transfer of ownership and taxable value uncapping guidelines · land contract a transfer of...

TRANSFER OF OWNERSHIP

AND

TAXABLE VALUE UNCAPPING

GUIDELINES

MICHIGAN DEPARTMENT OF TREASURYSTATE TAX COMMISSION/PROPERTY TAX DIVISION

Note: These guidelines have been developed to provide assistance to property owners and assessmentadministration officials regarding transfers of ownership as defined by Michigan statute and the uncapping of aproperty’s taxable value due to a transfer of ownership of that property.

Transfer of Ownership And Taxable Value Uncapping Guidelines

March 31, 2001 Page i of i

TABLE OF CONTENTS

Background Information 1

Transfer of Ownership Definitions 2

Deeds 2

Land Contracts 2

Trusts 3

Distributions Under Wills or By Courts 4

Leases 5

Ownership Changes of Legal Entities (Corporations, Partnerships,

Limited Liability Companies, etc.) 6

Tenancies in Common 6

Cooperative Housing Corporations 7

Transfer of Ownership Exemptions 8

Spouses 9

Tenancies by the Entireties 9

Life Leases/Life Estates 11

Foreclosures and Forfeitures 13

Redemptions of Tax-Reverted Properties 14

Trusts 15

Court Orders 15

Joint Tenancies 16

Security Interests 18

Affiliated Groups 19

Normal Public Trades 20

Commonly Controlled Entities 20

Tax-Free Reorganizations 22

Qualified Agricultural Properties 23

Property Transfer Affidavits 26

Partial Uncapping Situations 29

Delayed Uncappings 30


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Background Information

Note: The Property Tax Division of theMichigan Department of Treasury and theState Tax Commission are not authorized toissue legal opinions. Therefore, the commentsin this publication are not to be considered assuch, but rather as statements of fact as theState Tax Commission and the Property TaxDivision believe them to be.

Note: The State Tax Commission has issuedseveral bulletins pertaining to transfer ofownership and taxable value uncappingissues. The reader is directed to thesebulletins for additional information regardingtransfer of ownership and taxable valueuncapping matters:

Bulletin No. 16 of 1995Bulletin No. 8 of 1996Bulletin No. 3 of 1997Bulletin No. 10 of 2000

Bulletin No. 16 of 1995 addresses theimplementation of the uncapping of anindividual property's taxable value for atransfer of ownership when the assessor isaware of the transfer prior to theadjournment of the March Board of Review.Bulletin No. 8 of 1996 addresses procedures touse when a transfer of ownership isdiscovered after the close of the March Boardof Review. A portion of Bulletin No. 3 of 1997constitutes a supplement to Bulletin No. 16 of1995. Another portion of Bulletin No. 3 of1997 covers changes to the prescribedtreatment of delayed uncapping situationsand constitutes a supplement to Bulletin No. 8of 1996. Bulletin No. 10 of 2000 (issued inpreliminary draft form) addresses thetransfer of ownership exemption for qualifiedagricultural property allowed by Public Act260 of 2000. Bulletin No. 10 of 2000constitutes another supplement to Bulletin No.16 of 1995.

• Why is a transfer of ownership importantwith regard to property taxes?

A transfer of ownership is important with regardto property taxes since, in accordance with theMichigan Constitution as amended by ProposalA of 1994 and Michigan statutes, a transfer ofownership as defined by law results in thetaxable value of the transferred property beinguncapped in the year following the transfer ofownership.

• What is meant by “taxable value”?

Taxable value is the value used to calculate theproperty taxes for a property. In general, thetaxable value multiplied by the appropriatemillage rate yields the property taxes for aproperty.

• What is meant by “taxable valueuncapping”?

Except for additions and losses to a property,annual increases in the property’s taxable valueare limited to 5 percent or the rate of inflation,whichever is less. However, in the yearfollowing a statutory transfer of ownership, thislimitation is eliminated and the property’staxable value is set at 50 percent of theproperty’s true cash value (i.e., the stateequalized value). This is what is meant by“taxable value uncapping”.

Note: A property’s true cash value may not bethe same as its sale price for a variety ofreasons. An assessor must determine the truecash value of a property which has sold in thesame manner that the assessor determines thetrue cash values of properties which have notsold. Therefore, an assessor may notautomatically set an assessed value or ataxable value at half of a property’s sellingprice. “Following sales” as discussed in StateTax Commission Bulletin No. 19 of 1997 isillegal and unconstitutional.



• Can an assessor disregard a statutorytransfer of ownership (i.e., can an assessordecide not to uncap a property’s taxablevalue in the year following a transfer ofownership)?

No. By statute an assessor must uncap aproperty’s taxable value in the year followinga transfer of ownership of that property.

• When did transfers of ownership start?

Statutory transfers of ownership startedJanuary 1, 1995. Prior to that day notransfers of ownership were possible forpurposes of taxable value uncapping.

Transfer of Ownership Definitions

• What is a transfer of ownership?

Michigan statute provides a generaldefinition of what constitutes a transfer ofownership for taxable value uncappingpurposes. Michigan law also defines byexample (with exceptions) what a transfer ofownership is. If a transfer of property (orownership interest) meets one of thesedefinitions and does not fall under one of theexceptions or exemptions noted in the law,that transfer is a transfer of ownership.Transfer of ownership definitions andtransfer of ownership exceptions arecontained in Michigan Compiled Laws(MCL) 211.27a.(6)(a)-(j). Transfer ofownership exemptions are contained in MCL211.27a.(7)(a)-(n).

Note: The general definition of transfer ofownership states that a conveyance of title to,or a present interest in, a property—including beneficial use of the property—isa transfer of ownership.

Note: It is possible for a transfer of propertynot to be a transfer of ownership understatute. It is also possible for transactions or

circumstances to occur which do not transfer aproperty but which are a transfer of ownershipfor taxable value uncapping purposes.

Deeds

• Is a conveyance of a property by deed atransfer of ownership?

Provided no statutory exception or exemptionapplies, a transfer of property by deed is atransfer of ownership.

Land Contracts

• Is a sale by land contract a transfer ofownership?

Provided no statutory exception or exemptionapplies, a transfer of property by land contract isa transfer of ownership.

• If a property is sold by land contract, whendoes the transfer of ownership occur?

The transfer of ownership occurs on the date theland contract is entered into—not the date theland contract is completed (paid in full) and notthe date of a deed in fulfillment of the landcontract.

• Does a second transfer of ownership occurwhen a land contract is paid in full and adeed in fulfillment of the land contract isgiven?

No. The law specifically states that a property’staxable value is not to be uncapped when a deedconveying title to the property is subsequentlyrecorded with the register of deeds.



• Is the assignment of a seller’s interest in aland contract a transfer of ownership?

No, this is considered a transfer of a securityinterest and is exempt by law from being atransfer of ownership.

Note: See also the information regardingsecurity interests contained in thispublication, starting on page 18.

• Is the assignment of a buyer’s interest in aland contract a transfer of ownership?

Yes, provided that no lawful exception orexemption applies. The assignment of a landcontract buyer’s interest in a propertyconveys equitable title to the property and achange in the beneficial use of the propertyoccurs.

Trusts

• Is a conveyance of property to a trust atransfer of ownership?

Yes, provided no statutory exception orexemption applies. However, if the grantorstated on the deed is the settlor (creator) ofthe trust or the settlor’s spouse or both andthe sole present beneficiary of the trust is thesettlor of the trust or the settlor’s spouse orboth, the conveyance is not a transfer ofownership.

• What is a beneficiary of a trust?

A beneficiary of a trust is the person who hasthe enjoyment and beneficial use of theproperty during the life of the trust.

• What is a trustee of a trust?

A trustee of a trust is the person or agent who isappointed to administer the trust. Note thatbanks are often trustees.

• Is a transfer of property by a husband andwife to a trust with the husband and wife andtheir child as present beneficiaries a transferof ownership?

Yes, provided no statutory exception orexemption applies. The child, a presentbeneficiary, is not the settlor of the trust or thesettlor’s spouse.

• Is a transfer of property by a husband andwife to a trust with the husband and wife aspresent beneficiaries and their child as acontingent beneficiary a transfer ofownership?

No. The child is not a present beneficiary. Theonly present beneficiaries are the settlor of thetrust and the settlor’s spouse.

• Is the trustee (or successor trustee) of a trustthe same as the beneficiary of that trust?

Not necessarily. The trustee (or successortrustee) of a trust can be, and often is, acompletely different individual than the trust’sbeneficiary. The beneficiary of a trust is bestdetermined from an examination of the trustinstrument.

• John Doe and Jane Doe are married. Atransfer of property occurred from John Doeand Jane Doe to John Doe and Jane Doe astrustees of the Doe Family Trust. Was thisproperty transfer a transfer of ownership?

It cannot be determined from this informationwhether the property transfer was a transfer ofownership. Information regarding the



beneficiary or beneficiaries of the DoeFamily Trust is required to make a decisionwhether a transfer of ownership occurred.This information is best obtained from thetrust instrument. If the sole presentbeneficiary or beneficiaries were John Doe orJane Doe or both John and Jane Doe, thiswas not a transfer of ownership. If, however,someone other than John Doe or Jane Doewas a present beneficiary of the trust, atransfer of ownership occurred (provided nostatutory exception or exemption applies).

• Is a conveyance of property whichconstitutes a distribution from a trust atransfer of ownership?

Yes, provided no statutory exception orexemption applies. However, a conveyanceof property which is a distribution from atrust is not a transfer of ownership if thedistributee is also the sole present beneficiaryof the trust or the spouse of the sole presentbeneficiary or both.

Note: Not all transfers of property fromtrusts are distributions from the trusts. Atransfer of property from a trust to someoneother than a beneficiary (or contingentbeneficiary) of that trust is not a distributionfrom that trust. It is simply a transfer ofproperty from a legal entity (the trust) to aperson and the transfer should be consideredin that context.

• What happens if the sole presentbeneficiary of a trust changes?

A change in the sole present beneficiary of atrust is a transfer of ownership, unless thechange merely adds or substitutes the spouseof the sole present beneficiary (and providedthat no statutory exception or exemptionapplies).

Distributions Under Wills or By Courts

• Is a conveyance of a deceased person’sproperty as directed by a will or as directedby a court (when there is no will) a transferof ownership?

Yes, provided no statutory exception orexemption applies. However, if the personreceiving the property is the deceased person’sspouse, the conveyance is not a transfer ofownership.

Note: A transfer of ownership exemption existswhich states that a transfer due to a judgment ororder of a court of record (without specificmonetary consideration for the transfer) is not atransfer of ownership. However, the transfer ofownership definition regarding distributionsunder a will or by intestate succession isconsidered more specific than—and thereforeoverrides—this transfer of ownership exemption(even though both statutory provisions mayapply).

