(Supplemented by STC Bulletin 1 of 2003)

Date: October 30, 2002
To: Assessors, Equalization Directors
FROM: State Tax Commission (STC)

RE: PROCEDURAL CHANGES TO BE IMPLEMENTED STARTING IN THE 2003 ASSESSMENT YEAR

Starting with the 2003 assessment year, there are several procedural changes which assessment administrators must be aware of. The purpose of this bulletin is to provide instruction for the procedural changes in the following ten subjects labeled A through J. Each of these subjects will be treated separately in this bulletin. The subjects are:

1. The Inflation Rate Used in the Calculation of 2003 Capped Value

2. The 2003 Model Notice of Assessment, Taxable Valuation and Property Classification Required by Michigan Compiled Law (MCL) 211.24c

3. The Federal Poverty Income Standards Used for Setting Poverty Exemption Guidelines for 2003

4. Updated Multipliers for Freestanding Communication Towers
5. PA 415 of 2000 Regarding Buildings on Leased Land and Certain Leasehold Improvements
6. Revised Table H for Valuing Gas Distribution Pipelines
7. Michigan Supreme Court Ruling in WPW Acquisition Company v City of Troy (No. 118750) Regarding the Calculation of Taxable Value
8. Michigan Supreme Court Ruling in Danse Corporation v City of Madison Heights (No. 119011) Regarding the Special Tools Exemption
9. Alternative Energy Personal Property
10. Electronic Filing of Personal Property Statements

The inflation rate, expressed as a multiplier, to be used in the 2003 Capped Value formula is 1.015.

The 2003 Capped Value Formula is as follows:

2003 CAPPED VALUE = (2002 Taxable Value - LOSSES) X 1.015 + ADDITIONS

The preceding formula does not include 1.05 because the inflation rate multiplier of 1.015 is lower than 1.05.

Attached to this bulletin is a copy of STC (revised) Form L-4400 which is the 2003 Notice of Assessment, Taxable Valuation, and Property Classification. The only changes to the form are those required when going from one year to the next.

MCL 211.7u, which deals with poverty exemptions, was significantly altered by PA 390 of 1994. These changes were explained to assessors in STC Bulletin No. 5 of 1995.

One of the provisions of PA 390 of 1994 is that local governing bodies are required to set income levels for their poverty exemption guidelines and that those income levels SHALL NOT BE SET LOWER by a city or township than the federal poverty income standards as defined and determined annually by the United States Office of Management and Budget. This means, for example, that the income level for a household of 3 persons SHALL NOT be set lower than $14,128 which is the amount shown on the following page for 3 persons. The income level for 3 persons may be set higher than $14,128.

FEDERAL POVERTY INCOME STANDARDS FOR 2003 ASSESSMENTS

The following are the federal poverty income standards as of 12-31-02 for use in setting poverty exemption guidelines for 2003 assessments. Please see STC Bulletin No. 5 of 1995 for additional information regarding the use of these standards.

No. Of Persons Residing in Homestead	Poverty Threshold
1 person Under 65 years	9,214
1 person 65 years and over	8,494
2 persons with householder being under 65 years	11,920
2 persons with householder being 65 years and over	10,715
3 persons	14,128
4 persons	18,104
5 persons	21,405
6 persons	24,195
7 persons	27,517
8 persons	30,627
9 persons	36,286

IMPORTANT NOTE: PA 390 of 1994 states that the poverty exemption guidelines established by the governing body of the local assessing unit SHALL also include an asset level test.

State Tax Commission Bulletin No. 3 of 2000 contains guidance to assessors regarding the valuation of free-standing communication towers (See pages 7 to 9 of STC Bulletin No. 3 of 2000.)

Listed below are updated multipliers for the valuation of free-standing communication towers by the cost approach to value for assessment year 2003.

Public Act 415 of 2000 states 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.

Please see STC Bulletin 8 of 2002 for details about implementation of PA 415 of 2000.

You may access this bulletin on the Department of Treasury's web site at www.michigan.gov/treasury. When you reach the site, click on Local Government and then on State Tax Commission.

The Michigan Tax Tribunal, in its decision in County of Wayne, et al v Michigan State Tax Commission (Docket No. 273674) directed that the multiplier table to value gas distribution pipelines must be remanded to the STC for revision to account for a corrected reconciled value.

The State Tax Commission, at its meeting on June 5, 2002, approved a revised Table H for valuing gas distribution pipelines and related equipment. Revised Table H replaces the original Table H contained in STC Bulletin No. 1 of 2000. Revised Table H was included in STC Bulletin No. 7 of 2002 which can be accessed on the Department of Treasury's web site at www.michigan.gov/treasury. When you reach the site, click on Local Government and State Tax Commission.

