §5): Annexation refers to “the act of attaching or affixing personal property to real property and, as a general proposition, an object will not acquire the status of a fixture unless it is in some manner or means, albeit slight, attached or affixed, either actually or constructively, to the realty. That is, if the object is not attached to the land or to some structure or appliance which is attached to it, it will retain its character as personalty even though intended for permanent use on the premises.”
Britton Tr also explained that an item may “acquire the status of a fixture by constructive annexation.” Id. An item becomes a fixture through constructive annexation when the item, though not physically attached to the real property, is necessary for the property’s use and operation.
3. Adaptation
§2.11 Adaptation refers to “the relationship between the chattel and the use which is made of the realty to which the chattel is annexed.” Wayne Cty v Britton Tr, 454 Mich 608, 618, 563 NW2d 674 (1997) (citation omitted). Britton Tr was the first Michigan case to explicitly address this step in the analysis in detail, stating that an “object introduced onto the realty may become a fixture if it is a necessary or at least a useful adjunct to the realty, considering the purposes to which the latter is devoted.” 454 Mich at 619.
4. Intent
§2.12 Whether there is an objective intent to render an item a fixture is the third step in the analysis: This Court examines the objective visible facts to determine whether intention to make the article a permanent accession to the realty exists. The surrounding circ*mstances determine the intent of the party making the annexation, not the annexor’s secret subjective intent. Intent may be inferred from the nature of the article affixed, the purpose for which it was affixed, and the manner of annexation.
Wayne Cty v Britton Tr, 454 Mich 608, 619, 563 NW2d 674 (1997) (citations omitted). Intent has long been considered the most important component of the fixtures analysis under Michigan law. See, e.g., Manwaring v Jenison, 61 Mich 117, 135, 27 NW 899 (1886).
5. Contesting the Assessment as Real or Personal
§2.13 A taxpayer can challenge a property assessment by filing a petition in the Michigan Tax Tribunal alleging that the taxing jurisdiction has included personal property in the real property assessment and that the real property assessment must be corrected to exclude the personal property. Fundamentally, the taxpayer will have to demonstrate that the value that the taxing jurisdiction has placed on the real property includes value attributable to items of personal property. To do so, the taxpayer will have to demonstrate that the contested item is either specifically identified as personal property in the GPTA or fails the fixture analysis and therefore is not real estate. If the taxpayer is successful, the value attributable to the item of personal property would have to be deducted from the real property assessment. See Tuinier v Bedford Charter Twp, 235 Mich App 663, 599 NW2d 116 (1999) (disagreeing with taxpayer’s arguments that certain improvements were personal property and could not be included on taxpayer’s real property assessment); College Inn of Big Rapids v City of Big Rapids, No 299574 (Mich Tax Trib July 7, 2005) (agreeing with taxpayer that value of sign could not be taken into account in valuing taxpayer’s real property because sign was personal property).
The procedure is essentially the same when a taxpayer believes that property has been assessed as personal property but should have been assessed as real property. The taxpayer will have to file a petition in the tax tribunal alleging that the taxpayer’s personal property assessment includes value attributable to real property. If the taxpayer can demonstrate that this is true, the value attributable to the real property will have to be deducted from the personal property assessment. See Continental Cablevision of Michigan, Inc v Roseville, 430 Mich 727, 749, 425 NW2d 53 (1988) (rejecting taxpayer’s argument that certain items were real property and concluding that items were properly taken into account on taxpayer’s personal property assessment); see also Howard Plating Indus, Inc v City of Madison Heights, No 119656 (Mich Tax Trib July 8, 1992) (holding that taxpayer failed to demonstrate that certain items did not satisfy three-step fixture analysis and concluding that items were real property).
Ultimately, the tribunal’s decisions hinge on the definitions of real property and personal property under the GPTA, with the tribunal and the courts acknowledging that the GPTA prohibits real property assessments from accounting for personal property and personal property assessments from accounting for real property. See Tuinier, 235 Mich App at 667; Howard Plating Indus. This is different from a decision regarding a property’s classification as industrial, commercial, agricultural, or one of the other classifications that the GPTA sets forth in MCL 211.34c. Classification under MCL 211.34c and challenges to such classifications are discussed in §§2.15–2.22.
