The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6851

May 25, 1995

CONSTITUTIONAL LAW:

Taxation of property under 1905 PA 282 and the 1963 Michigan Constitution

TAXATION:

Taxation of property under 1905 PA 282 and the 1963 Michigan Constitution

Property taxable under Const 1963, art 9, Sec. 5, and 1905 PA 282 is not subject to the cap on taxable values contained in Const 1963, art 9, Sec. 3.

Roland C. Andersen

Secretary

State Board of Assessors

4th Floor, Treasury Building

Lansing, Michigan 48922

You have asked if property taxable under Const 1963, art 9, Sec. 5, and 1905 PA 282, MCL 207.1 et seq; MSA 7.251 et seq, is subject to the cap on taxable values contained in Const 1963, art 9, Sec. 3.

On March 15, 1994, the people voted to amend two sections of Const 1963, art 9, Secs. 3 and 5, pertinent to your question. As amended, section 3 provides as follows:

The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law except for taxes levied for school operating purposes. 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, which shall not, after January 1, 1966, exceed 50 percent; and for a system of equalization of assessments. For taxes levied in 1995 and each year thereafter, the legislature shall provide that the taxable value of each parcel of property adjusted for additions and losses, shall not increase each year by more than the increase in the immediately preceding year in the general price level, as defined in section 33 of this article, or 5 percent, whichever is less until ownership of the parcel of property is transferred. When ownership of the parcel of property is transferred as defined by Law, the parcel shall be assessed at the applicable proportion of current true cash value. The legislature may provide for alternative means of taxation of designated real and tangible personal property in lieu of general ad valorem taxation. [Emphasis added.]

The 1994 amendment added the underscored language capping assessments on parcels until ownership of the parcels is transferred.

As amended in 1994, Const 1963, art 9, Sec. 5, provides:

The legislature shall provide for the assessment by the state of the property of those public service businesses assessed by the state at the date this constitution becomes effective, and of other property as designated by the legislature, and for the imposition and collection of taxes thereon. Property assessed by the state shall be assessed at the same proportion of its true cash value as the legislature shall specify for property subject to general ad valorem taxation. The rate of taxation on such property shall be the average rate levied upon other commercial, industrial, and utility property in this state under the general ad valorem tax law, or, if the legislature provides, the rate of tax applicable to the property of each business enterprise assessed by the state shall be the average rate of ad valorem taxation levied upon other commercial, industrial, and utility property in all counties in which any of such property is situated. [Emphasis added.]

This constitutional provision provides for taxation and assessment of the property of certain public service businesses, including railroad and telephone companies, by the state. It is implemented by 1905 PA 282, which imposes a state property tax on certain public service businesses. Const 1963, art 9, Sec. 5, was amended by the people in 1994 to change the rate of taxation upon these public service businesses. No language capping assessments, like that added to art 9, Sec. 3, was added to art 9, Sec. 5.

Taxes levied upon the property of certain public service businesses under 1905 PA 282, supra, are property taxes upon the value of these properties "levied [by the state] in lieu of local property taxes." Duluth, S S & A R Co v Corp & Sec Comm, 353 Mich 636, 666; 92 NW2d 22 (1958), cert den 359 US 310; 79 S Ct 576; 3 L Ed 2d 831 (1959)

The property taxes upon public service businesses authorized under Const 1963, art 9, Sec. 5, are not the general ad valorem property taxes contemplated under Const 1963, art 9, Sec. 3. The Michigan Supreme Court compared these two constitutional provisions in Michigan Bell Telephone Co v Dep't of Treasury, 445 Mich 470; 518 NW2d 808, cert den ___ US ___; 115 S Ct 577; 130 L Ed 2d 492 (1994). It concluded that the taxes authorized under Const 1963, art 9, Sec. 5, and 1905 PA 282 were properly levied upon the property of certain public service businesses, including intangible personal property. The Court noted that Const 1963, art 9, Sec. 3, only authorized general ad valorem taxation of "real and tangible personal property" but Const 1963, art 9, Sec. 5, simply subjected "the property" of certain public service businesses to assessment and levy of ad valorem taxes by the state. The Court relied upon these differences in language between the two constitutional provisions in deciding that intangible personal property was subject to taxation under art 9, Sec. 5, but not under art 9, Sec. 3. 445 Mich at p 489.

The operative new language of Const 1963, art 9, Sec. 3, provides an annual cap on property tax assessments of the rate of inflation or 5%, whichever is less, until ownership of the property is transferred. This language was not added to Const 1963, art 9, Sec. 5. The cap on assessments in Const 1963, art 9, Sec. 3, only applies to the general ad valorem property taxes imposed by 1893 PA 206, the General Property Tax Act. Taxes imposed under Const 1963, art 9, Sec. 5, and 1905 PA 282 are not general ad valorem property taxes imposed under Const 1963, art 9, Sec. 3. Michigan Bell Telephone Co v Dep't of Treasury, 445 Mich at p 489.

It is my opinion, therefore, that property taxable under Const 1963, art 9, Sec. 5, and 1905 PA 282 is not subject to the cap on taxable values contained in Const 1963, art 9, Sec. 3.

Frank J. Kelley

Attorney General