• In the case of a distribution of a propertyunder a will or by a court, when does thetransfer of ownership (if any) occur? (Doesthe transfer of ownership occur upon thedeath of the individual involved, upon thedistribution of the property, or at some othertime?)

The transfer of ownership, if any, typicallyoccurs when the property is distributed to theheir(s) which is usually different from the daythe person dies.

Note: However, it is possible for a significantamount of time to pass between an individual’sdeath and the distribution of that person’sproperty under a will or by a probate court. Ifthe distribution process has not proceeded in atypically timely manner and, after a person’sdeath but before the distribution of that person’sproperty, the person’s heir exercises dominionover the property, a transfer of ownership to theheir is considered by the State Tax Commission



to have occurred when dominion was firstexercised by the heir. Dominion in thiscontext means control or beneficial use of aproperty—including occupancy, receipt ofrents, etc.

Example: Individual A owned and occupieda residential property as his homestead.Individual A died intestate (without a will) in1996. As of 2001, the property of individualA had not yet been distributed. However, thechild of individual A began living at theproperty in 1996 (or began renting theproperty to someone else in 1996 andreceiving rents). Under such circumstances,a transfer of ownership is considered to haveoccurred in 1996 even though the propertyhas not been distributed. This example isnot to be construed to mean that a five-yearperiod needs to pass without a distributionfor a transfer of ownership to occur. Therelevant considerations are whether thedistribution process has advanced in atypically timely manner and whether/whenthe heir had dominion over the property.

Leases

• Can the execution of a lease be a transferof ownership?

Yes. A lease of real property, entered intoafter December 31, 1994, is a transfer ofownership if one or both of the followingconditions exists:

1. The lease term exceeds 35 years,including all options to renew the lease.

or2. The lessee has a bargain purchase option.

Note: A bargain purchase option in suchmatters is defined by law as the right topurchase the leased property at the end ofthe lease for 80 percent or less of what theproperty will be worth at the end of the lease.

• Can the leasing of personal property be atransfer of ownership?

Generally no. However, the leasing of personalproperty that is a building on leased land, aleasehold improvement, or a leasehold estatecan be a transfer of ownership.

• When a lease is initiated covering only aportion of a real property parcel, and thelease is for more than 35 years (or contains abargain purchase option), does a transfer ofownership occur?

Yes, provided no statutory exception orexemption applies. However, only the taxablevalue for that part of the property subject to thelease is uncapped in the year following thetransfer of ownership. In other words, a partialuncapping of the parcel’s taxable value occurs.

• If a lessee assigns the lessee’s interest in alease which had an original term of morethan 35 years and which has a remainingterm of more than 35 years at the time of thelease assignment, does a transfer ofownership occur?

Yes, provided no statutory exception orexemption applies. This is a conveyance bylease of a property with a lease term of morethan 35 years and is a transfer of ownership.

• If a lessee assigns the lessee’s interest in alease which had an original term of morethan 35 years and which has a remainingterm of 35 years or less at the time of thelease assignment, does a transfer ofownership occur?

No, since the remaining term of the lease is notmore than 35 years.



Ownership Changes of Legal Entities(Corporations, Partnerships, LimitedLiability Companies, etc.)

• Can the conveyance of an ownershipinterest of a legal entity (such as acorporation, a partnership, etc.) whichowns property be a transfer ofownership—even though title to theproperty remains unchanged?

Yes, a conveyance of an ownership interestin a legal entity (such as a corporation, apartnership, etc.) which owns property is atransfer of ownership of that propertyprovided that the ownership interestconveyed is more than 50 percent of the totalownership interest (and provided that nostatutory exception or exemption applies).

Note: The law states that a transfer ofownership occurs when more than 50 percentof the ownership interest of a corporationchanges. This law, however, is notapplicable to cooperative housingcorporations. Cooperative housingcorporations are discussed separately in thispublication, starting on page 7.

• A conveyance of 25.0 percent of theownership interest in a limited liabilitycompany was completed in 1999. InJanuary of 2000, a conveyance of 25.1percent of the ownership interest of thelimited liability company occurred. Thelimited liability company owns realproperty. Did a transfer of ownership ofthe real property occur? If so, when?

Provided no statutory exception orexemption applies, a transfer of ownership ofthe property owned by the limited liabilitycompany occurred in January of 2000 since,at that point, more than 50.0 percent of theownership interest in the limited liabilitycompany had been conveyed. The property’staxable value is to be uncapped for 2001.

Note: These circumstances are to result in thetotal (100 percent) uncapping of the property’staxable value for 2001. A partial (less than 100percent) uncapping is not authorized in thissituation.

• As of January of 2000, 50.1 percent of theownership interest of a limited liabilitycompany had been conveyed and the taxablevalue of the property owned by the limitedliability company was uncapped for 2001. If,in March of 2002, 50.0 percent of theownership interest in the limited liabilitycompany is conveyed, does another transferof ownership occur?

No. The percentage of ownership interestconveyed is cumulative from the date of the lasttransfer of ownership. Between January of 2001and March of 2002, not more than 50.0 percentof the ownership interest is conveyed.Therefore, no transfer of ownership occurs as ofMarch of 2002.

Tenancies in Common

• What is a tenancy in common?

A tenancy in common is a form of property co-ownership in which the co-owners own a partialinterest in an entire property. When a tenant incommon dies, the ownership interest of thattenant in common goes into the estate of thattenant in common, not automatically to thesurviving tenant(s) in common.

• Does a tenancy in common require that thetenants in common have equal ownershipshares of the property involved?

No. A tenancy in common does not requireequal shares. A different, unequal percentage ofownership interest may be established for eachtenant in common under a tenancy in common.



• Is a conveyance of an ownership interestof property held as a tenancy in common atransfer of ownership?

Yes, provided no statutory exception orexemption applies. However, the transfer ofownership is only for that portion of theproperty ownership which is conveyed.Therefore, a partial uncapping of theproperty’s taxable value in the year followingthe transfer of ownership is possible withtenancies in common.

Example: Individuals A, B, and C owned aproperty as tenants in common. Individual Ahad a 50 percent undivided interest in theproperty and individuals B and C each had a25 percent undivided interest. In 2000,individual A conveyed his/her interest toindividual B (and this conveyance was atransfer of ownership). Under thesecircumstances, a partial, 50 percentuncapping of the property’s taxable valueoccurs for 2001.

Note: The calculations involved in a partialuncapping situation involving a tenancy incommon have been established by the StateTax Commission. See also the example ofthese calculations contained in the partialuncapping situations section of thispublication, on page 29.

• How is a tenancy in common established?

A tenancy in common is generallyestablished by means of a deed or landcontract conveyance. The language relatingto the grantees of the deed or land contractestablishes the tenancy in common.

Examples: If John Doe conveys property toJohn Doe and Jim Smith “as tenants incommon” a tenancy in common is createdand Mr. Doe and Mr. Smith are the tenantsin common. Likewise, if John Doe conveysproperty to John Doe and Jim Smith and nolanguage is provided regarding the nature of

their ownership, a tenancy in common is createdbetween Mr. Doe and Mr. Smith.

Note: If a property is conveyed to a man and awoman and no information is providedregarding the nature of their ownership, atenancy in common is formed, unless the manand the woman are married at that time, inwhich case a tenancy by the entireties iscreated.

• How can the percentages of undividedownership interest of the tenants in commonbe determined?

Often the deed or land contract establishing thetenancy in common will specify the percentagesof undivided ownership interest of the tenants incommon. Sometimes the percentages are notincluded on the deed or land contract. In theabsence of language on the deed or land contractspecifying the percentages of ownership interestof the tenants in common, assessors are advisedto make formal contact with the tenants incommon to determine the various percentages.

Note: When ownership percentages are notstated on the deed or land contract establishinga tenancy in common, it is not advisable toassume equal shares of ownership interest.

Cooperative Housing Corporations

• What is a cooperative housing corporation?

A cooperative housing corporation is a type ofproperty ownership in which the corporationholds title to a housing complex and individualstock holders in the corporation have the right tooccupy an individual dwelling in that housingcomplex.



• Is a conveyance of an ownership interestin a cooperative housing corporation atransfer of ownership?

Yes, provided no statutory exception orexemption applies. However, the taxablevalue of that portion of the property notsubject to the ownership interest conveyed isnot uncapped in the year following theconveyance. In other words, a partial taxablevalue uncapping can occur for a cooperativehousing corporation.

Note: The law states that a transfer ofownership occurs when more than 50 percentof the ownership interest of a corporationchanges. However, starting in 1997, this lawis no longer applicable to cooperativehousing corporations.

• What happens if a cooperative housingcorporation has 100 shares of stock and,during 2001, 15 of the shares are conveyed(and no statutory exception or exemptionapplies)?

A transfer of ownership occurs and thetaxable value of the cooperative housingcorporation property is to be partiallyuncapped for 2002. Since 15 of 100 sharestransferred in 2001, 15 percent of the taxablevalue of the cooperative housing corporationis to be uncapped for 2002.

Transfer of Ownership Exemptions

• What is a transfer of ownershipexemption?

Michigan law specifies that certain transfersof property and ownership interests are nottransfers of ownership for taxable valueuncapping purposes. These types of transfersare known as exempt transfers and thestatutes that provide for these exempttransfers are known as transfer of ownershipexemptions. Transfer of ownership

exemptions are contained in MCL211.27a.(7)(a)-(n).

Note: It is a solidly established principal thatproperty tax “exemption statutes are to bestrictly construed in favor of the taxing unitand against the exemption claimant.”Michigan Baptist Homes & DevelopmentCompany v City of Ann Arbor, 396 Mich 660,669-700; 242 NW2d 749 (1976); LadiesLiterary Club v Grand Rapids, 409 Mich 748,753; 298 NW2d 422 (1980). It is also wellestablished that a person or entity seeking aproperty tax exemption must demonstrateentitlement to the exemption by apreponderance of the evidence and that aproperty tax exemption cannot be inferred orimplied. Holland Home v City of GrandRapids, 219 Mich App 384, 394; 557 NW2d118 (1996); Michigan United ConservationClubs v Lansing Township, 129 Mich App 1,11 (1983). It is the opinion of the State TaxCommission that these principals which applyto general property tax exemptions also applyto transfer of ownership exemptions since atransfer of ownership exemption is simply aform of property tax exemption. Therefore,transfer of ownership exemption statutes mustbe strictly interpreted against the person orentity claiming the exemption and in favor ofthe local taxing unit. Assessors must not infera transfer of ownership exemption or grant atransfer of ownership exemption based onimplication.

