The economic climate in Michigan has caused a downturn in property values in the past few years that have affected the City of Royal Oak. Annual figures set by City Assessor James M. Geiermann and approved by the State Tax Commission show that values, though still decreasing on commercial and industrial properties, are starting to recover in residential properties. Royal Oak’s total tax base or taxable value improved to $2,223,340,000 for an increase of $26,983,710 or 1.23%.
|Royal Oak Taxable Values|
State Equalized Value
The percentage increase in overall value this year (1.23%) in contrast to -0.54% in 2012 reflects a stronger market in Royal Oak when compared to Oakland County as a whole.
Since the enactment of Proposal A in 1994, taxable value has been the base for figuring property taxes in Michigan. (See the adjoining box for a history of taxable values).
The 2012 City tax rate was 11.7261 mills ($11.7261 per $1,000 of taxable value). The rate includes 7.3947 mills for operation, .3363 for fire bonds, .9597 for library bonds, 3.0129 for refuse and recycling, and .0225 for publicity tax.
The State Constitution requires that properties be assessed at 50% of their true cash value. In 1994, Proposal A provided for a limitation on increases relative to property taxes. The intention of this provision was to curb runaway inflation. The limitation was accomplished through a process that restricts increases to the previous year’s taxable value by the rate of inflation or 5%, whichever is less. The 2013 Inflation Rate Multiplier (IRM) is 2.4% compared to 2.7% for 2012.
When a property sells (transfers), the Taxable Value will be uncapped to its State Equalized Value in the next tax year and the capping process begins anew.
A question most frequently asked is, “If a property has an assessed value of $100,000 (meaning a true cash value of $200,000) and I purchase said property for $300,000, is my new assessed and taxable value going to be half the sale price?”
This example describes the practice of “following sales”. As described, the example is both unconstitutional and illegal. In explanation, for the purpose of taxation, properties are appraised on a mass basis. Mass appraisal analysis combines a cost approach for every property that is modified by actual sales that occur over a specific period of time.
Buildings are appraised according to their attributes (story height, square footage, etc.) and grouped as neighborhoods. A neighborhood is a group of properties that enjoy and/or suffer from the same influences. Each neighborhood is reviewed annually and adjusted from sales that have occurred over a one-year period. Each neighborhood sale is reviewed to determine if it is an arms-length transaction that is representative of normal market activity. Each representative sale within the neighborhood is compared to the previous assessed value to see if the neighborhood warrants any adjustment. The Assessed Value of a sale is not, and cannot be, automatically adjusted to 50% of the sale price.