January 19, 1995

TO:    City and Township Treasurers, Michigan Municipal League, Michigan Townships Association and County Treasurers

FROM:    Richard L. Baldermann
               Administrator
               Local Audit and Finance Division

RE:    Refund of Property Tax Payments--Procedures

REFUND OF VOLUNTARY PAYMENTS--PROHIBITED

The refund of property taxes paid voluntarily (without protest or duress) is prohibited as stated in the following court decisions:

National Bank of Detroit v. City of Detroit                 272 Mich. 610
Carpenter v. City of Ann Arbor                                 35 Mich. App. 608
Hertzog v. City of Detroit                                          378 Mich. 1
General Discount Corp. v. City of Detroit                  306 Mich. 458

Refunds to escrow agents who provide you with a legal description and/or property identification number with payment of the tax can not be refunded the tax payment one hour, a day or week later upon their request that they paid the tax on an incorrect description. The payment as previously requested by the escrow agent can not be corrected or transferred to another description. In summary, any tax voluntarily paid can not be refunded or adjusted.

Taxes paid under protest or duress (involuntary payment) can not be refunded except pursuant to an order of a court, the Michigan Tax Tribunal or the Michigan State Tax Commission.

DUPLICATE PAYMENTS

The second (duplicate) payment of taxes for the same description must be refunded to the party that made the second payment. A duplicate payment may be received from the taxpayer of record, a financial institution, escrow agent, selling agent, attorney, etc.

PROPOSAL A--HOMESTEAD AFFIDAVIT REFUND PROCEDURE

A refund of non-homestead taxes is issued to the applicant who qualifies for the exemption. The following illustrations are provided for your guidance.

Mr. A sold one of his rental homes to Ms. B on August 17, 1994. Mr. A paid the summer taxes as part of the closing costs. Summer taxes included 100% (most generally 18 mills) non-homestead school taxes. Ms. B moved into the home September 20, 1994 as the owner occupant. Ms. B filed a 50% homestead exemption affidavit (Form T-1058) with the assessor on September 30, 1994. As 100% of the homestead taxes were paid on the summer levy, the assessor referred the 50% adjustment to the December 13th Board of Review. (BOR) The BOR approved the 50% affidavit and authorized the refund of 50% of the non-homestead tax.

The refund check is issued to Ms. B, the person qualified to file the homestead affidavit. By law, Mr. A does not qualify for a homestead exemption on this property. If the property was not sold to a person who qualified as the owner/occupant, the non-homestead levy of 18 mills would be the correct tax levy for this property for the year of 1994.

Mr. X was the owner to two parcels of property, one parcel located in Resort County and the second in Home County. Mr. X filed homestead exemption affidavits for both parcels of property. The Home County property was the legal residence of Mr. X as of May 1, 1994. Mr. X received a 30 day notification letter from Treasury requesting information to verify the county of his legal residence as of May 1, 1994. Mr. X failed to reply within 30 days. Treasury issued homestead denial notices on both parcels of property August 1, 1994. The assessor's of the local units spread the non-homestead taxes on the applicable parcels of property.

Mr. X filed an immediate appeal for a hearing with Treasury on August 10, 1994. On August 20, 1994, Mr. X sold the Home County property to Ms. Z. The 1994 summer taxes that included 100% of the school non-homestead taxes (added because of the denial) were paid at the time of closing for the sale to Ms. Z. Ms. Z moved into the residence on September 25, 1994 and filed a 50% homestead exemption affidavit with the supervisor/assessor on September 27, 1994. The assessor forwarded the exemption affidavit to the BOR.

Mr. X appeared at the Treasury Department hearing on September 20, 1994. At the hearing, Mr. X presented evidence that verified his legal residence as of May 1, 1994, was the property in Home County. Treasury Department issues a notice to the local unit assessor in Home County advising that after due process, the legally owned/occupied residence of Mr. X, as of May 1, 1994, was the property in Home County; that the previously issued denial be rescinded and Mr. X be granted a 100% homestead exemption. Upon receipt of the order from Treasury rescinding the denial, the assessor removed the homestead tax levy from the property in Home County.

Mr. X, who was determined to be the person legally entitled to file and qualify for the non-homestead exemption, as the owner/occupant of the property in Home County, is issued the refund of 100% of the homestead taxes paid at the time of closing. Ms. Z's 50% affidavit is of no effect as the property in Home County on the date of purchase legally did not have a non-homestead tax levy.

However, if Ms. Z had purchased the property in Resort County and 100% of the non-homestead tax was paid at the time of closing, Ms. Z would be issued the 50% homestead tax refund. Ms. Z is the qualifying applicant in this example as the property in Resort County did not qualify for an exemption as of May 1, 1994. It was not the owner/occupied residence of Mr. X.

This letter does not address the question of who was responsible for what taxes as of the date of closing. The answer to that question is a matter between the buyer, seller, their legal advisor and/or the closing agent. The proration of taxes may or may not be addressed in the purchase option. The resolution of who is responsible for what taxes at the time of closing must be determined by the seller/buyer, their legal advisor or the closing agent and the provisions that may be specified in the purchase agreement. Our best suggestion to you as a local unit official is to advise them of that fact and provide them with a copy of this letter.