If a property owner does demonstrate that either real or personal property was improperly taken into account on the wrong assessment and obtains a judgment from the tribunal reducing the amount of the real or personal assessment, the taxing jurisdiction may be able to place the personal or real property on the correct assessment under MCL 211.154, which allows for property that was omitted from an assessment to be retrospectively added. This is because if property was included in the wrong assessment, it was omitted from the correct assessment and may possibly be added. Adding omitted property under MCL 211.154 is addressed in §2.23–2.24 and chapter 3.
I. Mobile Homes
§2.14 The GPTA includes a special provision governing mobile home units. Under MCL 211.2a, a mobile home unit that is not subject to tax under the Trailer Coach Parks Act, MCL 125.1041 et seq., and that is located on assessable real property is considered real property: For purposes of section 2, a mobile home which is not covered by [the Trailer Coach Parks Act] … and while located on land otherwise assessable as real property under this act, and whether or not permanently affixed to the soil, shall be considered real property and shall be assessed as part of the real property upon which the mobile home is located.
The Trailer Coach Parks Act provides for a $3 specific monthly tax on certain trailer coaches in lieu of any property tax: Each licensee [i.e., park operator] shall collect and remit a specific tax of $3.00 per month, or major fraction thereof, per occupied trailer coach, which shall be a tax upon the owners or occupants of each occupied trailer coach, including trailer coaches licensed under the [the Michigan Vehicle Code, MCL 257.1 et seq.], notwithstanding any provision of [the Michigan Vehicle Code] to the contrary, occupying space within the trailer coach park. The specific tax shall be in lieu of any property tax levied upon the trailer coach pursuant to the provisions of [the GPTA] upon or on account of the trailer while located in the trailer coach park.
MCL 125.1041. Thus, under MCL 211.2a, a mobile home that is an occupied trailer coach, including trailer coaches licensed under the Michigan Vehicle Code, occupying space in a trailer coach park is subject to a $3 specific monthly tax in lieu of any property tax. Conversely, a mobile home that is not such a trailer coach is considered real property subject to the general property tax.
The court of appeals discussed this definition in Sandy Pines Wilderness Trails, Inc v Salem Twp, 232 Mich App 1, 591 NW2d 658 (1998). In that case, the taxing jurisdiction appealed the tribunal’s decision that the mobile home units at a licensed campground were not subject to taxation under the GPTA. The court analyzed the meanings of the terms “trailer,” “coach,” and “park” in the Trailer Coach Parks Act to conclude that “the Legislature intended the term ‘trailer coach park’ to mean an area of land where trailer coaches may be assembled or stationed.” Id. at 18. A mobile home unit that is located in a park where such units may be assembled or stationed is therefore not subject to taxation under the GPTA.
On the other hand, Sandy Pines discussed in dicta that a mobile home unit that is on private property, not in a park, and is intended to be a permanent habitation is subject to taxation under the GPTA. Id. at 23. As explained in STC Bulletin No 14 (2016), mobile home units “that are not located in a licensed mobile home park or campground are assessable as part of the real property on which they are located, whether or not they are permanently affixed to the soil.”
J. Classification
1. Introduction
§2.15 The GPTA also provides that each local taxing jurisdiction must classify all assessable property within that jurisdiction. MCL 211.34c(1). The classifications include industrial real property, industrial personal property, commercial real property, commercial personal property, and so forth. Historically, the classifications’ only real significance was in the equalization process, which ensures that all property is taxed uniformly across Michigan’s various taxing jurisdictions. See, e.g., Ann Arbor Twp v State Tax Comm’n, 393 Mich 682, 687, 227 NW2d 784 (1975). Beginning with the 2008 tax year, however, Michigan law changed. In conjunction with the now-defunct Michigan Business Tax Act (MBTA), reduced tax rates apply to property classified as commercial personal property, and property classified as industrial personal property is subject to even lower rates. MCL 211.9k. This remains true even after the MBTA’s repeal. The tax rates for real property, both before and after the MBTA, and regardless of the real property’s classification, are the same. Certain industrial personal property qualifies for exemption from ad valorem tax and is instead subject to the essential services assessment. See §§2.84–2.90.