• What happens if a transfer of ownershipdefinition applies to a property transfersituation and a transfer of ownershipexemption also applies to the situation?

It is possible for a property transfer situation tobe a transfer of ownership as defined by law andto meet the requirements of a statutory transferof ownership exemption. In such instances,whichever section of the law is most specific isto be followed.



Example: A property was conveyed to aman’s son by an order of a probate courtbecause the man died intestate (without awill). A transfer of ownership exemptionstates, in part, that a transfer of property isnot a transfer of ownership if the transferwas pursuant to an order of a court ofrecord. However, a transfer of ownershipdefinition says, in part, that a transfer ofproperty includes a distribution by intestatesuccession. Both the transfer of ownershipdefinition and the transfer of ownershipexemption apply to the circumstances of thesituation. Since the transfer of ownershipdefinition is more specific than the transferof ownership exemption, a transfer ofownership occurred.

Spouses

• Is a transfer of property from one spouseto the other spouse a transfer ofownership?

As a general rule, a transfer of property fromone spouse to another spouse is not a transferof ownership.

• Is a transfer of property from a deceasedspouse to a surviving spouse a transfer ofownership?

As a general rule, a transfer of property froma deceased spouse to a surviving spouse isnot a transfer of ownership.

• Is a transfer of property between former(divorced) spouses a transfer ofownership?

Yes, provided no statutory exception orexemption applies. No transfer of ownershipexemption exists for property transfersbetween divorced spouses. Therefore, atransfer of property between divorcedspouses is generally a transfer of ownership.

Note: Oftentimes recently divorced spousesmust convey property to one another as part ofthe divorce proceedings. Such transfers ofproperty may be exempt transfers (i.e., notsubject to taxable value uncapping) if theconveyances are solely to terminate a tenancyby the entireties (tenancies by the entireties arediscussed in the following section).

Note: See also the transfer of ownershipexemption information under court orderscontained in this publication, starting on page15.

• Is a transfer of property a transfer betweenspouses if the property is transferred fromone spouse to a limited liability company withthe other spouse as the only member of thatlimited liability company?

No. Even though the second spouse completelycontrols the limited liability company, thelimited liability company is not the secondspouse. A limited liability company is aseparate and distinct legal entity, different froma person. Therefore, such a situation is not atransfer between spouses.

Note: This situation may be a transfer ofownership (if no statutory exception orexemption applies).

Tenancies by the Entireties

• What is a tenancy by the entireties?

A tenancy by the entireties is a form of jointownership where the co-owners are husband andwife. When the husband or wife dies, thesurviving spouse automatically becomes thesole owner of the property. In a tenancy by theentireties, neither the husband nor the wife maysell the property unless the other consents to thesale.


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• How is a tenancy by the entireties formed?

A tenancy by the entireties is established bymeans of a deed or land contract conveyance.The language relating to the grantees on thedeed or land contract establishes the tenancyby the entireties.

Examples: If John Doe conveys property toJohn Doe and Jane Doe “his wife”, atenancy by the entireties is created.Likewise, if Jane Doe conveys property toJohn Doe and Jane Doe “husband and wife”or “as tenants by the entireties”, a tenancyby the entireties is created. Similarly, if JohnDoe conveys property to John Doe and JaneDoe and no language is provided regardingthe nature of their ownership, a tenancy bythe entireties is formed—provided that JohnDoe and Jane Doe are, in fact, husband andwife. In these examples, Mr. and Mrs. Doeare the tenants by the entireties.

• Is a property conveyance completed solelyto create or end a tenancy by the entiretiesa transfer of ownership?

No. A transfer from a husband, a wife, orboth whose sole purpose is to create ordisjoin (terminate) a tenancy by the entiretiesis not a transfer of ownership.

• John Doe and Jane Doe are married.They acquire property from a third party,creating a tenancy by the entireties. Is thisacquisition of property a transfer ofownership?

Yes, provided no statutory exception orexemption applies. Although a tenancy bythe entireties is created by the Does whenthey acquire the property, the creation of thetenancy by the entireties is not the solepurpose of the transaction (the main purposeof the transaction is for the Does to acquirethe property) and a transfer of ownershipoccurs.

• John Doe and Jane Doe were married andowned property as husband and wife. Theybecome divorced and (directly associatedwith the divorce) they deed the propertyfrom themselves as husband and wife to JaneDoe, a single woman. Is this conveyance atransfer of ownership?

No, since its purpose was solely to terminate thetenancy by the entireties.

Note: See also the transfer of ownershipexemption information under court orderscontained in this publication, starting on page15.

• John Doe owns a parcel and then marriesJane Smith who decides to take the surname“Doe”. John Doe then conveys the parcel toJohn Doe and Jane Doe, as husband andwife. Is this conveyance a transfer ofownership?

No, since its purpose is solely to create atenancy by the entireties in the Does.

• John Doe and Jane Doe are married and owna property as husband and wife. They sellthe property to a third party. Is this sale atransfer of ownership?

Yes, provided no statutory exception orexemption applies. The purpose of theconveyance is not solely to end the tenancy bythe entireties. (Instead, the primary purpose ofthe conveyance is to sell the property.)

• If a divorce occurs in a tenancy by theentireties situation, does the form ofownership change?

Yes. If two people own property as husbandand wife, become divorced, and continue to ownthe property, the form of ownership is convertedto a tenancy in common.


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Note: A conveyance from a former spouse toa former spouse may then be a transfer ofownership.

Example: John Doe and Jane Doe owned alakefront cottage property as husband andwife. They then divorced, but both John Doeand Jane Doe continued to own the lakefrontcottage property for several years after thedivorce. The nature of their ownership waschanged from a tenancy by the entireties to atenancy in common by the fact of theirdivorce. Under these circumstances, atransfer of John Doe’s undivided (tenant incommon) interest to Jane Doe would be atransfer of ownership, provided no statutoryexception or exemption applies, and a partialuncapping of the lakefront cottage property’staxable value would result.

• If a man and woman who are not marriedown property and subsequently becomemarried, is the nature of their ownershipof the property automatically converted toa tenancy by the entireties?

No. Based on court decisions and aMichigan Land Title Standard, a tenancy bythe entireties cannot be created by aconveyance to two people who later marry.

Life Leases/Life Estates

• What is a life lease?

A life lease generally occurs when an ownertransfers ownership of his/her property tosomeone else but keeps the right to use,occupy, and control the property duringhis/her lifetime.

Note: A life lease must be in writing.

• What is a life estate?

A life estate is the same as a life lease(described above) for taxable value uncappingpurposes.

Note: A life estate must be in writing.

• Is a conveyance of a property with thegrantor retaining a life lease a transfer ofownership?

Generally, a conveyance of a property subject toa life lease retained by the grantor is not atransfer of ownership. This transfer ofownership exemption only applies, however, tothat portion of the property conveyed that issubject to the life lease. Any portion of theproperty conveyed that is not subject to the lifelease does experience a transfer of ownership(provided no statutory exception or exemptionapplies) upon the conveyance of the property.A partial uncapping can, therefore, occur withconveyances involving life leases.

• In 2001 Jane Doe conveys her residentialproperty to her son, retaining a life estate onthe entire parcel. Is this a transfer ofownership?

No. A life estate was retained by the grantor,Jane Doe, and this life estate covers the entireproperty.

• In 2001 Jane Doe conveys her residentialproperty to her son, retaining a life estate onthe entire parcel. In 2003, Jane Doe dies.Does the death of Jane Doe result in atransfer of ownership?

Yes, provided no statutory exception orexemption applies. A transfer of ownershipoccurs upon the death of Jane Doe since herdeath terminated the life estate. The taxablevalue of the property must be uncapped for the2004 tax year.


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• In 1983 (before passage of Proposal A)Jane Doe conveyed her residentialproperty to her son, retaining a life estateon the entire parcel. In 2001 Jane Doedies. Does the death of Jane Doe result ina transfer of ownership?

Yes, provided no statutory exception orexemption applies. A transfer of ownershipoccurs upon the death of Jane Doe since herdeath terminated the life estate. The fact thatthe life estate was established prior toProposal A is not relevant. Beneficialownership of the property changed to JaneDoe’s son upon her death. The taxable valueof the property must be uncapped for the2002 tax year.

• In 2001 Jane Doe conveys 80 acres to herson, retaining a life estate on 2 of the 80acres and a house located on the 2 acres.Is this conveyance a transfer ofownership?

Yes and no. A transfer of ownership occurswith regard to the 78 acres which are notsubject to the life estate (provided nostatutory exception or exemption applies).No transfer of ownership occurs, however,with regard to the 2 acres and the housewhich are subject to the life estate (untiltermination of the life estate). Therefore, apartial transfer of ownership occurs and apartial uncapping must occur for tax year2002.

• John and Sally Smith own property andgrant John Smith’s mother a life estate forthis property. Is the conveyance of the lifeestate to John Smith’s mother a transferof ownership?

Yes, provided no statutory exception orexemption applies. In this case, the lifeestate was not retained by the grantors asrequired by the law. Beneficial use of theproperty changed from John and Sally Smith

to John Smith’s mother and a transfer ofownership occurred.

• Can an individual who has retained a lifeestate convey that life estate to someone else?

Yes. All privileges granted by the life estatewill transfer to the new holder of the life estate.This is not a transfer of ownership. The lifeestate remains in effect until mutuallyterminated by the owner of the property and thenew life estate holder or until the death of theindividual who had originally retained the lifeestate—not the death of the new life estateholder.

• Can a life estate be retained for other thanresidential purposes? If so, does a life estateretained by the grantor for other thanresidential purposes result in a taxable valueuncapping?

A life estate can be retained for a specificpurpose other than a residential purpose. Thetypes of specific purposes (other than residentialpurposes) are almost limitless. A life estateretained by the grantor for other than residentialpurposes does not result in a taxable valueuncapping for the portion of the propertycovered by the life estate, until termination ofthe life estate—or until use of the property forthe stated purpose of the life estate is notpossible. Any portion of the property notcovered by the life estate is subject to taxablevalue uncapping (provided no lawful transfer ofownership exception or exemption applies).

Note: If circumstances preclude the possibleuse of a property for the purpose of a life estate(whatever that may be), the life estate is to bedisregarded by a local assessor whenconsidering transfer of ownership issues—even though the life estate may legally be ineffect.

