TRAVERSE CITY -- A successful tax appeal on a modest three-bedroom home in northern Michigan has stirred up cash-hungry local governments, which are pleading with the state Supreme Court to reverse the decision.
The Michigan Municipal League and Michigan Assessors Association argue the state appeals court has created a "loophole" that could prevent local governments from boosting the assessments of certain properties.
In December the appeals court said it was illegal for Charlevoix to uncap and nearly double the taxable value of a home after the death of a co-owner. James Klooster had added his son, Nathan, to the deed in 2004, five months before his death.
The court said the elder Klooster's death did not trigger a transfer in ownership under state law. In Michigan, the taxable value of a home can't go up much unless there's a new owner, typically through a sale.
A second Court of Appeals decision in February determined that Traverse City improperly lifted the taxable assessed value on a woman's bayfront home on Peninsula Drive. Terrie Taylor's father listed her as a joint tenant on the property deed about a month before his death in 2005, and the city boosted the assessment and increased the woman's taxes by about $4,000 the next year.
The court ruled ownership did not change hands because of the joint tenancy, and the taxable value should have remained capped. Traverse City also plans to appeal the ruling.
State law limits increases in a property's taxable value to the rate of inflation. When a property is sold or transferred, even in family trusts popular among estate planners, it becomes uncapped. The usually higher assessed value then becomes the taxable value used for tax bills.
Local governments and assessors are urging the Supreme Court to take the case at a time when a miserable economy has whacked property values and tax revenue. They say the appeals court misinterpreted state law.
"This appeal involves issues of great significance ... to every governmental entity in Michigan and to the public," the groups said in a court filing earlier this month.
"It is imperative, especially in these trying economic times, that property valuation and uncapping be performed as the Legislature intended and not through a strained interpretation" of law, they said, fearing a rash of "perpetual tax shelters."
Grand Traverse County Equalization Director Laurie Spencer said her office already has been peppered with inquiries about the recent court decision and she expects the ruling will spur a rash of similar maneuvers by other property owners.
"I've already had just loads of calls about it," Spencer said. "I think it's going to have a big impact on budgets."
Traverse City Assessor Deb Chavez hopes the state Legislature takes a look at the issue, regardless of a possible Supreme Court decision on the matter. Legislators could reform inheritance laws while mitigating the "ramifications" for all parties involved.
"It's a very complex issue that needs to be examined in the whole," she said.
A state agency, the Michigan Tax Commission, also is urging review by the Supreme Court and agreed to pay $10,000 toward Charlevoix's legal fees. It's not known when a decision will be made.
Nathan Klooster's 77-year-old mother, who has health problems, and a disabled sister live in the house, 220 miles north of Lansing.
His lawyer, Steven Stapleton, asked the Supreme Court to let the appeals court decision stand.
If critics believe an "adjustment is needed to the property-tax statutes because of some perceived flaw or imperfection," he wrote, "then such relief must be directed to the Legislature, not this court."
Staff Writer Art Bukowski and Business Editor Bill O'Brien contributed to this report.
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