The GPTA’s classification provisions do not define real and personal property. Rather, they only identify which real property and which personal property fall into the industrial, commercial, and other classes. MCL 211.34c. Accordingly, the general definitions of real property, MCL 211.2, and personal property, MCL 211.8, apply, as does the fixtures analysis for distinguishing between real and personal property. See discussion in §§2.7–2.9.
Whether any given item of property is defined as real or personal property, however, is only the first factor in the classification process. The GPTA requires taxing jurisdictions to assign classifications to property and sets forth definitions for the property classifications. MCL 211.34c.
2. Industrial Real Property
§2.16 Industrial real property includes the following: (i) Platted or unplatted parcels used for manufacturing and processing purposes, with or without buildings. (ii) Parcels used for utilities sites for generating plants, pumping stations, switches, substations, compressing stations, warehouses, rights-of-way, flowage land, and storage areas. (iii) Parcels used for removal or processing of gravel, stone, or mineral ores. (iv) For taxes levied after December 31, 2002, buildings on leased land used for industrial purposes. (v) For taxes levied after December 31, 2002, buildings on leased land for utility purposes.
MCL 211.34c(2)(d). Thus, whether real property is used for “manufacturing and processing purposes” and other uses included within the definition of industrial real property is the critical factor in determining whether the property should be classified as industrial property.
The GPTA does not directly define the term manufacturing and processing that controls whether a property may be classified as industrial real property. Other provisions in the GPTA, which address personal property exemptions, offer definitions that may be helpful. In MCL 211.9m, “[e]ligible manufacturing personal property,” which is “eligible” for an exemption under MCL 211.9m, means “all personal property located on occupied real property if that personal property is predominantly used in industrial processing or direct integrated support.” MCL 211.9m(6)(c). In turn, “[i]ndustrial processing” means that term as it is defined in either the General Sales Tax Act, MCL 205.51 et seq., or the Use Tax Act, MCL 205.91 et seq.MCL 211.9m(6)(e). These definitions are similar but not exactly the same. The General Sales Tax Act definition addresses items sold at retail or to be used to make other products sold at retail: “Industrial processing” means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail, for use in the manufacturing of a product to be ultimately sold at retail or to be affixed to and made a structural part of real estate located in another state, or for the exempt purposes described in subsection (3)(l) or (4)(i). Industrial processing begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage.
MCL 205.54t(8)(b). The Use Tax Act definition additionally contemplates items that may be affixed to and made a part of real estate located outside Michigan: “Industrial processing” means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail, for use in the manufacturing of a product to be ultimately sold at retail or to be affixed to and made a structural part of real estate located in another state, or for the exempt purposes described in subsection (3)(l) or (4)(i). Industrial processing begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage.
MCL 205.94o(8)(b).
Likewise, “[d]irect integrated support” is defined in the exemption provisions: (i) Research and development related to goods produced in industrial processing and conducted in furtherance of that industrial processing. (ii) Testing and quality control functions related to goods produced in industrial processing and conducted in furtherance of that industrial processing. (iii) Engineering related to goods produced in industrial processing and conducted in furtherance of that industrial processing. (iv) Receiving or storing equipment, materials, supplies, parts, or components for industrial processing, or scrap materials or waste resulting from industrial processing, at the industrial processing site or at another site owned or leased by the owner or lessee of the industrial processing site. (v) Storing of finished goods inventory if the inventory was produced by a business engaged primarily in industrial processing and if the inventory is stored either at the site where it was produced or at another site owned or leased by the business that produced the inventory. (vi) Sorting, distributing, or sequencing functions that optimize transportation and just-in-time inventory management and material handling for inputs to industrial processing.
MCL 211.9m(6)(b). Michigan courts have used definitions from these exemption provisions when applying other portions of the GPTA, and they may be useful in defining manufacturing and processing too. See Strata Oncology, Inc v Department of Treasury, No 362431, ___ Mich App ___, ___ NW2d ___ (Sept 21, 2023) (identifying patients to participate in drug companies’ clinical trials does not constitute research or experimental activity on behalf of industrial processor; therefore, plaintiff is ineligible for industrial processing exemption to use tax under MCL 205.94o); TOMRA of N America, Inc v Department of Treasury, Nos 356950 et al, ___ Mich App ___, ___ NW2d ___ (July 21, 2022) (container recycling machines sold to manufacturers do not fall within the definition of industrial processing under MCL 205.54t or .94o); TRJ & E Props, LLC v City of Lansing, 323 Mich App 664, 919 NW2d 795 (2018) (citing MCL 211.9o’s definition of “[c]ontrol” when applying GPTA’s transfer of ownership provisions).