Example: John Doe conveys an unimproved 80acre parcel in the northern Lower Peninsula to


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his son, Joe Doe, and retains a life estateover half of the parcel for the stated purposeof grazing cattle. Under thesecircumstances, a partial transfer ofownership occurs upon the conveyance, withthe taxable value of the portion of theproperty covered by the life estate remainingcapped and the taxable value of the portionof the property not subject to the life estatebeing uncapped (provided no statutoryexception or exemption applies). This is thesame treatment the property would receive ifthe life estate were for residential purposes.If two years later the son, Joe Doe,constructs a convenience store on 2 acres ofthe 40 acres covered by the life estate, atransfer of ownership occurs for those 2acres (provided no statutory exception orexemption applies). The reason for this isthat the construction of the convenience storeprecludes the use of that portion of theproperty by the father, John Doe, for grazingcattle (the specified purpose of the lifeestate). Therefore, the life estate no longerapplies to this portion of the property withregard to transfer of ownership issues (eventhough it may still legally be in effect) andanother partial transfer of ownership occurs.

Foreclosures and Forfeitures

• Is a transfer of property due to aforeclosure or a forfeiture a transfer ofownership?

Generally, no. It is not a transfer ofownership when a financial institution or aland contract seller takes a property backthrough foreclosure or forfeiture of amortgage or land contract.

Note: This response applies to foreclosuresof mortgages and land contracts throughcircuit court proceedings, the foreclosure ofmortgages by advertisement, and theforfeiture of property by summaryproceedings.

Note: A Sheriff’s Deed is frequently utilized inforeclosure matters.

• Is a transfer of property through a deed or aconveyance in lieu of foreclosure or forfeiturea transfer of ownership?

No. Such transfers and conveyances are to betreated in the same way as a foreclosure or aforfeiture.

• When the entity or person (bank, landcontract seller, etc.) that has taken a propertyback through foreclosure or forfeiture latertransfers the property, is that transfer atransfer of ownership?

Yes, provided no statutory exception orexemption applies.

• Is there a time limit that a mortgagee (usuallya bank) can hold a property (without atransfer of ownership occurring) afteracquiring it through foreclosure orforfeiture?

Yes. If a mortgagee which has received aproperty through foreclosure or forfeiture doesnot transfer or convey the property within oneyear of the expiration of the redemption period,the taxable value of the property must beuncapped for the following assessment year.

Note: The redemption period in such matters isthe period during which the former owner maypay the debt due and reclaim the property. Theredemption period in such matters varies inlength, but is often six months.

Example: A property is transferred in Januaryof 2002 when a bank forecloses on the property.The redemption period in this instance happensto be 6 months and expires in July of 2002. Ifthe bank still owns the property in July of 2003(one year after the redemption period expires),


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a transfer of ownership occurs and thetaxable value must be uncapped for tax year2004.

Note: The one-year time limit discussed inthis section does not apply to a land contractseller who has reacquired property due to aforeclosure or forfeiture. A land contractseller who has reacquired property throughforeclosure or forfeiture may hold theproperty indefinitely without a transfer ofownership occurring.

• A property was sold on land contract in1999. This sale was a transfer ofownership and the property’s taxablevalue was uncapped for tax year 2000. In2001 the land contract seller takes theproperty back through foreclosure orforfeiture, because the land contract buyerdefaulted on the land contract payments.Should the taxable value for 2000 andsubsequent years be recapped as if the1999 transfer of ownership neveroccurred?

No. The 1999 transfer of property was atransfer of ownership. At that point,beneficial use of the property transferred tothe land contract buyer and the land contractbuyer acquired equitable title to the property.It should also be noted that the equitable titleheld by the land contract buyer could havebeen mortgaged or conveyed to someone else(subject to valid terms of the land contract).This transfer of ownership is not undonewhen the land contract seller takes theproperty back. No statutory authority existsto allow the recapping to be performed. Theuncapped taxable value must remain in placefor 2000 and the 2000 taxable value must beused as the base for subsequent taxable valuedeterminations.

Redemptions of Tax-Reverted Properties

Note: Public Act (PA) 123 of 1999 significantlyaltered the property tax reversion process. As aresult, two different property tax reversionprocesses are currently in effect in Michigan.The old (currently existing) reversion processeswill eventually no longer be in effect; the lastopportunity to purchase a tax lien under the oldreversion processes will be in 2001. Theinformation in this section of the publicationonly applies to the old (currently existing)property tax reversion processes. Under the new(currently existing) property tax reversionprocesses, there can be no tax lien purchases andno transfers by redemption.

• What are tax-reverted properties?

For purposes of this section, tax-revertedproperties are properties with property taxeswhich have not been timely paid and, for thisreason, the property owner no longer has cleartitle to the property.

• What is meant by “redemption”?

As used with regard to tax-reverted properties(see above), “redemption” occurs when theowner of a tax-reverted property buys back(redeems) the tax-reverted property by payingappropriate delinquent taxes and related fees.

• If a tax lien buyer deeds property back to theoriginal owner by quitclaim deed because theoriginal owner has redeemed the property,has a transfer of ownership occurred?

No. This is a transfer by redemption of tax-reverted lands and is not a transfer ofownership.

Example: Taxes have not been paid on aproperty for three years. A tax lien buyerpurchases taxes for the property at a tax sale.The owner then redeems (pays the needed sumto clear the tax lien held by the tax lien buyer)


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within the redemption period. The tax lienbuyer then conveys the property back to theowner by quitclaim deed. The conveyance bythe tax lien buyer back to the owner underthese circumstances is a transfer byredemption and is not a transfer ofownership.

• Does a tax deed convey title to a property?

No. A tax deed can be issued by the State toa tax lien buyer one year after purchase at acounty tax sale by the tax lien buyer ofdelinquent property taxes for a property.This deed signifies the tax lien buyer’sinterest in the property and does not conveytitle to the property.

Note: However, a tax lien holder inpossession of a tax deed may claim title tothe property covered by the tax deed if theowner does not redeem the property withinthe redemption period. A transfer ofownership does occur when a tax lien buyeracquires title to a property. Also, if a taxdeed has been issued and the owner has notredeemed the property within the six monthsafter issuance of the tax deed, it is theopinion of the State Tax Commission that atransfer of ownership has occurred.

Trusts

• Is a conveyance of property to a trust atransfer of ownership in thecircumstances listed below?

The grantor is the settlor (creator) ofthe trust or the settlor’s spouse orboth.

and The sole present beneficiary of the

trust is the settlor of the trust or thesettlor’s spouse or both.

No. If the grantor stated on the deed is thesettlor (creator) of the trust or the settlor’s

spouse or both and the sole present beneficiaryof the trust is the settlor of the trust or thesettlor’s spouse or both, the conveyance is not atransfer of ownership.

Note: See also the information regarding trustscontained in the transfer of ownershipdefinitions section of this publication, startingon page 3.

Court Orders

• Is a transfer of property made due to anorder of a court of record a transfer ofownership?

A transfer of property pursuant to a judgment ororder of a court of record making or orderingthe transfer is not a transfer of ownership—provided that no money is specified orordered by the court for the transfer. If aspecific amount of money is noted in the orderor judgment for the transfer, a transfer ofownership occurs (provided that no othertransfer of ownership exemption or exceptionapplies).

• What is a court of record?

Any court which has been designated as a courtby the legislature is a court of record.

• If, as part of divorce proceedings, a court ofrecord orders that a husband must pay hiswife $25,000 (or any other specific sum) for aproperty owned by them as husband andwife, would this be a transfer of ownership?

Generally, no. Even though the court orderspecifies an amount for the transfer, such atransfer is generally not a transfer of ownershipsince the purpose of the transfer is to disjoin(undo) a tenancy by the entireties (see also thetransfer of ownership exemption informationunder tenancies by the entireties contained inthis publication, starting on page 9). The


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section of law dealing with court orderedtransfers of property does not apply to thistransfer, but the tenancy by the entiretiestransfer of ownership exemption does.Therefore, the transfer is not a transfer ofownership.

Joint Tenancies

• What is a joint tenancy?

A joint tenancy is a form of property co-ownership in which each co-owner owns anequal, partial interest in an entire property.When a joint tenant dies, the decedent’sownership interest goes to the remainingjoint tenant(s), not to the decedent’s heir(s).

Example: Five people own a property asjoint tenants. Each joint tenant has a 20percent interest in the property (100 percentdivided by five people equals 20 percent perperson). If one of the five dies, his/herinterest is divided equally among theremaining four joint tenants, giving each ofthe remaining four a 25 percent interest inthe property (20 percent divided by fourpeople equals 5 percent per person; 5percent per person plus 20 percent perperson equals 25 percent per person).

• Does a joint tenancy require that the jointtenants have equal ownership interests inthe property involved?

Yes. A joint tenancy requires that the jointtenants have equal ownership interests.

Example: A property is owned by fourpeople as joint tenants. Each tenant musthave a 25 percent interest (100 percentdivided by four people equals 25 percent perperson).

• How is a joint tenancy formed?

A joint tenancy is formed by means of a deed orland contract conveyance. The languagerelating to the grantees on the deed or landcontract establishes the joint tenancy.

Examples: If John Doe conveys property toJohn Doe and Joe Smith “as joint tenants”, ajoint tenancy is created. Similarly, if John Doeconveys property to John Doe and Joe Smith“as joint tenants and not as tenants incommon”, a joint tenancy is created. Also, ifJane Jones conveys property to John Doe andJoe Smith “as joint tenants” or “as joint tenantsand not as tenants in common”, a joint tenancyis established. John Doe and Joe Smith are thejoint tenants in these examples.

Note: The word “jointly” used alone todescribe the grantees is not sufficient to create ajoint tenancy. Use of the word “jointly” byitself to describe the nature of the ownershipresults in the creation of a tenancy in common.

• Is a conveyance of property involving a jointtenancy a transfer of ownership?

Such a conveyance may or may not be a transferof ownership depending upon the circumstancesof the conveyance. General rules regardingjoint tenancies are as follows:

A property transfer which creates a newjoint tenancy is not a transfer of ownership ifat least one of the joint owners was anoriginal owner before the joint tenancy wasinitially created.

A property transfer which expands, shrinks,or terminates a joint tenancy is not a transferof ownership if at least one of the personswas an original owner and became a jointtenant when the joint tenancy was originallycreated and that person has remained a jointtenant since the joint tenancy was originallycreated.


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Note: A joint owner at the time of the lasttransfer of ownership of a property is an“original owner”.

• Parent A conveys a property to parent Aand his child B as joint tenants. Is this atransfer of ownership?

No, since parent A is the original owner ofthe property and has remained a joint tenantsince the joint tenancy was created.

• Parent A conveyed property to parent Aand her child B as joint tenants. Parent Alater dies. Is the death of parent A atransfer of ownership?

Yes, provided no statutory exception orexemption applies. Parent A is the onlyoriginal owner in the joint tenancy and, uponthe death of parent A, a transfer of ownershipoccurs because an original owner is no longerpart of the joint tenancy.