G. Michigan Supreme Court Ruling in WPW Acquisition Company v City of Troy (No. 118750)

The Michigan Supreme Court's decision in WPW Acquisition Company v City of Troy, hereinafter referred to as the "WPW Case", states the following:

At issue is the constitutionality of a statutory provision, MCL

211.34d(1)(b)(vii), that purports to include, in certain circumstances, an increase in the value of property because of increased occupancy by tenants within the meaning of "additions". We conclude that this statutory provision is unconstitutional because it is inconsistent with the meaning of the term "additions" as used in Proposal A.

The Court further states in the opinion that the legislature did not have the authority to define additions "…in a way that is inconsistent with the established meaning of that term at the time that it was added to this constitutional provision by the passage of Proposal A."

While it is clear from the ruling in the WPW Case that an increase in value attributable to an increase in a property's occupancy rate is not a legal addition in the capped value formula, it is not clear whether other additions and/or losses are also unconstitutional. It is for this reason that the State Tax Commission voted to request an Attorney General's Opinion regarding this matter. The STC will notify assessors as soon as more information is available.

Note: You may access the WPW Case on the Internet at www.courts.michigan.gov/supremecourt. When you reach the site, click on Search Court Opinions, then click on Docket Number, then enter 118750 and click on Supreme Court and click on Search or at http://courtofappeals.mijud.net/resources/ds.htm.

Danse Corporation v City of Madison Heights, hereinafter referred to as the "Danse Case", involves the interpretation of the Special Tools Exemption provided by Michigan Compiled Law (MCL) 211.9b. MCL 211.9b reads as follows:

Sec. 9b. (1) All special tools are exempt from taxation.

(2) As used in this section, "special tools" means those manufacturing requisites, such as dies, jigs, fixtures, molds, patterns, gauges, or other tools, as defined by the state tax commission, that are held for use and not for sale in the ordinary course of business.

(3) Special tools are not exempt from taxation if the value of the special tools is included in the valuation of inventory produced for sale. (Emphasis added)

STC Rule 21 defines Special Tools as follows:

Rule 21. "Special tools" as used in section 9b of the act, means those finished or unfinished devices, such as dies, jigs, fixtures, molds, patterns, and special gauges, used or being prepared for use in the manufacturing function for which they are designed or are acquired or made for the production of products or models and are of such specialized nature that their utility and amortization cease with the discontinuance of such products or models.

In addition to STC Rule 21, the Commission also provided additional guidelines regarding Special Tools Exemption in Chapter 15 of the Assessor's Manual.

The ruling by the Supreme Court in the Danse Case states that the guidelines in Chapter 15 cannot impose additional requirements for the Special Tools Exemption that are not found in STC Rule 21.

Note: You may access the Danse Case on the Internet at www.courts.michigan.gov/supremecourt. When you reach the site, click on Search Court Opinions, then click on Docket Number, then enter 119011 and click on Supreme Court and click on Search or at Michigan Appellate Digest.

The Supreme Court remanded this matter to the Michigan Tax Tribunal for implementation of its decision as it applies to property owned by Danse Corporation in the City of Madison Heights.

On October 11, 2002, the Tribunal issued a decision on remand in which it concluded that the molds used by Danse Corporation in the production of plastic ridge vents were not exempt as special tools because the utility and amortization of the molds did not cease with the discontinuance of the product by Danse Corporation. A copy of the decision by the Tribunal is attached.

In light of the Tribunal's decision on remand, it appears that if tooling has any utility after the product or model is discontinued by the owner, the tooling DOES NOT qualify for the Special Tools exemption. Because of this ruling, it appears that some tooling that was previously thought to be exempt is now assessable.

In addition, the State Tax Commission, at its meeting on August 27, 2002, stated the following:

1. It is the determination of the State Tax Commission that the Special Tools Exemption applies only to assets such as tools, dies, jigs, fixtures, molds, patterns and gauges. The Special Tools Exemption does not apply to other assets used in the manufacturing process such as machines, presses, and so on.
2. The Commission has determined that it does not have the authority to accept appeals under the authority of MCL 211.154 where the taxpayer properly filed its personal property statement in accordance with the instructions on the personal property statement even if the instructions are later declared by the courts to be wrong. If a taxpayer disagrees with the instructions on the personal property statement, the law permits that person to appeal to the March Board of Review and then to the Tribunal in writing by June 30, not to the State Tax Commission under MCL 211.154.

Public Act 549 of 2002 provides that, for assessment years 2003 through 2012, Alternative Energy Personal Property is exempt from the collection of taxes. There will be a separate STC bulletin addressing this new exemption.

Public Act 267 of 2002 allows a local tax collecting unit to provide for electronic filing of personal property statements, STARTING IN 2003. There will be a separate STC bulletin addressing PA 267 of 2002.