All Michigan residential builders and Michigan home-owners know that the board of a local school district may levy up to 18 mills for school operating purposes. For home-owners, at least regarding a home-owner’s principal residence, the way to get around having to pay this tax is to file a Principal Residence Exception Affidavit with the local tax accessor. But if you are a residential builder and still own a recently built home that you are trying to sell, you do not get the benefit of the Principal Residence Exception and might have to pay the 18 mills. Of course, this does not seem fair – having to pay local taxes on a home nobody lives in and one you are trying to sell, in an area you might not even live in. Thankfully, the Michigan legislature recognized this, and, effective December 28, 2012, there is now a way for residential builders to be exempt from paying this tax, too.
Pursuant to Section 7ss of Michigan’s General Property Tax Act, as amended, an owner of “eligible development property” is exempt from taxes levied by a local school district.
So what makes a development property eligible? In order to be eligible, the property must:
- Be a residential structure (e.g., a home or condominium) whereby construction began after the immediately preceding tax day;
- Not be occupied nor ever have been occupied since construction (if multiple units, such as in the case of a condominium, occupancy does not occur until all units are occupied);
- Be available for sale;
- Not be leased; and
- Not be used for any business or commercial purpose, except for property used as an on-site office by the builder.
Do note that construction does not need to be complete for the property to be eligible. Further, the amendment to this statute, passed on December 18, 2013, requires that the land the residential structure sits on to also meet the above requirements.
After determining the property is eligible, in order to benefit from the tax exemption and avoid penalties, the owner of the property must do the following:
- File the attached Affidavit with the local tax collecting unit (similar to the Principal Residence Exemption Affidavit) on or before June 1 for the upcoming summer tax levy or on or before November 1 for the upcoming winter tax levy
– Affidavit:http://www.michigan.gov/documents/treasury/5033_fillable_411774_7.pdf - Not more than 90 days after the property is no longer eligible (e.g., you sell the property), you must file a Rescission Form with the local tax collecting unit
– Rescission Form:http://www.michigan.gov/documents/treasury/5050_420765_7.pdf
– If not timely filed, you will be subject to a maximum fine of $200
Once the affidavit is filed, this exemption will remain in effect for all subsequent tax levies over the course of 3 years from the filing date of the affidavit or until the property is no longer eligible under the statute, whichever occurs first. Hence, you get 3 years to build and sell a residential unit before having to pay local property taxes.
So stop paying taxes on a residential unit nobody lives in yet! Have any other questions about residential building or need any help filing out these forms? Feel free to contact Catherine Riesterer (cathy@crlaw.biz) or Scott Brock (scott@crlaw.biz) at (810) 227-3103.
