Michigan property owners have until Aug. 31 to appeal 2020 taxes

Coronavirus affects many sectors of commercial real estate, from stores that aren’t paying rent and hotels with historically low occupancy to office spaces reconfigured for social distancing.

While building owners may be looking ahead for a revenue rebound, some experts say they also could look to the past to trim expenses such as taxes.

Michigan extended its property tax appeal deadline until Aug. 31, adding 13 weeks to the typical May 31 deadline. The order applies to all property types (commercial, residential, industrial and agricultural). 

That gives building owners more time to prepare a request to reduce property tax bills — and provides municipalities and other taxing authorities another concern about revenue.

Appeals can be made on 2020 assessments that are supposed to reflect the value of a property as of Dec. 31, 2019.

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While coronavirus wasn’t a factor at that time, some market softening at the end of last year was visible, said Michael Shapiro, tax appeal attorney at Honigman in Detroit. That could create openings to challenge the value of the buildings, he said.

At the top of the list likely to warrant a reduction are retail properties.

“Retail has been in a spiral for years,” Shapiro said. “Malls, shopping centers, retail centers of all kinds have been hurt badly by online shopping. Their values have gone down dramatically. Occupancies have gone down. There's a basis for significant appeal there.”

Tax assessments for 2019 were made by municipalities in the first quarter of 2020. However, as coronavirus spread and Michigan enacted a series of orders to limit public contact, many municipal boards of review were canceled, removing one route for property owners to appeal taxable values.

Commercial property owners who may have considered challenging the value of their property for tax purposes instead were faced with questions about economic survival.

“Talk about distractions,” said Stewart Mandell, partner in the tax appeals practice group at Honigman.

“We saw a lot of taxpayers very much focused on trying to save businesses,” he said. “And .. for more than I can remember, taxpayers just were not getting the information as they usually have.”

Michigan property taxes are based on assessed value, which by law should be 50 percent of market value. Taxable value is the amount used for calculating tax payments. While assessed values can climb along with market value, taxable value increases are capped under Proposal A legislation to the rate of inflation or 5 percent, whichever is less. When a property is sold, a municipality will set a new assessed value.

But owners who think their properties are overvalued, in turn resulting in too-high tax payments, can challenge assessments. 

In the case of commercial property, an owner can go directly to the Michigan Tax Tribunal to seek a ruling, while residential property owners first must go through their local boards of review. 

As of early July, the tribunal had received 1,390 requests for appeal, compared to 1,725 a year earlier. It’s unclear whether the deadline extension will result in more filings. 

Some owners and property managers regularly look for potential over-assessments. One sign is a drop in income generated by a property. 

“We file a handful [of appeals] each year,” said Scott Shefman, executive managing director of real estate operations for Friedman Real Estate of Farmington Hills. 

“We generally have decent success,” he said. “We’re only filing appeals where we think a legitimate case can be made for a reduction.”

On the other side of the appeal is a municipality that may see lower tax revenue if an appeal results in an assessment decline. 

Many already are bracing for other revenue delays and cuts as state income taxes were extended this year and revenue from sources like parking and city income taxes were reduced amid the shutdown and layoffs. 

Municipalities also worry about the likelihood that there will be a wave of appeals in spring 2021, said Chris Hackbarth, director of state and federal affairs for the Michigan Municipal League. 

“We’re so dependent on property taxes,” said Hackbarth, adding that the pandemic’s threat to that could play out over many years. 

”What happens to those businesses that go out of business and close permanently? What are we going to see with occupancy rates and our hotels, and the lodging industry? Are they going to come in after December and start appealing their taxes and lowering their tax rate?”

During the Great Recession, the state had started its recovery by the time property taxes started to decline in 2010, Hackbarth said. Statewide property values fell 18 percent, he said, with some communities losing 30 to 50 percent of their tax bases. Due to the tax structure, many still haven’t regained those lost levels. 

“There’s a lot of fear,” Hackbarth said among municipalities as they consider their budgets after COVID-19.  

 “What will those tax value appeals look like this spring?”

The Honigman attorneys say some of next year’s appeals could be coming from building owners who start a 2019 appeal by the end of August. They say that could be an advantage to someone pursuing tax breaks.

“It may be easier to get a settlement if you can have two years that you use … instead of one,” Shapiro said. 

The tax tribunal doesn’t gather data by the types of property seeking appeals, according to a state spokesperson. It also has no record of the dollar values of adjustments either sought or awarded in the appeal process, according to the state. Clients of Honigman received value reductions worth more than $1 billion in true cash value since 2017, according to the firm.

Meanwhile, movement on appeals may move more slowly than usual, Shefman said. He’s seen some delays in responses to motions, and expects that could continue.

“The court is being more lenient in extending timeframes,” he said. “The municipalities aren’t happy about it, but the owners are.”

Editor's note: An earlier version of this story included a headline that incorrectly listed which taxes can be appealed.