In addition, dictionary definitions may be helpful. The term manufacture generally means to produce something from source material, especially on a large scale: 1. to make or produce by hand or machinery, esp. on a large scale. 2. to work up (material) into form for use: to manufacture cotton … . 4. to produce in a mechanical way … . 5. the making of goods or wares by manual labor or by machinery, esp. on a large scale: the manufacture of cars. 6. the making or producing of something; generation … .
Webster’s College Dictionary, at 753. Process has many dictionary definitions, but the applicable definitions focus on systematic or continuous actions treating or preparing materials: 1. a systematic series of actions directed to some end: a process for hom*ogenizing milk. 2. a continuous action, operation, or series of changes taking place in a definite manner … . 10. to treat or prepare by some particular process, as in manufacturing.
Id. at 981. Other Michigan statutes provide additional guidance to the meaning of manufacturing and processing. The Industrial Facilities Tax Act (IFTA) (see §2.106) exempts certain properties from taxation under the GPTA and defines manufacture of goods or materials and processing of goods or materials to mean the uses identified in the North American Industry Classification System (NAICS): “Manufacture of goods or materials” or “processing of goods or materials” means any type of operation that would be conducted by an entity included in the classifications provided by sector 31–33—manufacturing, of the North American industry classification system, United States, 1997, published by the office of management and budget, regardless of whether the entity conducting that operation is included in that manual.
MCL 207.552(11). The NAICS, developed by the U.S. Office of Management and Budget, describes certain economic activities to assist in compiling statistics about business activity. It describes the manufacturing sector in a manner consistent with the dictionary definitions: The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufactured products is considered manufacturing, except in cases where the activity is appropriately classified in Sector 23, Construction. Establishments in the Manufacturing sector are often described as plants, factories, or mills and characteristically use power-driven machines and materials handling equipment … . … . The new product of a manufacturing establishment may be finished in the sense that it is ready for utilization or consumption, or may be semifinished to become an input for an establishment engaged in further manufacturing.
NAICS Sector: 31-33 Manufacturing. The NAICS then extensively itemizes activities that fall within the manufacturing sector and places the activities into categories, all of which should qualify as manufacturing and processing under the IFTA.
3. Industrial Personal Property
§2.17 Under the GPTA’s definition, the class of industrial personal property includes equipment located on industrial parcels as well as mining companies’ property: (c) Industrial personal property includes the following: (i) All machinery and equipment, furniture and fixtures, and dies on industrial parcels, and inventories not exempt by law. (ii) Personal property of mining companies.
MCL 211.34c(3)(c). This section’s plain language provides that if personal property is “on” an “industrial parcel,” that personal property should be industrial personal property. This suggests that the personal property’s location will drive its classification. See Jason C. Long, This Time It’s Personal(?) Property Classification and Recent Amendments to Michigan’s Property Tax Laws, 25 TM Cooley LR 303, 324–326 (2008).
In New Covert Generating Co, LLC v Township of Covert, 334 Mich App 24, 964 NW2d 378 (2020), the court of appeals explained, however, that under MCL 211.903, which is the statute that exempts industrial personal property from the state education millage, a “turbine powered by gas, steam, nuclear energy, coal, or oil the primary purpose of which is the generation of electricity for sale” does not qualify as industrial personal property. MCL 211.903(3)(b); see also MCL 380.1211(10). The court held that “the term ‘turbine’ applies to a wide variety of engines or machines that are rotated by moving fluids.” 334 Mich App at 66. The statutory exclusion for turbines used to produce electricity for sale reflects that the legislature intended to exclude such turbines from receiving the exemption available to other industrial personal property.