Note: The answer to this question remainsthe same even if the joint tenancy betweenparent A and child B was established prior to1995, when transfers of ownership fortaxable value uncapping purposes firstbecame possible. In other words, forcircumstances matching the circumstances ofthis situation, original ownership is not theownership that existed on January 1, 1995when transfers of ownership for taxablevalue uncapping first became possible.Under these circumstances, originalownership is the ownership that existed priorto creation of the joint tenancy, regardless ofwhen that joint tenancy was formed.

• Parent A conveyed a property to parent Aand her child B as joint tenants. Parent Alater conveys her interest to child B orsomeone other than her spouse. Is thislater conveyance by parent A a transfer ofownership?

Yes, provided no statutory exception orexemption applies. Parent A is the only originalowner in the joint tenancy and, when theconveyance occurs, a transfer of ownershipoccurs because an original owner is no longerpart of the joint tenancy.

Note: The note following the answer to theprevious question also applies to this questionand answer.

• Parent A and child B acquire propertytogether as joint tenants from unrelatedindividual C and (for purposes of thisquestion) this acquisition was a transfer ofownership. Later, parent A conveys hisinterest to child B (or someone other than hisspouse). Is this most recent conveyance atransfer of ownership?

No. Parent A and child B acquired the propertytogether from unrelated individual C and thisacquisition was a transfer of ownership. Underthese circumstances, parent A and child B areboth original owners. Since child B, an originalowner, remains in the joint tenancy, no transferof ownership occurs.

Note: The answer to this question remains thesame even if the joint tenancy between parent Aand child B was established prior to 1995, whentransfers of ownership for taxable valueuncapping purposes first became possible. Forcircumstances matching the circumstances ofthis situation, original ownership is theownership that existed when parent A and childB acquired the property as joint tenants sincethey acquired the property together and theiracquisition of the property was a transfer ofownership. Under these circumstances, originalownership is the ownership that existed uponcreation of the joint tenancy.


March 31, 2001 Page 18 of 33

• Individual A conveys a property toindividual A and individuals B and C asjoint tenants. Later, individual A conveysher interest to individual D (who is notindividual A’s spouse). This secondconveyance to individual D is a transfer ofownership (for purposes of this question).After the conveyance to individual D, whois an original owner? If individual B, C,or D were to convey their interest in theproperty to someone, would thatconveyance be a transfer of ownership?

After the conveyance to individual D, allthree individuals B, C, and D are originalowners. The joint tenants in the jointtenancy at the time of a transfer of ownershipare original owners from that point forward.A conveyance by any of these threeindividuals (B, C, or D) would not be atransfer of ownership provided that at leastone of the new original owners (or one oftheir spouses) remained in the joint tenancy.

• Parent A deeds a property to parent A andchild B as joint tenants. Later, child Bconveys his interest back to parent A andthe joint tenancy is terminated. Is thisconveyance by child B a transfer ofownership?

No. Parent A, an original owner, held theproperty throughout and at the conclusion ofthe joint tenancy. Therefore, no transfer ofownership occurs.

• Can a transfer of ownership involving ajoint tenancy result in a partial uncappingof the taxable value of the propertyinvolved?

No, a transfer of ownership involving a jointtenancy cannot result in a partial taxablevalue uncapping (unless other factors areinvolved, such as a purchase of qualifiedagricultural property; see also the partialuncapping situations information near the

end of this publication, starting on page 29). Atransfer of ownership involving a joint tenancymust always result in a total taxable valueuncapping for the transferred property.

• How is an individual’s spouse viewed in theanalysis of a property transfer involving ajoint tenancy?

A person’s spouse is the equivalent of thatperson when analyzing a joint tenancy todetermine whether a transfer of ownership hasoccurred.

Example: Parent A conveys a property toparent A and child B as joint tenants. Later,parent A conveys his interest to individual C. Ifindividual C is not the spouse of parent A, atransfer of ownership occurs (provided nostatutory exception or exemption applies).However, if individual C is the spouse of parentA, individual C is considered the same as parentA and no transfer of ownership occurs.

Security Interests

• What is a security interest?

A security interest is an interest in a propertythat is granted to ensure that a debt will be paid.An example of a security interest is a mortgageto a bank, where the owner of a property gives asecurity interest to the bank which allows thebank to foreclose on the mortgage andeventually take the property involved if therequired mortgage payments are not made.

• Is a transfer to establish, assign, or release asecurity interest a transfer of ownership?

No. A transfer to establish, assign, or relinquisha security interest is not a transfer of ownership.

Examples: The following situations are nottransfers of ownership since these transactions


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establish, assign, or relinquish a securityinterest:

A beginning of a mortgage An end of a mortgage An assignment of a mortgage by one

financial institution to another financialinstitution

An assignment of a seller’s interest in aland contract (see also the informationon land contracts contained in thispublication, starting on page 2)

An equitable mortgage

• What is an equitable mortgage?

An equitable mortgage resembles a deed butis, in fact, a mortgage.

Example: A land owner holds title to aparcel of vacant land and desires to have abuilder construct a home on the parcel. Toensure that the builder (or the bank financingthe home construction) can obtain title to theproperty if necessary due to nonpayment, theland owner deeds the vacant land to thebuilder—with the expectation that theproperty will be deeded back uponcompletion of construction. The builder thenconstructs a home on the parcel for the landowner. The builder then conveys theproperty (land and house) back to the landowner. This scenario is an example of anequitable mortgage (since it would berecognized as a mortgage by a court eventhough it differs from what may be commonlyconsidered to be a typical mortgage).

• Is a transfer of property involving arelocation company a transfer ofownership (to the relocation company)?

Generally, no. A transfer of property(typically a residence) involving a relocationcompany is generally not a transfer ofownership (to the relocation company). Such

a transaction may establish a security interest bythe relocation company.

Example: Individual A is employed by XYZCorporation. XYZ Corporation transferredindividual A from Anywhere, Michigan to LosAngeles, California. As a result, Individual Aexecuted a warranty deed with the name(s) ofthe buyer(s) left blank and provided this deed toa relocation company retained by XYZCorporation. In return, individual A receivedan undisclosed amount of money. The deed wasplaced in escrow until the relocation companycould find a buyer for the property. Thissituation is an example of a transfer involving arelocation company and no transfer ofownership occurs until the property is conveyedto the final buyer (provided that no lawfulexception or exemption applies at that time).

Note: It may take a significant amount of timefor a relocation company to find a final buyerfor a property. The amount of time therelocation company holds the property is notnormally relevant to a determination regardingtransfer of ownership.

Affiliated Groups

• What is an affiliated group?

An affiliated group is one or more corporationsconnected to a common parent corporation bystock ownership.

• Does an entity have to be a corporation to bepart of an affiliated group?

Yes. Entities which are not corporations cannotbe part of an affiliated group.


March 31, 2001 Page 20 of 33

• Is a transfer of a property betweenmembers of an affiliated group a transferof ownership?

No. A transfer of property or ownershipinterests among members of an affiliatedgroup is not a transfer of ownership.

Normal Public Trades

• What is normal public trading?

Normal public trading of shares of stockincludes the usual day-to-day trading ofpublicly held stock.

• Can normal public trading of stocks orother ownership interests be a transfer ofownership?

No. Normal public trading of shares of stockor other ownership interests in a corporationor other legal entity is not a transfer ofownership if the ownership interests are both(1) traded in multiple transactions and (2)involve unrelated individuals, institutions, orother legal entities.

Note: This transfer of ownership exemptionapplies even if the trading cumulatively totalsmore than 50 percent of the total ownershipinterest of the entity.

Note: See also the information regardingownership changes of legal entitiescontained in this publication, contained onpage 6.

• Are certain types of trading transactionsconsidered not to be normal publictrading?

Yes. The six trading situations listed beloware not normal public trading. Any of thesesix trading situations could result in a

transfer of ownership (provided that no statutoryexception or exemption applies):

1. The merger of two or more companies2. The acquisition of one company by another

or by an individual3. The initial public offering (IPO) of the stock

of a company (an IPO occurs when acompany’s stock is first offered for sale tothe public)

4. A secondary public offering of the stock of acompany (a secondary public offeringoccurs when a company whose stock isalready publicly traded issues additionalnew stock for sale to the public)

5. The trading of the stock of a privately heldcompany (a privately held company is acompany whose stock is not available forsale to the public)

6. A takeover involving a public offer bysomeone to buy stock from presentstockholders in order to gain control of acompany

Commonly Controlled Entities

• If entities are commonly controlled, is atransfer of property (or ownership interests)among the entities a transfer of ownership?

No. A transfer of real property (or otherownership interests) among entities that arecommonly controlled is not a transfer ofownership.

• With regard to entities under commoncontrol, what is meant by “entities”?

“Entities” in this context means corporations,partnerships, limited liability companies, limitedliability partnerships, or any other legal entity.


March 31, 2001 Page 21 of 33

• When are entities considered to becommonly controlled?

The State Tax Commission has directed thatMichigan Revenue Administrative Bulletin1989-48 is to be used in determining whetherentities are commonly controlled. Thisbulletin is available on the Internet atwww.treasury.state.mi.us. This bulletindetails three categories of common control:

1. A parent-subsidiary group of trades orbusinesses

2. A brother-sister group of trades orbusinesses

3. A combined group of trades or businesses(a specific combination of a parent-subsidiary group and a brother-sistergroup of trades or businesses)

This Revenue Administrative Bulletin (whichis based on Internal Revenue Serviceregulation 1.414(c)) provides criteria whichmust be met for entities to be commonlycontrolled. Michigan RevenueAdministrative Bulletin 1989-48 is to beconsulted when making a decision whetherentities are commonly controlled.

Note: For entities to be commonlycontrolled under Michigan RevenueAdministrative Bulletin 1989-48, the entitiesmust be engaged in a business activity.Black’s Law Dictionary, Seventh Edition,page 192, defines “business” as “[a]commercial enterprise carried on for profit;a particular occupation or employmenthabitually engaged in for livelihood orgain.” Also, Black’s Law Dictionary,Seventh Edition, page 1500, defines “trade”as “[t]he business of buying and selling orbartering goods or services”. Entities whichare not engaged in a business activity cannotbe entities under common control underMichigan Revenue Administrative Bulletin1989-48.

Example: A husband and wife own theirpersonal residence together as tenants by theentireties. For estate planning and otherpurposes, they convey the property to a limitedliability company of which the wife is the onlymember. The entities involved (the husband andwife and the limited liability company) cannotbe considered entities under common controlunder Michigan Revenue AdministrativeBulletin 1989-48 since no business activityexists in this situation.

