Terms Used in Michigan Property Tax Administration

What are ?mills?, ?Taxable Value? and those other terms?

Lets begin by saying that all ad valorem taxes except ?special assessments?  are calculated by multiplying a millage rate times a property value.   Thus ?X? number of  mills times some property value in dollars produces a property tax -  expressed in dollars.

Q.        What is a ?mill? anyway?

A.      One mill is equal to one tenth of one penny or one 1/1000 of a dollar.  Mills are used to calculate property taxes.   When a ?millage rate? is used to calculate a property tax the formula is always:     The Millage Rate times ?Taxable Value? Equals the tax levy.


          If you live in an area where the total millage levied on all homes is 32 mills and if the ?Taxable Value? of your home were $50,000


          Your property tax would be equal to   .032 X $50,000  = $1,600

Often people involved in taxation on a routine basis will refer to the millage rate in terms of ?dollars per thousand?.   This type of reference tends to simplify the tax calculation by making big numbers smaller and decimal numbers whole numbers. For example, the same tax calculation  could be expressed as $32 of taxes for every $1000 of taxable value. 

Thus the formula used becomes:

                                      $32 X 50 =  $1,600


          According to Michigan property tax statutes, there are several kinds of ?value.?  There are ?assessed values, county equalized values, state equalized values, capped values, and taxable values.  

"True cash value" is a constitutional term used in Const 1963, art 9, ? 3: The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property . . . . The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed . . . ; and for a system of equalization of assessments.

The statutory definition of "true cash value," provided by MCL 211.27(1), is "the usual selling price at the place where the property to which the term is applied is at the time of assessment, being the price that could be obtained for the property at a private sale," as opposed to an auction or forced sale. The Legislature has provided guidelines for the determination of true cash value as follows:

In determining the true cash value, the assessor shall also consider the advantages and disadvantages of the location; quality of soil; zoning, existing use; present economic income of structures, including farm structures; present economic income of land if the land is being farmed or otherwise put to income producing use; quantity and value of standing timber; water power and privileges; and mines, minerals, quarries, or other valuable deposits known to be available in the land and their value. [MCL 211.27(1).]

On the basis of this broad statutory definition, our Supreme Court has determined that "true cash value" is synonymous with "fair market value." CAF Investment Co v State Tax Comm, 392 Mich 442, 450; 221 NW2d 588 (1974). Therefore, the assessment must reflect the probable price that a willing buyer and a willing seller would arrive at through arm's length negotiation. See Safran Printing Co v Detroit, 88 Mich App 376, 382; 276 NW2d 602 (1979).

         Further complicating the idea of the correct value for a property is the application of  two fundamental principles that must be honored in any determination of a property?s value for taxation:  Equity and Uniformity. 

          For the purposes of calculating taxes, we are only concerned with ?Taxable Value?. ?Taxable Value? is the value used to calculate taxes. But to understand taxable value one should at least be familiar with the intertwined factors cited above.

?Uniformity? means the rules used to determine one property?s value must be ?uniformly? applied to all similar properties.  The value per square foot for similarly built homes must similar.  The contributing value of a swimming pool or hot tub must be equivalent.

?Equity? means that the value estimate must consider all factors effecting value.  Imagine one finds two families that each decide on the same contractor and house plan for a new home.  One family lives in an area where  pollution is discovered shortly after their home was constructed.  The other home is located in a peaceful and well maintained neighborhood.

Issues of pollution can greatly reduce the value of a property.  Application of the "principle of equity" means that the assessor must take into account any factors effecting immediate and long term changes in market values.  So, according to the principle of "uniformity" the initial costs per square foot used by an Assessor to estimate the value of both homes will be identical. However, the value of the home effected by pollution will be reduced according to the constitutional mandate that an assessment must be "equitable." Final ?Taxable Values? for these two properties might be very different.

          The term ?Taxable Value? came into being in 1994 under what is commonly called Proposal A amendments.  Taxable Value is defined by law to mean the lesser of, State Equalized Value or ?Capped? Value.  ?Taxable Value? is the value that by law must be used to calculate taxes.  ?Taxable Value? usually differs from SEV or State Equalized Value. 

         Michigan?s constitution mandates that each property must be assessed at one half of True Cash Value.  This fractional value is known as State Equalized Value or SEV.  It must be calculated each year and must always be ? of True Cash Value.  SEV is never ?capped?.   The ?equalization process? mandated under Michigan?s Constitution requires that local assessment procedures are ?uniform? across the state.  Thus following specific rules, local assessment values undergo a ?County Equalization? process and County Equalization undergoes a ?State Equalization? process.  When the whole thing is done, local values are transformed into State Equalized Values or SEV.

 1994 and 1995 saw a flurry of amendments to state property tax laws that added limitations or ?caps? on annual growth of both taxable value and millage rates used by local jurisdictions.  These caps apply to both increases in property value and taxes levied.

          Remember, Taxable Value is usually less than SEV.  Pursuant to Proposal A  (Public Act 415 of 1994) annual increases in Taxable Value are capped at either the rate of inflation or 5 percent, whichever is lower.  SEV is never capped and is always one half of a property?s market or True Cash Value.  The distinction between SEV and Taxable Value is that SEV always represents one half of a properties ?True Cash Value? and a Taxable Value may be one half of ?True Cash Value? in the beginning, but usually over time factors such as inflation cause ?caps? to kick in and the Taxable Value becomes smaller than the SEV. 

          An important point to remember is that the Taxable Value gets ?reset? so it equals the SEV when a property is sold. This is important, because it causes a new owner of a property to potentially have much higher taxes than the former owner did. The former owner might have had the advantage of the caps on "taxable value" holding down potential increases. Individuals contemplating the purchase of property in Michigan should determine the amount of both the State Equalized Value and Taxable Value on any property being considered.


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