4. Commercial Real Property
§2.18 The class of commercial real property is defined to include properties used for wholesale and retail operations, properties used by certain clubs, certain recreational properties, apartments, and buildings on leased property: Commercial real property includes the following: (i) Platted or unplatted parcels used for commercial purposes, whether wholesale, retail, or service, with or without buildings. (ii) Parcels used by fraternal societies. (iii) Parcels used as golf courses, boat clubs, ski areas, or apartment buildings with more than 4 units. (iv) For taxes levied after December 31, 2002, buildings on leased land used for commercial purposes.
MCL 211.34c(2)(b). As is the case with industrial real property, the GPTA does not define the terms used to identify the properties that must be classified as commercial real property, requiring application of dictionary definitions of these terms. The first term is commercial, as any property used for “commercial purposes” should be classified as commercial real property. Commercial use generally means use in commerce or to generate a profit, particularly on a wide scale: 1. of, pertaining to, or characteristic of commerce. 2. produced, marketed, etc., with emphasis on salability, profit, or the like: a commercial book. 3. able or likely to yield a profit. 4. suitable for a wide popular market: commercial uses for satellites. 5. engaged in, used for, or suitable to commerce or business, esp. of a public or nonprivate nature: commercial vehicles.
Webster’s College Dictionary at 245. Commerce would encompass the types of activities identified as industrial uses, so commercial use under the GPTA must be understood to be limited to those uses in commerce emphasizing profitability that do not also qualify as industrial uses.
The GPTA elaborates on which properties are “used for commercial purposes,” stating that a property is so used whether it is used for “wholesale, retail, or service.” Wholesale, the first alternative, is defined to mean “the sale of goods in quantity, as to retailers.” Id. at 1396. Retail, the second alternative, means “the sale of goods to ultimate consumers,” usually “in small quantities.” Id. at 1052. Service, the third alternative, is defined more broadly to mean providing accommodations or activities rather than goods: 3. the providing or a provider of accommodation and activities required by the public, as maintenance or repair: guaranteed service and parts. 4. the organized system of apparatus, appliances, employees, etc., for supplying some accommodation required by the public: a television repair service … . 24. supplying services rather than products or goods: the service professions. 25. supplying maintenance and repair: a service center for electrical appliances … . 28. to make fit for use; repair or restore: to service an automobile.
Id. at 1121. The definition of service also includes “a supplier of utilities,” but because the GPTA includes utility use in the industrial classification, MCL 211.34c(2)(d), and the definitions cannot be redundant, use for service as a commercial purpose must be understood to exclude utility uses.
Other uses that the GPTA identifies as commercial uses are addressed in other legislation. For example, although fraternal generally refers to a “society of men associated in brotherly union, as for mutual aid or benefit,” id. at 489, an entire chapter of the Michigan Compiled Laws addresses fraternal societies. This chapter provides for the incorporation and treatment by the government of fraternal societies like the Ancient Order of Hibernians and many others. MCL 457.41–.48. Likewise, while ski area might refer to any space or surface devoted to skiing, see Webster’s College Dictionary at 66, the Ski Area Safety Act specifically defines a ski area as “an area used for skiing and served by 1 or more ski lifts.” MCL 408.322(f).
5. Commercial Personal Property
§2.19 The GPTA’s language defines the commercial personal property class to include personal property on commercial parcels, outdoor signs, and certain vehicles: Commercial personal property includes the following: (i) All equipment, furniture, and fixtures on commercial parcels, and inventories not exempt by law. (ii) All outdoor advertising signs and billboards. (iii) Well drilling rigs and other equipment attached to a transporting vehicle but not designed for operation while the vehicle is moving on the highway. (iv) Unlicensed commercial vehicles or commercial vehicles licensed as special mobile equipment or by temporary permits.
MCL 211.34c(3)(b). As with industrial personal property, the language in the GPTA’s definition of commercial personal property apparently conditions much of the personal property that will receive the commercial classification on whether the personal property is located on commercial parcels. Under the STC’s previous directive, taxing jurisdictions were required to analyze the activity on a parcel to determine whether to classify the personal property as commercial. See STC Memorandum (Feb 18, 2010). But with the STC rescinding Bulletin No 22 (2010) and acknowledging that personal property located on a parcel of industrial real property should be classified as industrial personal property, the same reasoning should apply to commercial personal property. In other words, under the GPTA’s plain language, it should also be the case that personal property located on a parcel of commercial real property is classified as commercial personal property.