Note: Michigan Revenue AdministrativeBulletin 1989-48 refers to Internal RevenueService regulations concerning constructiveownership (also commonly known as ownershipattribution). It is the opinion of the State TaxCommission that, although Michigan RevenueAdministrative Bulletin 1989-48 is to be used indetermining entities under common control, theInternal Revenue Service regulationsconcerning constructive ownership are to bedisregarded. Application of the regulationsregarding constructive ownership (ownershipattribution) would result in transfer ofownership exemptions that were clearly notintended by the legislature.

• Is it possible for entities not to qualify asentities under common control underMichigan Revenue Administrative Bulletin1989-48 yet still be considered entities undercommon control?

Yes. In the opinion of the State TaxCommission, the following circumstancesconstitute a common control situation—eventhough the entities involved may not qualify asentities under common control under MichiganRevenue Administrative Bulletin 1989-48:

Property (or an ownership interest) isconveyed from one entity to anotherentity and both entities are owned by thesame individual(s) with the samepercentage of ownership.


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Property transfers (or transfers of ownershipinterests) under these exact circumstances areconsidered to be transfers betweencommonly controlled entities and nottransfers of ownership.

Example: Individual A and individual B owna lakefront cottage property together astenants in common, each with an undivided50 percent interest. This is the only suchproperty these individuals own and they usethe property solely for recreational purposes,residing there from time to time. Forliability protection purposes, individual Aand individual B convey the property to alimited liability company. Individual A andindividual B are the only members of thelimited liability company, each having a 50percent ownership interest. Even thoughthese entities (individual A, individual B, andthe limited liability company) are not entitiesunder common control under MichiganRevenue Administrative Bulletin 1989-48,these entities are considered to be undercommon control by policy of the State TaxCommission and this property transfer wouldnot be a transfer of ownership.

Example: Individual A and individual B owna lakefront cottage property together astenants in common, each with an undivided50 percent interest. This is the only suchproperty these individuals own and they usethe property solely for recreational purposes,residing there from time to time. Forliability protection purposes, individual Aand individual B convey the property to alimited liability company. Individual A andindividual B are the only members of thelimited liability company, with individual Ahaving a 51 percent ownership interest andindividual B having a 49 percent ownershipinterest. These entities (individual A,individual B, and the limited liabilitycompany) are not entities under commoncontrol under Michigan RevenueAdministrative Bulletin 1989-48. Theseentities also do not qualify as entities undercommon control under the State Tax

Commission policy regarding common controloutside this bulletin for the reason that theirownership interests were not identical beforeand after the transfer. This property transferwould therefore be a transfer of ownership(provided no statutory exception or exemptionapplies).

Tax-Free Reorganizations

• If a transfer of real property (or otherownership interest) results from atransaction that qualifies as a tax-freereorganization under section 368 of theInternal Revenue Code of 1986, is thattransfer a transfer of ownership?

No. A direct or indirect transfer of real property(or other ownership interest) resulting from atransaction that qualifies as a tax-freereorganization under section 368 of the InternalRevenue Code of 1986 is not a transfer ofownership.

• What is meant by “reorganization”?

“Reorganization” in this context can cover anumber of situations such as the following:corporate acquisitions, corporate mergers,corporate divisions, etc.

• What types of entities (individuals,partnerships, limited liability companies,corporations, etc.) are covered by section 368of the Internal Revenue Code of 1986?

Section 368 of the Internal Revenue Code of1986 applies solely to corporations andcorporate reorganizations. This section of theInternal Revenue Code does not apply toindividuals, partnerships, limited liabilitycompanies, or any type of entity other thancorporations. Therefore, the transfer ofownership exemption for tax-freereorganizations applies only to tax-freereorganizations solely involving corporations.


March 31, 2001 Page 23 of 33

A tax-free reorganization that involves anentity that is not a corporation is a transfer ofownership (provided no statutory exceptionor exemption applies).

Qualified Agricultural Properties

• What is qualified agricultural property?

Qualified agricultural property is (1)unoccupied property and related buildingsclassified as agricultural by the local assessoror (2) unoccupied property and relatedbuildings located on that property devotedprimarily to agricultural use as defined bylaw. (See MCL 211.7dd for the definition ofqualified agricultural property. Also, seeState Tax Commission Bulletin No. 4 of1997 for a complete discussion of qualifiedagricultural property.) Qualified agriculturalproperty is entitled to exemption from localschool operating taxes (usually 18 mills).

Note: According to MCL 211.7dd,“[r]elated buildings include a residenceoccupied by a person employed in or activelyinvolved in the agricultural use and who hasnot claimed a homestead exemption on otherproperty” and “[a] parcel of property isdevoted primarily to agricultural use only ifmore than 50% of the parcel’s acreage isdevoted to agricultural use.”

• Is a transfer of qualified agriculturalproperty a transfer of ownership?

A transfer of qualified agricultural propertyis not a transfer of ownership if (1) theproperty remains qualified agriculturalproperty after the transfer and (2) the personto whom the qualified agricultural property istransferred files an affidavit (form 3676,Affidavit Attesting That QualifiedAgricultural Property Shall RemainQualified Agricultural Property) with theassessor and the register of deeds. Thisaffidavit (the format of which is established

by the State Tax Commission) must attest thatthe qualified agricultural property shall remainqualified agricultural property.

Note: See also State Tax Commission BulletinNo. 10 of 2000 for additional informationregarding this transfer of ownership exemption.

• Must an assessor verify that the affidavit(attesting that qualified agricultural propertyshall remain qualified agricultural property)has been filed with the appropriate registerof deeds before granting this transfer ofownership exemption?

It is a requirement of the law that this affidavitbe filed with the appropriate register of deeds inorder for the transfer of ownership exemption tobe granted.

• Is a property which is transferred and whichhas a partial exemption as qualifiedagricultural property—e.g., a 75 percentexemption as qualified agriculturalproperty—eligible for the qualifiedagricultural property transfer of ownershipexemption?

Yes, if the new owner maintains the parcel as 75percent qualified agricultural property and filesan affidavit with the assessor and the register ofdeeds attesting that the property will remain 75percent qualified agricultural property. In thiscase, there would be a partial uncapping of 25percent (for the portion of the property which isnot qualified agricultural property) and the 75percent which is qualified agricultural propertywould remain capped.

• Is a property which is 100 percent qualifiedagricultural property but will be somethingless than 100 percent qualified agriculturalproperty after a transfer—e.g., 75 percent—eligible for the qualified agriculturalproperty transfer of ownership exemption?


March 31, 2001 Page 24 of 33

No. The taxable value of the parcel will becompletely (100 percent) uncapped for thefollowing year (assuming that the transferdoes not qualify for some other transfer ofownership exemption). It is the opinion ofthe State Tax Commission that a reduction inthe percentage of qualified agriculturalproperty exemption results in a totaluncapping of that parcel’s taxable value inthe situation described above. The qualifiedagricultural property transfer of ownershipexemption does not provide for a partialuncapping in this situation.

Note: This answer is based on theassumption that no split of the parcel whichis to be transferred occurs.

• In terms of uncapping, what happens ifonly a part of a qualified agriculturalproperty is converted by a change in useafter a transfer which was exempt fromuncapping due (solely) to the qualifiedagricultural property transfer ofownership exemption?

If part of the property is split from the parceland then the split parcel is converted by achange in use, the taxable value of the splitparcel is uncapped in the following year.The taxable value of the remainder of theparcel which has not been converted by achange in use remains capped.

Note: However, if part of the property isconverted by a change in use prior to or notinvolving a split, the taxable value of theentire parcel is to be uncapped in the yearfollowing the change in use.

• A parcel is 100 percent qualifiedagricultural property and could receive a100 percent qualified agriculturalproperty exemption (either by virtue of itsclass as agricultural or because more than50 percent of the parcel is devoted to anagricultural use as defined by law).

However, the owner, who lives on the parcel,claims the homestead exemption so that hecan also claim a homestead exemption oncontiguous vacant property which isclassified residential. If this parcel istransferred, could the new owner benefitfrom the qualified agricultural propertytransfer of ownership exemption even thoughthe property is not receiving the qualifiedagricultural property exemption?

Yes, provided that the new owner files therequired affidavit with the local assessor and theregister of deeds attesting that the property willremain qualified agricultural property. Statuterequires that a property be qualifiedagricultural property to be eligible for thistransfer of ownership exemption. It is notrequired that the property be receiving thequalified agricultural property exemption tobe eligible for this transfer of ownershipexemption.

Note: The answer to this question is equallyapplicable for parcels which are classed otherthan agricultural by the local assessor.

• What happens if a property receives thequalified agricultural property transfer ofownership exemption and later is convertedby a change in use?

If property is granted the qualified agriculturalproperty transfer of ownership exemption—i.e.,is not uncapped due solely to the transfer ofownership exemption for qualified agriculturalproperty—and is later converted by a change inuse, all of the following must occur:

1. The taxable value must be uncapped in theyear after the year of the conversion by achange in use.

2. The property is subject to the recapture taxassociated with PA 261 of 2000 (theAgricultural Property Recapture Act).

3. The assessor must remove the qualifiedagricultural property exemption from local


March 31, 2001 Page 25 of 33

school operating taxes in the yearfollowing the conversion by a change inuse.1

• How is a property converted by a changein use?

A property can be converted by a change inuse in either of two ways:

1. The actual use of the property changesand the assessor determines that theproperty is no longer qualifiedagricultural property.

2. A purchase is about to occur and, prior tothe purchase, the future purchaser files anotice (form 3677, Notice of Intent toRescind the Qualified AgriculturalProperty Exemption) with the local taxcollecting unit indicating the purchaser’sintent to rescind the qualified agriculturalproperty exemption. (And the sale isconsummated within 120 days of thenotice.)

If either of these two sets of circumstancesoccurs, the property is converted by a changein use.

Note: If the sale is not consummated within120 days of the notice mentioned in item 2above, the property is not converted by achange in use (under item number 2).

Note: The notice mentioned in item number2 above is form 3677 (Notice of Intent toRescind the Qualified Agricultural PropertyExemption). This form is different from—and not to be confused with—form 2743(Request to Rescind Qualified AgriculturalProperty Exemption). These forms are notinterchangeable. Form 3677 is filed beforea change in use occurs. Form 2743 is filedafter a change in use actually occurs.

1 This language is expected to be supported by a technicalchange in the law in the near future.

• When does the conversion by a change in useoccur in the case of a future purchaser filinga notice indicating the purchaser’s intent torescind the qualified agricultural propertyexemption?

In such a case, the property is converted by achange in use on the date that the proper noticeis filed with the local tax collecting unit(provided that the sale is consummated within120 days of the notice).

• If someone acquired a qualified agriculturalproperty and qualified for the qualifiedagricultural property transfer of ownershipexemption but neglected to file the requiredaffidavit, can that person still qualify for theexemption several years later?

