Date: January 8, 2003
TO: Assessors Equalization Directors
FROM: State Tax Commission (STC)

RE: Changes to STC Bulletin 8 of 2002 and Bulletin 15 of 2002 Caused by Public Act (PA) 620 of 2002

Attached is a copy of the first 8 pages of PA 620 of 2002 which was signed by Governor Engler on December 21, 2002 with an effective date of December 23, 2002. (The language of the law that was added by PA 620 of 2002 is underlined on the attached copy of the act.) A copy of the entire act may be accessed on the internet at www.michiganlegislature.org. The bill number is Senate Bill 914.

PA 620 of 2002 amends the General Property Tax Act in several areas. Some of the changes take effect for the 2003 assessment year and some will first take effect for the 2004 assessment year. These changes will be addressed separately in this bulletin by the year in which they first take effect.

1. Changes Starting in Assessment Year 2003

STC Bulletin 8 of 2002 (copy attached) provided directions to assessors regarding the implementation of PA 415 of 2000. The new law, PA 620 of 2002, causes several changes to the procedures previously outlined in STC Bulletin 8 of 2002. In addition to discussing these changes in this bulletin, the language in STC Bulletin 8 of 2002 which no longer applies has been lined out on the attached copy of that bulletin.

1. Leasehold Improvements (LHI) and Freestanding Signs and Billboards

PA 415 of 2000 stated that, STARTING IN ASSESSMENT YEAR 2003, buildings on leased land and certain leasehold improvements shall be assessed on the real property roll, NOT on the personal property roll. While this is still true for buildings on leased land (including taxable improvements at a leased mobile home site located in a licensed park) and for communication towers, this is NO LONGER true for:

1. leasehold improvements (LHI) and structures assessable under Michigan Complied Law (MCL) 211.8h,
2. freestanding outdoor advertising signs and
3. freestanding billboards.

PA 620 of 2002 amended the General Property Tax Act to state that it is no longer a requirement that LHI, freestanding outdoor advertising signs and freestanding billboards be assessed on the real property roll in 2003. Instead, LHI, freestanding outdoor advertising signs, and freestanding billboards will be assessed on the personal property roll in 2003 and thereafter.

Note: LHI will be assessed on the personal property roll to the extent that the value is not already assessed and to the extent that the LHI add to the true cash value of the real property.

2. Changes to MCL 211.34c Regarding the Classification of Certain Assets

PA 415 of 2000 stated that, starting in 2003, buildings on leased land should be classified the same as the land upon which the buildings were located. THIS IS NO LONGER TRUE because that language has been struck from the law by PA 620 of 2002.

Instead, PA 620 of 2002 has amended the classification law (MCL 211.34c) to state the following:

1. Buildings on leased land used for agricultural operations are classified as agricultural real property.
2. Buildings on leased land used for commercial purposes are classified as commercial real property.
3. Buildings on leased land used for industrial or utility purposes are classified as industrial real property.
4. Homes, cottages, and cabins on leased land are classified as residential real property. (Note: This is also true of mobile homes that would be assessable as real property to the owner of the land as provided by MCL 211.2a except that the land on which the mobile homes are located is exempt.)

The classification law (MCL 211.34c) has also been amended to state that ALL outdoor advertising signs and billboards shall be classified as commercial personal property.

3. Trade Fixtures

PA 620 of 2002 provides that, for the purpose of taxation, trade fixtures are personal property. This is not new. The STC has always considered trade fixtures to be personal property. Please see page 6 of STC Bulletin No. 8 of 2002 for an explanation of trade fixtures.

4. Poverty Guidelines Used in the Determination of Poverty Exemptions

PA 620 of 2002 has amended MCL 211.7u by changing the income standards used in the determination of poverty exemptions. This means that the federal poverty income standards found in STC Bulletin 15 of 2002 SHALL NOT be used in the determination of the 2003 poverty exemptions. INSTEAD, the following poverty guidelines SHALL BE USED in the determination of 2003 poverty exemptions:

These are the guidelines that were in effect on tax day 12-31-02. Also, please note that these new standards do not have separate figures based on age.

Please see STC Bulletin 5 of 1995 regarding the administration of the Poverty Exemption.

2. Changes Starting in Assessment Year 2004

1. LHI Separately Included on the Assessment Notice

PA 620 of 2002 states that, STARTING IN ASSESSMENT YEAR 2004, the assessment notice mailed to taxpayers prior to the March Board of Review shall include a separate listing of the State Equalized Valuation and Taxable Valuation for any leasehold improvements.

The STC will alter its 2004 model assessment notice form to include this new requirement.

2. LHI Separately Included on the Assessment Roll

PA 620 of 2002 states that, STARTING IN ASSESSMENT YEAR 2004, the assessment roll shall separately state the assessed value and tentative taxable value of any leasehold improvements.