The GPTA additionally specifies certain other kinds of personal property as commercial personal property. For example, the GPTA provides that “[a]ll outdoor advertising signs and billboards” must receive the commercial personal property classification. MCL 211.34c(3)(b)(ii). The GPTA also specifically provides that certain vehicles must be classified as commercial personal property. First, it addresses “well drilling rigs and other equipment attached to a transporting vehicle but not designed for operation while the vehicle is moving on the highway.” MCL 211.34c(3)(b)(iii). This provision is straightforward as it applies to well-drilling equipment, which is typically mounted on a truck. The description is broad enough, however, seemingly to encompass other equipment that is similar, such as a truck-mounted tree spade, to other equipment on a vehicle that is not intended for use while the vehicle is moving, such as cranes that are mounted on the trucks that they unload and equipment that might commonly be considered part of the vehicle itself, such as the tank on a septic-cleaning vehicle.
Other vehicles that the GPTA specifically identifies as commercial personal property include unlicensed commercial vehicles. Commercial vehicles might mean any vehicles used to earn a profit, Webster’s College Dictionary, at 245, but the Michigan Vehicle Code defines that term to mean vehicles used to transport people and goods and vehicles used to tow other vehicles: “Commercial vehicle” includes all motor vehicles used for the transportation of passengers for hire, or constructed or used for transportation of goods, wares, or merchandise, and all motor vehicles designed and used for drawing other vehicles that are not constructed to carry a load independently or any part of the weight of a vehicle or load being drawn.
MCL 257.7. That act excludes from the definition of commercial vehicle “a limousine operated by a limousine driver, a taxicab operatedby a taxicab driver, or a personal vehicle operated by a transportation network company driver.” Of course, the classification requirement applies only to unlicensed commercial vehicles, as licensed vehicles are taxed under the Michigan Vehicle Code itself. MCL 257.801–.810.
Special mobile equipment is another type of property that the GPTA provides must be classified as commercial personal property. The GPTA does not define this term, but the Michigan Vehicle Code defines it to mean vehicles that are not designed or used primarily for transporting people or property: “Special mobile equipment” means every vehicle not designed or used primarily for the transportation of persons or property and incidentally operated or moved over the highways, including farm tractors, road construction or maintenance machinery, mobile office trailers, mobile tool shed trailers, mobile trailer units used for housing stationary construction equipment, ditch-digging apparatus, and well-boring and well-servicing apparatus. The foregoing enumeration shall be considered partial and shall not operate to exclude other vehicles which are within the general terms of this definition. Although not within the general terms of this definition, the combination of a mobile car crusher trailer permanently attached to a truck tractor or road tractor shall be considered special mobile equipment for purposes of this act.
MCL 257.62. Notably, the Michigan Vehicle Code’s definition of special mobile equipment seems to duplicate the GPTA’s specific provision governing equipment attached to a vehicle that is not designed for use while the vehicle is moving. But because Michigan statutes cannot be construed to be redundant, the definition of special mobile equipment must be understood to encompass only that equipment that is not specifically identified in another section. In this instance, the ambiguity is seemingly inconsequential because both “equipment attached to a transporting vehicle but not designed for operation while the vehicle is moving on the highway” and “special mobile equipment” are classified as commercial personal property. Finally, commercial vehicles operating on temporary permits, which are governed by the Michigan Vehicle Code, MCL 257.243, are also included as commercial personal property.
6. Other Classes of Assessable Property
§2.20 The GPTA includes several other classes of assessable property, including agricultural real and personal property, developmental real property, residential real property, timber-cutover real property, and utility personal property. Aside from the agricultural real property classification, which results in the property’s exemption from certain school taxes akin to the benefit of the principal residence exemption, MCL 380.1613, a property’s classification among these classes relates only to equalization and has little consequence for the property and taxpayer.
7. Properties Used for More Than One Purpose
§2.21 The GPTA also provides for the classification of properties that are used for multiple purposes. If a property’s uses fall within more than one of the GPTA’s classifications, the GPTA provides that the taxing jurisdiction’s assessor must determine which use most significantly influences the parcel’s value: “If the total usage of a parcel includes more than 1 classification, the assessor shall determine the classification that most significantly influences the total valuation of the parcel.” MCL 211.34c(5). The property then will be classified under the use that has the most significant influence on the property’s value.