Yes. The law allows for the recapping oftaxable value when all five of the followingconditions exist:

1. A purchaser of qualified agriculturalproperty qualified for the qualifiedagricultural property exemption fromuncapping but failed to timely file therequired affidavit.

2. The assessor uncapped the property’staxable value in the year following thetransfer.

3. The purchaser later discovered the error.4. The purchaser then filed the required

affidavit.5. The property was qualified agricultural

property for each year back to, andincluding, 1999.

If all of these five conditions are met, the localtax collecting unit must immediately revise thecurrent tax roll. This is accomplished bychanging the existing uncapped taxable value tothe taxable value the property would have if ithad not been uncapped after the transfer.


March 31, 2001 Page 26 of 33

Note: The recapping requires recalculationof the property’s capped values from the yearthat the property was uncapped to the yearthat the affidavit was finally filed.

Note: The recapping is only for the year thatthe affidavit was filed. No other tax rolls areaffected.

Note: When a property is recapped asdescribed above, the owner of the property isnot entitled to a refund of taxes already paidon the taxable value being recapped. If a taxbill has not been paid and the due date forthe bill occurs after the recapping, therecapped taxable value is to be used for thatbill. (The due date is the last day that taxescan legally be paid without the addition ofpenalty or interest.)

Note: Recapping as described above onlyapplies to an uncapping which occurred in2001 or later. The law does not allowrecapping as described above for the 2000tax year or prior tax years.

• Who authorizes a taxable value recappingfor a transfer involving qualifiedagricultural property?

The local unit can authorize a taxable valuerecapping for a transfer involving qualifiedagricultural property. The local assessorimplements this recapping by completingform 3675 (Assessor Affidavit Regardingthe Recapping of the Taxable Value ofQualified Agricultural Property).

Note: It is not necessary that theserecappings be taken to the July or DecemberBoard of Review, the Michigan Tax Tribunal,or the State Tax Commission. In fact, inmost instances, these bodies do not have thelegal authority to process a taxable valuerecapping of qualified agricultural property.

Property Transfer Affidavits

• What is a Property Transfer Affidavit?

Michigan statutes require that the buyer,grantee, or transferee of a property notify thelocal assessing office when a transfer ofownership occurs. Michigan statutes alsoprovide that this notification is to be made on aform prescribed by the State Tax Commission.This form is the Property Transfer Affidavitand is also known as form L-4260. A currentversion of the Property Transfer Affidavit canbe accessed at the Michigan Department ofTreasury website, www.treasury.state.mi.us.

• Is there a deadline for filing the PropertyTransfer Affidavit?

Yes. The law requires that the PropertyTransfer Affidavit shall be filed with the localassessing office for the local unit of governmentin which the property is located within 45 daysof a transfer of ownership.

• Is there a penalty for failure to file aProperty Transfer Affidavit?

Yes. Michigan law provides a penalty of $5.00per day for each separate failure to file aProperty Transfer Affidavit up to a maximum of$200.00. This penalty begins to accrue after the45-day filing deadline (see above) has passed.

Note: The governing body of a local unit ofgovernment may adopt a resolution waiving this($5.00 per day/$200.00 maximum) penalty. Inthe absence of such a resolution, however, thispenalty must be levied and collected.

Note: If a local assessor becomes aware that atransfer of ownership has occurred but thistransfer of ownership was not timely reportedto the local assessor, additional taxes,penalties, and interest could result.


March 31, 2001 Page 27 of 33

Note: See also the information underdelayed uncappings contained in thispublication, starting on page 30.

• Who receives the $5.00 per day/$200.00maximum penalty?

This penalty is distributed to the local taxcollecting unit.

• Does the $5.00 per day/$200.00 maximumpenalty become a lien on the property?

The State Tax Commission has advised thatthis penalty does not become a lien on theproperty involved. See State TaxCommission Bulletin No. 16 of 1995, page24.

• If a Property Transfer Affidavit does notcontain all required information orcontains incorrect information, has theProperty Transfer Affidavit been timelyfiled? If not, can the $5.00 perday/$200.00 maximum penalty be levied?

It is a statutory requirement that certaininformation (e.g., the parties to the transfer,the date of the transfer, the actualconsideration for the transfer, etc.) bereported to the local assessor when reportinga transfer of ownership. The first 8 boxes onthe Property Transfer Affidavit correspond tothis required information and must becompleted along with the certificationportion of the form. If information ismissing from these required sections or ifthese required sections do not contain correctinformation, the Property Transfer Affidavithas not been properly filed. If a PropertyTransfer Affidavit has not been properlyfiled, the $5.00 per day/$200.00 maximumpenalty is to be levied (unless waived asdescribed on page 26 of this publication).

Note: The State Tax Commission expects thatassessors will make reasonable efforts to workwith property owners to correct inadequatefilings of Property Transfer Affidavits.However, the ultimate responsibility for filing aproperly completed Property Transfer Affidavitrests with the filer.

• Is the Property Transfer Affidavit (or any ofthe information provided on the PropertyTransfer Affidavit) confidential?

No. As noted on the form, neither the PropertyTransfer Affidavit itself nor the informationcontained on this form is confidential.

Note: The Property Transfer Affidavit shouldnot be confused with a Real Property Statement(form L-4182). Information contained on a RealProperty Statement is confidential (see AttorneyGeneral Opinion 93-035 dated June 29, 1993).

• Who is required to file the Property TransferAffidavit?

Michigan law specifies two possibilities for theparty responsible for filing the Property TransferAffidavit. Under MCL 211.27a.(6)(h) whichpertains to a transfer of more than a 50 percentownership interest in a legal entity (such as acorporation, partnership, etc.) which ownsproperty, the Property Transfer Affidavit mustbe timely filed by either that legal entity or bythe buyer, grantee, or other transferee of theproperty. In all other transfer of ownershipsituations, Michigan law specifies that thebuyer, grantee, or other transferee of theproperty must timely file the Property TransferAffidavit.

• Must a Property Transfer Affidavit be filedwhen a transfer of property (or ownershipinterest) is not a transfer of ownership?

No. A Property Transfer Affidavit must only befiled when a transfer of property (or ownership


March 31, 2001 Page 28 of 33

interest) is a transfer of ownership. Sometransfers are transfers of ownership and someare not. If a transfer of property (orownership interest) is not a transfer ofownership, the Property Transfer Affidavit isnot legally required to be filed.

Note: However, the Property TransferAffidavit was designed to be filed even insituations where no transfer of ownershiphas occurred. The form was designed toallow parties involved in transactions whichwere not transfers of ownership but whichmay appear to have been transfers ofownership to alert the local assessor that thetransactions were not transfers of ownership(and should not result in taxable valueuncappings). Property owners are thereforeencouraged to submit Property TransferAffidavits even in situations where notransfer of ownership has occurred. Doingso helps avoid incorrect taxable valueuncappings.

• Can notification of a transfer of ownershipbe made by means other than a PropertyTransfer Affidavit?

Under the law, a transfer of ownership mustbe reported using a Property TransferAffidavit (form L-4260). No substitutereporting means is permitted (i.e., asubstitute reporting means will not fulfill thestatutory transfer of ownership reportingrequirement). However, it is permissible tosubmit additional documentation (e.g., acover letter and/or copies of relateddocuments) along with a Property TransferAffidavit. Property owners are encouragedto submit additional documentation asneeded to inform local assessors of relevantcircumstances associated with transfers ofproperty (or ownership interests). Additionaldocumentation is often needed by a localassessor to make a decision whether atransfer of ownership has occurred.

• Can the recording of a document—such as adeed—with the register of deeds serve asnotification of a transfer of ownership?

No. As stated above, notification of a transferof ownership must be made using a PropertyTransfer Affidavit (form L-4260).

• Can a local assessor require documentationin addition to a Property Transfer Affidavitto make a decision whether a transfer ofproperty (or ownership interest) was atransfer of ownership?

Local assessors have the responsibility todetermine whether transfers of property (orownership interests) are transfers of ownershipunder the law. To make this determination,local assessors will sometimes need informationthat is not contained on the Property TransferAffidavit. Therefore, although a local assessorcannot require documentation in addition to aProperty Transfer Affidavit, a local assessor cancertainly request that additional documentation(e.g., copies of trust instruments, partnershipagreements, articles of incorporation, limitedliability company operating agreements, etc.) besubmitted.

Note: Often the documentation needed by anassessor to make a transfer of ownershipdetermination is sensitive in nature. Assessorsare advised to treat sensitive documents whichcome into their possession with discretion, evenif the documents could be considered to bepublic records.

Note: As discussed in this publication,assessors must not infer a transfer ofownership exemption or grant a transfer ofownership exemption based on implication. Ifan assessor has reason to believe that atransfer of ownership may have occurred but isunsure whether the transfer was a transfer ofownership because relevant information hasnot been provided to (or has been withheldfrom) the assessor, it is the clear duty of theassessor to uncap the taxable value of the


March 31, 2001 Page 29 of 33

property involved for the year following thetransfer.

Partial Uncapping Situations

• What is a partial uncapping situation?

A partial uncapping situation is a situationwhere a transfer of ownership has occurredbut the prescribed treatment for theproperty’s taxable value in the year followingthe transfer of ownership does not involvesetting the property’s entire taxable value atthe property’s state equalized value (50percent of the property’s true cash value) asis usually required. Instead, only a portion ofthe property’s taxable value is set at (acorresponding portion of) the property’s stateequalized value; the remainder of theproperty’s taxable value remains subject tocapped value limitations.

Example: Jane Doe and her sisters, MaryDoe and Sally Doe, own a parcel of propertytogether as tenants in common, each with anundivided 1/3 interest. In 2001 Jane Doetransfers her undivided 1/3 interest in theparcel to Mary Doe and this transfer is atransfer of ownership (assumed for thisexample). The 2002 taxable value of theparcel is to be partially uncapped due to this(partial) transfer of ownership—i.e., the2002 taxable value of the parcel is to beuncapped 1/3 to match the undividedownership interest conveyed from Jane Doeto her sister. In accordance with State TaxCommission guidelines, the 2002 taxablevalue for this parcel would be determined asfollows:

(0.333 x 2002 state equalized value)+ (0.667 x 2002 capped value)

2002 taxable value

Note: The above formula is in accordance withestablished State Tax Commission guidelines forpartial taxable value uncapping in a tenancy incommon (undivided interest) situation. Themathematical procedures in other partialuncapping situations may differ from theabove formula. If, for instance, a life lease isretained by a grantor for a portion of aproperty, a partial transfer of ownership occurs(provided no lawful exception or exemptionapplies). In such a case, the taxable valuecorresponding to the true cash value of theportion of the property not covered by the lifelease is uncapped, while the taxable valuecorresponding to the remainder of the true cashvalue of the property remains capped.

