Important terms
Definitions are based on state of Michigan’s glossary.
State equalized value: One half (1/2) of your property’s true cash value.
Assessed value: Generally the same as state equalized value. The assessed value can be challenged before it becomes the state equalized value.
Taxable value: The value used to calculate your property taxes. A property’s taxable value can only increase annually by the rate of inflation or 5%, whichever is less, unless there is an addition to the property (i.e., physical improvement or omitted property) or the property’s ownership transferred during a previous tax year. A property’s taxable value can also decrease if there is a physical loss to the property. Taxable value may not be the same as the property’s true cash value, assessed value, or state equalized value, but may not be greater than the property’s assessed value or state equalized value.
Detroit property owners taking a look at their 2023 notice of assessment, which have just begun to arrive in the mail, are likely to see a larger-than-usual increase to their property taxes. Home values in many parts of the city are going up, it’s true, but that’s not the reason for the higher taxes. Instead, it’s thanks to unusually high inflation.
Mayor Mike Duggan informed Detroiters of the increase in both home values and taxes in a news conference earlier this month. Detroit home values increased an average of 20% last year, with more than half of homes increasing in value between 20% to 29%. Taxes will increase this year at a lower rate of 5%.
Still, many Detroiters may be skeptical of the city’s assessments.
Detroiters have a painful history with overtaxation, having been overtaxed to the tune of $600 million between 2010 and 2016 alone. Questioning a bigger than usual tax bill is good practice in the city, and there are ways to protest an assessment that seems improperly high before it becomes a tax bill. The City Council is also considering large-scale property tax reform, but the Mayor’s Office and the council are at odds.
How does an assessment lead to a property tax bill?
In Michigan, property taxes are calculated by multiplying the taxable value of a property by the local millage rate.
The taxable value is a nesting doll of different formulas which starts with a local assessment.
In the first full tax year after a property is sold or deeded to a non-blood relative, the taxable value is set to the state equalized value. This is called a “reset” of the taxable value, and from that point forward until the home changes hands again, taxable value goes up or down based on inflation rather than the value of the property, until the taxable value reaches the assessed value.
The local assessor still estimates what properties are worth every year, even if they haven’t been sold recently. This assessment is always half of what the assessor believes to be the “true cash value” of a property. That assessment is temporary. If it’s not challenged by the property owner during a three-week window in February (called the “assessor review”) the property owner loses their right to appeal that assessment until next year. The assessment then becomes the state equalized value.
The local assessor should determine true cash value by using the past two years of sales data along with a host of other factors the Michigan Department of Treasury directs them to take into account, like the size and age of a property and the number of bedrooms in a home.
Where does inflation come in?
Inflation — a measure of the rising price of goods and services, which you may have noticed making your grocery bills soar in recent months — gets baked into the taxable value of properties across the state. The assessment and the state equalized value of a property don’t increase automatically. Instead, they should go up or down based on the specific conditions of the property and nearby property sales. But taxable value goes up or down automatically based on inflation.
Involving inflation as the multiplying factor for property tax rates has been state practice since 1995, after Michigan voters approved “Proposal A” and amended the state constitution. Proposal A caps these annual increases in taxable value at 5% even if the rate of inflation is higher than that, something that happened last year.
Inflation has been low for the last three decades, keeping the multiplying factor for property tax rates under 5%. However in 2023, inflation shot up. The Michigan Department of Treasury set the current multiplier to 7.9% for 2023, based on the national Consumer Price Index. Because the multiplier is more than 5%, the state will use the maximum for the first time since Proposal A took effect.
For example… A person buys a Detroit home in 2021 for $70,000, and the city assessor thinks it’s worth $60,000. Assuming the buyer doesn’t challenge that assessment in 2022, the home’s taxable value resets to the state equalized value of $30,000 (half the property’s value). With a Detroit millage rate of 69.5837, the tax bill in 2022 would be $2,088. In 2023, the taxable value would increase 5% ($1,500) to $31,500 due to inflation. The new tax bill will be $2,192, an increase of $104 over the previous year. credit: Outlier Media/Canva
Outside of everything that goes into determining taxable value, the remaining factor used to set a property’s tax bill is the millage rate. This rate varies based on the school district, city and county.
Since most years experience inflation, it would be possible for Michigan property owners to also pay more each year, but Proposal A included a kind of backstop on property taxes always heading north. State law now keeps the taxable value from ever being higher than the assessed value.
What can you do if you think you are being overtaxed?
During the years the City of Detroit was assessing properties for more than they were actually worth, it was violating the state constitution. After Proposal A, no property can be assessed at more than 50% of its true cash value. This translated into overtaxation for people who bought or were deeded homes during those years. The inflated assessments also kept the taxable value of homes that hadn’t changed hands from coming in line with assessed value. Those residents who lived in their homes for years but had inflated assessments were unlikely to have taxable value hit assessed value and have their taxes stop increasing.
Advocates say problems persist with the city’s assessment process and the assessed values they hand down. They encourage people to pay attention to their notice of assessment and begin an appeal if they think the city is overvaluing their property. Marie Sheehan, director of the Coalition for Property Tax Justice’s Property Tax Appeals project, says appealing is important for people who have bought a home in the last year because of the taxable value reset. Longer-term residents can also benefit from challenging assessments, she said.
“One successful outcome is that you may lower your assessed value but it doesn’t impact your tax bill,” she said. “The second successful outcome is that you lower your assessed value and you are going to see an impact on your tax bill.”
Stephanie Davis, a spokesperson for the city’s chief financial officer, says the city “encourages all property owners to appeal their value, if for no other reason than to understand how the process works.” Davis also maintained “that there are no systemic problems with assessments in Detroit.”
“However, there are 220,000-plus homes in the city and that’s why Detroit puts so much emphasis on the appeals process,” she said.
How to challenge your assessment
The Michigan Department of Treasury began mailing 2023 notices of assessment on Jan. 17. These include the new assessed value, the tentative taxable value and the change in the property’s tax bill for 2023 if the property owner doesn’t successfully challenge the assessed value. State law grants all property owners the right to challenge their assessments. Detroiters will have three weeks, from Feb. 1-22, to challenge their assessments at an assessors review. Those who go to the assessors review will also be able to appeal their assessments before the March Board of Assessors.
Detroit will open online appeals on its website on Feb. 1. For more information or to file online, visit https://detroitmi.gov/PropertyTaxAppeal.
To file an appeal by email, contact assessorreview@detroitmi.gov.
To file an appeal by mail, the appeal must be postmarked to the Office of the Assessor by February 22, 2023. Mail to:
City of Detroit
Office of the Assessor ABOR
2 Woodward Ave Rm 804
Detroit MI 48226-3460
You can also contact the Coalition for Property Tax Justice for help navigating your appeal.
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