Under this provision, any number of factors can influence a property’s classification. It is not uncommon, for example, for a property to be used not only to prepare a company’s products, which may qualify as manufacturing and processing that would result in an industrial classification, but also to sell the products, which may qualify as wholesale or retail use and result in a commercial classification. The relative portions of the property devoted to the each use, the value of industrial and commercial property in the property’s market, and the property’s own position in that market will all affect the property’s classification under the GPTA. See MCL 211.34c.
8. Challenging a Property Tax Assessment
§2.22 Under the GPTA, generally the taxing jurisdiction first assigns a property’s classification and valuation and makes initial determinations on the qualification for exemption. For a discussion of how to appeal a property’s classification, assessment, or denial of exemption, see chapter 3. Depending on the city or township ordinances of the taxing jurisdiction, the classification of the property involved, and the type of challenge made, appeals may first be made to the local assessor, the local board of review, the Michigan Tax Tribunal, or the STC. The GPTA’s language provides that an STC decision regarding classification is final and that the taxpayer has no further right of review from such a decision. MCL 211.34c(6). However, in Midland Cogeneration Venture LP v Naftaly, 489 Mich 83, 94–97, 803 NW2d 674 (2011), the supreme court held that the failure of MCL 211.34c(6) to provide for judicial review of STC classification decisions rendered unconstitutional that portion of the GPTA providing that the STC’s decision is final. Accordingly, the supreme court held that a taxpayer may appeal an STC decision regarding classification to the circuit court with jurisdiction where the taxpayer resides or to the court of claims.
K. Improperly Reported and Omitted Property
1. Authority to Correct
§2.23 The GPTA authorizes the STC to retroactively correct property tax assessments to include property that was incorrectly reported by a taxpayer and to add omitted real and personal property to the assessment roll. MCL 211.154. The GPTA provides the STC with the authority to add to a property’s assessment to account for incorrectly reported and omitted property for the current tax year and the two preceding years: If the state tax commission determines that property subject to the collection of taxes under this act, including property subject to taxation under 1974 PA 198, MCL 207.551 to 207.572, 1905 PA 282, MCL 207.1 to 207.21, 1953 PA 189, MCL 211.181 to 211.182, and the commercial redevelopment act, 1978 PA 255, MCL 207.651 to 207.668, has been incorrectly reported or omitted for any previous year, but not to exceed the current assessment year and 2 years immediately preceding the date the incorrect reporting or omission was discovered and disclosed to the state tax commission, the state tax commission shall place the corrected assessment value for the appropriate years on the appropriate assessment roll.
MCL 211.154(1). Changes implemented under this section may be assessed only to the property’s current owner, as the GPTA provides that “[t]axes computed under this section shall not be spread against the property for a period before the last change of ownership of the property.” Id.
As the court of appeals explained in Superior Hotels, LLC v Mackinaw Twp, 282 Mich App 621, 630, 765 NW2d 31 (2009), “in § 154 the Legislature has conferred administrative jurisdiction on the STC to correct erroneous property tax assessments in specific limited circ*mstances.” The circ*mstances involve two different scenarios. First are those instances when the taxpayer “is required to self-report property,” as with personal property statements under MCL 211.19, and “the assessor is expected to rely upon that report when determining the assessment.” SSAB Hardtech, Inc v State Tax Comm’n, No 288672 (Mich Tax Trib Mar 30, 2004). Second are the instances when property is omitted from an assessment and the assessment is based on that omission.
Regarding the first scenario, the GPTA does not define the term incorrectly reported property. However, incorrectly reported property can include property that is not correctly identified on a personal property statement. That is, if a taxpayer is in possession of taxable personal property but does not accurately report the property on its personal property statement, for example by reporting the property in the incorrect depreciation class, the property may be incorrectly reported. Incorrectly reported property can also include real property. For example, in City of Mt Pleasant v State Tax Comm’n, 267 Mich App 1, 703 NW2d 227 (2005), rev’d on other grounds, 477 Mich 50, 729 NW2d 833 (2007), the court of appeals approved the STC’s action under MCL 211.154 to change the status of real property from exempt to taxable. The city in that case had reported real property as exempt from taxation. Later, the STC acted under MCL 211.154 to change the property’s status from exempt to taxable, and the court of appeals held that this was a valid application of MCL 211.154. 267 Mich App at 5–6. In addition, the STC’s administrative rules provide that the STC may remove real property from an assessment roll under MCL 211.154 in a case of “[i]ncorrect measurement” or “[e]rrors of inclusion, for example, pole barn not built or placed on an incorrect parcel.” AC, R 209.31(2).