• Under what circumstances can a partialtaxable value uncapping occur?

Transfers of ownership may (or will) result inpartial uncapping situations under the followingsix sets of circumstances:

1. Tenancy in common2. Long-term (or bargain purchase option)

lease of a portion of a parcel (e.g., a regionalshopping center)

3. Cooperative housing corporation4. Life lease retained by the grantor for a

portion of a parcel (e.g., a house and 2 acresof a 40 acre parcel)

5. Prior-year split of a parcel discovered afterthe close of the current year March Board ofReview

6. A parcel with a partial qualified agriculturalproperty exemption

The capped value used is to be determined as if no transfer

of ownership had occurred. This example assumes that the 2002 state equalized value is

greater than the 2002 capped value (calculated as if no transferof ownership occurred). If this is not the case, the 2002 stateequalized value should be used instead of the 2002 cappedvalue in the formula.


March 31, 2001 Page 30 of 33

These are the only circumstances (of whichthe Property Tax Division staff is presentlyaware) that may result in a partial taxablevalue uncapping due to a transfer ofownership. All other transfers ofownership must result in a completetaxable value uncapping. It is specificallynoted that transfers of ownershipinvolving joint tenancies cannot result in apartial uncapping (unless one of the sixsets of circumstances listed above alsoapplies). It is also specifically noted thattransfers of ownership due to changes ofownership interest of a legal entity (e.g., acorporation, limited liability company,etc.) cannot result in a partial uncapping(unless one of the above sets ofcircumstances also applies).

Note: This publication contains additionalinformation regarding items 1 through 4 and6 above. See also the applicable sections ofthis publication.

Delayed Uncappings

• What is a delayed uncapping?

For various reasons, it sometimes happensthat the taxable value of a property is notuncapped in the year following a transfer ofownership as required by statute. At somelater time (after the close of the March Boardof Review in the year following the transferof ownership), this situation is discoveredand the property’s taxable value is uncapped.This later taxable value uncapping is called adelayed uncapping.

• What are the causes of delayeduncappings?

There are two main causes of delayeduncapping situations:

1. A failure on the part of the transferee(buyer) of a property to file a PropertyTransfer Affidavit in a timely manner asrequired by law

2. A clerical error on the part of the assessor ora mutual mistake of fact

The procedures for handling delayeduncappings depend upon the cause and aredetailed below.

Note: See also the information regardingtransfer of ownership notification requirementscontained in the Property Transfer Affidavitssection of this publication, starting on page 26.

• What happens if a delayed uncapping is theresult of a failure on the part of thetransferee (buyer) of a property to file aProperty Transfer Affidavit in a timelymanner?

If a local assessor becomes aware that a taxablevalue of a property was not uncapped in the yearfollowing a transfer of ownership of thatproperty and this situation resulted from afailure on the part of the transferee of theproperty to file a Property Transfer Affidavit ina timely manner (and the March Board ofReview has closed for the year following thetransfer of ownership), the assessor mustimmediately uncap the taxable value of theproperty for the year following the transfer ofownership. The assessor must also thenrecalculate the taxable values of subsequentyears, if any, using the uncapped taxable valueas a base. The assessor must complete aseparate form L-4054, Assessor AffidavitRegarding “Uncapping” of Taxable Value,for each year that the property’s taxable valueneeds to be changed (i.e., if the taxable valuesfor five years need to be changed, the assessorwill need to complete five forms L-4054).Affected assessment rolls and tax rolls areupdated accordingly as well. Ultimately, theproperty owner will be billed for taxes based onthe uncapped and recalculated taxable values.


March 31, 2001 Page 31 of 33

Note: The answer provided above is notintended to be a complete listing of delayeduncapping procedures. See State TaxCommission Bulletin No. 8 of 1996 (and itssupplement contained in State TaxCommission Bulletin No. 3 of 1997) for amore comprehensive discussion of delayeduncapping procedures and issues.

Note: A completely different procedure isrequired if a delayed uncapping is necessarydue to a clerical error by the assessor or amutual mistake of fact.

Note: The procedures discussed above donot apply if there has been another transferof ownership of this same propertysubsequent to the (prior) unreported transferof ownership. If this is the case, differentrules apply; these rules are discussed at theend of this section of the publication.

Note: Forms L-4054 can be obtained fromthe Michigan Department of Treasurywebsite, www.michigan.gov/treasury.

• Is there a limit on the number of years ofadditional property taxes a propertyowner can be made to pay if that propertyowner failed to report a transfer ofownership in a timely manner?

No, there is no limitation. If a delayeduncapping is the result of a failure on the partof a transferee of a property to file a PropertyTransfer Affidavit in a timely manner,additional taxes, penalties, and interest mustbe levied for all years affected. Theinterest and penalties originate from thedate the tax would have been originallylevied if the property’s taxable value hadbeen uncapped at the proper time.

Example: In 2001 a property owner does notfile a Property Transfer Affidavit to report atransfer of ownership that occurred in 2001and the property’s taxable value is notuncapped for 2002. In December of 2020 the

property is still owned by the same individualand it is discovered by the assessor that atransfer of ownership occurred in 2001 and theproperty’s taxable value was not uncappedbecause the property owner did not report thetransfer of ownership. Under thesecircumstances, a billing will occur for alladditional taxes due to the delayed uncapping,along with associated penalties and interest.The additional taxes will be for the years 2002through 2020.

• Does a property owner who failed to file aProperty Transfer Affidavit in a timelymanner have any appeal rights when theproperty’s taxable value is uncapped in adelayed manner?

Yes. MCL 211.27b specifies, however, thatsuch “[a]n appeal…is limited to the issues ofwhether a transfer of ownership has occurredand correcting arithmetic errors.”

Note: When an assessor uncaps a taxablevalue under these circumstances (i.e., adelayed uncapping due to a failure on the partof a transferee to report a transfer ofownership in a timely manner), the assessormust immediately notify the transferee inwriting that it is the assessor’s determinationthat a transfer of ownership occurred and thatthe taxable value of the transferred propertyhas been uncapped. At that time, the assessormust also advise the transferee of thetransferee’s right to appeal the matter to theMichigan Tax Tribunal. This appeal is to bemade within 35 days of receiving the noticefrom the assessor.

• Can a delayed uncapping due to the failure ofa transferee to file a Property TransferAffidavit in a timely manner be processed bya July or December Board of Review?

No. No legal authorization exists for a July orDecember Board of Review to process adelayed uncapping under these circumstances.


March 31, 2001 Page 32 of 33

Further, the State Tax Commission hasdirected that “[t]he assessor and the treasurershall not obstruct, interfere with, orneedlessly delay the process of uncappingtaxable value and collecting the ‘additionaltaxes’[,] interest, and penalty.” In addition tonot being legally authorized, processingdelayed uncappings in these circumstancesby the July or December Board of Reviewwould (usually) delay the taxable valueuncapping and associated tax collection.

• What happens if a delayed uncapping isthe result of a clerical error on the part ofan assessor or a mutual mistake of fact?

If a delayed uncapping is the result of aclerical error on the part of an assessor or amutual mistake of fact, the delayeduncapping is to be processed by the July orDecember Board of Review using the sameprocedures that are used to process otherclerical errors and mutual mistakes of fact.These procedures include notifying theproperty owner that the assessor willrecommend a delayed uncapping to the Julyor December Board of Review (to allow theproperty owner an opportunity to appear).These procedures also include advising theproperty owner of the right to appeal to theMichigan Tax Tribunal within 30 days of theJuly or December Board of Review action.Ultimately, the property owner will likely bebilled for taxes based on the July orDecember Board of Review action to uncapand recalculate the parcel’s taxable value(s).

Note: The answer provided above is notintended to be a complete listing of delayeduncapping procedures. See State TaxCommission Bulletin No. 8 of 1996 (and itssupplement contained in State TaxCommission Bulletin No. 3 of 1997) for amore comprehensive discussion of delayeduncapping procedures and issues.

Note: A completely different procedure(discussed earlier in this section of the

publication) is required if a delayed uncappingis necessary due to a failure on the part of atransferee of a property to file a PropertyTransfer Affidavit in a timely manner.

• Is there a limit on the number of years ofadditional property taxes for which aproperty owner can be liable if a delayeduncapping is the result of a clerical error onthe part of the assessor (or a mutual mistakeof fact)?

Yes. As discussed above, such delayeduncappings are processed by the July orDecember Board of Review. The authority ofthe July or December Board of Review in suchmatters is limited to correction for the currenttax year (the year the error or mistake iscorrected) and the immediately preceding taxyear. Although assessors are required torecalculate taxable values starting with the yearfollowing the transfer of ownership, only thetaxable values for the current tax year and, ifappropriate, the immediately preceding tax yearcan be corrected.

Example: In May of 2001 a local assessordiscovers that a transfer of ownership occurredin 1996 and that the taxable value of theproperty involved was not uncapped for 1997(even though the transfer was timely reported bythe buyer of the property using a PropertyTransfer Affidavit). The assessor also verifiesthat the reason for the failure to uncap theproperty’s taxable value was a clerical error onthe part of the assessor (or the assessor’s staff).Under these circumstances, the taxable valuesfor the property for 1997 through 2001 will berecalculated. However, only the 2000 and 2001taxable values can (and must) actually bechanged by the 2001 July or December Board ofReview. The property owner will be billed forthe additional taxes for these two years.


March 31, 2001 Page 33 of 33

• What happens if a local assessor becomesaware of a transfer of ownership whichdid not result in a taxable value uncappingdue to a failure on the part of thetransferee to file a Property TransferAffidavit in a timely manner, but asubsequent transfer of ownership hasoccurred for this same property?

Under these circumstances, Michigan lawallows the local taxing unit to sue thetransferee who did not report the first transferof ownership. The local taxing unit may suefor all of the following:

1. Any additional taxes that would havebeen levied from the date of transfer ifthe transfer of ownership had beenreported as required

2. Interest and penalty from the date the taxwould have been levied

3. A penalty of $5.00 per day up to $200.00for failure to file a Property TransferAffidavit (the $5.00 per day begins toaccrue after the 45-day deadline to filethe form; see also the informationcontained in the Property TransferAffidavits section of this publication,starting on page 26)

The taxable value(s) of the property are notactually changed due to the first transfer ofownership. Also, the additional taxes, etc. donot become a lien on the property.

Note: It is the former owner, not the currentowner, who can be sued. The current ownerof the property is not held responsible for theadditional taxes, etc. which are the result ofa previous owner’s failure to timely file aProperty Transfer Affidavit.

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