Regarding the second scenario, in Superior Hotels, the court of appeals applied the definitions in MCL 211.34d to understand the provisions in MCL 211.154 concerning omitted property. MCL 211.34d defines omitted real property broadly to mean “previously existing tangible real property not included in the assessment.” MCL 211.34d(1)(b)(i). The definition then discusses adding omitted real property to a property’s assessment under MCL 211.154: Omitted real property shall not increase taxable value as an addition unless the assessing jurisdiction has a property record card or other documentation showing that the omitted real property was not previously included in the assessment. The assessing jurisdiction has the burden of proof in establishing whether the omitted real property is included in the assessment. Omitted real property for the current and the 2 immediately preceding years, discovered after the assessment roll has been completed, shall be added to the tax roll pursuant to the procedures established in section 154.
MCL 211.34d(1)(b)(i). In Superior Hotels, the omitted real property involved the completion of a construction project. The subject property was assessed and, after its completion, the township did not initially account for the new construction as an addition under MCL 211.27. The court held that when the new construction was not added, it became omitted property that could be added to the assessment under MCL 211.154. Superior Hotels, 282 Mich App at 638–639.
As for omitted personal property, the GPTA similarly defines it as “previously existing tangible personal property not included in the assessment.” MCL 211.34d(1)(b)(ii). This definition also provides that “[o]mitted personal property shall be added to the tax roll pursuant to section 154.” Id.
2. Petition to Correct Improperly Reported or Omitted Property
§2.24 Either the taxing jurisdiction, the taxpayer, or any other person may request that the STC retroactively correct a property tax assessment under MCL 211.154. Pursuant to the STC’s administrative rules, the STC has created standard forms for such requests, providing one form for the taxing jurisdiction, another for the taxpayer, and another for other persons. The forms for the taxing jurisdiction and the taxpayer require that each attach supporting information when seeking a retroactive change in a property’s assessment and require that each party must request the other’s concurrence in the assessment change. AC, R 209.33, .34. When other persons request an assessment change, the STC first investigates the allegations, determines an amount that it believes to be the appropriate assessment, and then seeks concurrence from both the taxpayer and the taxing jurisdiction. AC, R 209.37. When the parties concur in any of these circ*mstances, the STC generally issues an order approving the assessment change. If there is a dispute, however, the parties proceed to a hearing before the STC where the STC will determine an appropriate assessment. AC, R 209.33, .34, .37.
Under the STC’s administrative rules, “[t]he commission does not have jurisdiction to hear a taxpayer request to remove personal property from the roll when the taxpayer fails to file or fails to timely file a personal property statement.” AC, R 209.31(1). Thus, as SSAB Hardtech, Inc v State Tax Comm’n, No 288672 (Mich Tax Trib Mar 30, 2004), explained, for MCL 211.154 to apply, the “taxpayer must incorrectly report its property to the local unit, AND the local unit must rely on that incorrect statement when assessing tax.” The tribunal went on to explain the limitations in MCL 211.154: Section 154 is not a mechanism for either the taxpayer or the assessor to correct a mistake in judgment as to the value or the quantity of property where the assessor rejects the incorrect personal property tax statement and bases the assessment on his or her own determination. This is true notwithstanding that the assessor later discovers that the amount that the taxing authority assessed was not accurate.
Summarizing in a statement that reflects the section’s overall purpose, the tribunal stated that “[a] taxpayer may not contest the valuation of property under MCL 211.154, but may obtain relief only for ‘incorrectly reported or omitted property.’” SSAB Hardtech (quoting Detroit v Norman Allan & Co, 107 Mich App 186, 309 NW2d 198 (1981)).
Section 3.31 provides discussion concerning MCL 211.154, its limitations on attempts to dispute a property’s value, and a taxpayer’s right to appeal a decision from the STC to the Michigan Tax Tribunal.
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