STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5991

October 5, 1981

CONSTITUTIONAL LAW:

Const 1963, art 9, Sec. 3--uniformity of ad valorem property taxation

TAXATION:

Reduction of tax rates on classes of taxable property

The Const 1963, art 9, Sec. 3 requirement that the property taxes must be uniform will not permit the imposition of a 6 percent cap on increases in some, but not all, classes of real property.

The Legislature may set a 6 percent cap in increases in property taxes upon all classes of taxable property within a local unit.

The Legislature may not provide for the taxation of agricultural property in varying proportions of true cash value based upon cash rents paid for agricultural lands without violating Const 1963, art 9, Sec. 3.

Honorable Nich Smith

State Representative

State Capitol

Lansing, Michigan

You have requested my opinion on the following three questions:

With respect to your first question, it must be noted that for ad valorem tax purposes there are six classes of real property: agricultural, developmental, residential, commercial, industrial and timber cutover real property; and five classes of personal property: agricultural, commercial, industrial, residential and utility personal property. 1893 PA 206, Sec. 34c; MCLA 211.34c; MSA 7.52(3). You propose placing a 6 percent cap on taxes levied against each of these classes of property. A fair reading of your first question indicates that you do not contemplate limiting the increase in the assessments of these classes, only the amount of taxes levied. As a result of your proposal, if the taxes levied against any one of these classes of property exceed an increase of 6 percent, a reduction in taxes on such class would be mandated.

By way of example, a hypothetical unit of local government might contain all of the classes of real property except timber cutover. We may also assume that the hypothetical local unit of government levies 50 mills of operating millage and each class of property within our hypothetical local unit for the tax year 1981 is assessed at $10,000,000. Therefore, for the tax year 1981, each class of property within that local unit bears the levy of a tax of $500,000 (.05 X $10,000,000).

Let us further assume that the assessed value of each class based upon true cash value rises by a different rate in the year 1982. For example, agricultural increases by 10 percent, developmental 8 percent, residential by 12 percent, commercial by 7 percent and industrial by 4 percent. Under your proposal, as the taxes levied on each class may rise by only 6 percent, the total taxes levied on each class in the year 1982 may equal only $530,000 ($500,000 of 1981 taxes + 6 percent increase). As taxes are determined by multiplying the assessed value of property by the appropriate millage, the result of our example would be as follows:

CLASS OF TOTAL

PROPERTY 1982 ASSESSED VALUE x MILLAGE TAXES

Agricultural $11,000,000 ($10,000,000 k 10% increase) x 48.1818 = $530,000

mills

Developmental $10,800,000 ($10,000,000 k 8% increase) x 49.074 = $530,000

mills

Residential $11,200,000 ($10,000,000 k 12% increase) x 47.3214 = $530,000

mills

Commercial $10,700,000 ($10,000,000 k 7% increase) x 49.5327 = $530,000

mills

Industrial $10,400,000 ($10,000,000 k 4% increase) x 50 mills = $520,000

As may be seen, the only way to limit the increase of total taxes levied per class to 6 percent, if assessments rise at differing rates, is to separately compute and apply the millage to each class.

Const 1963, art 9, Sec. 3, provides:

This constitutional mandate provides not only that the assessment base be fixed in a uniform manner, but also that there be uniformity in the rate of taxation within the unit affected. Huron-Clinton Metropolitan Authority v Boards of Supervisors of Wayne, Washtenaw, Livingston, Oakland and Macomb Counties, 304 Mich 328; 8 NW2d 84 (1943); Titus v State Tax Commission, 374 Mich 476; 132 NW2d 647 (1965). Your proposal would result in a different rate of taxation being imposed on property within the same unit.

Quoting with approval from Exchange Bank of Columbus v Hines, 3 Ohio St 1, 15, in Titus, supra, 374 Mich at 480; 132 NW2d at 489; and Huron-Clinton, supra, 304 Mich at 335-336; 8 NW2d at 87-88, the Michigan Supreme Court stated:

In answer to your first question, it is my opinion that the imposition of a 6 percent cap on increases in property taxes on each class of real property would violate the uniformity provision contained in Const 1963, art 9, Sec. 3.

Your second question contemplates a 6 percent cap on increases in the total amount of taxes levied by a local unit of government. There is presently a similar provision contained in Const 1963, art 9, Sec. 31 which provides for a millage rollback when the assessed valuation of property, as finally equalized, increases at a greater rate than the General Price Index. The objective of this provision is to assure that total property taxes used for operating purposes will increase at a rate no greater than the rate of inflation. Your proposal would limit the increase to no greater than 6 percent and would be implemented by a millage rollback applicable to all classes of property within the local unit. Unlike the situation in your first question, the millage rollback would be equal with respect to all classes of property and, thus, the uniformity provision of Const 1963, art 9, Sec. 3, would not be violated.

It is my opinion, in answer to your second question, that a statutory enactment setting a 6 percent cap on increases in property taxes upon all classes of taxable property within a local unit is not in conflict with Const 1963, art 9, Sec. 3.

Your third question is with reference to House Bill 4596, introduced on April 9, 1981, which would amend 1893 PA 206, Sec. 27; MCLA 211.27; MSA 7.27, to amend the definition of 'cash value' as it applies to agricultural property. House Bill 4596 would provide that cash value for assessment purposes of agricultural property may not exceed 10 times the cash rent paid for agricultural property of similar productivity in that area.

In order for House Bill 4596 to pass the uniformity mandate contained in Const 1963, art 9, Sec. 3, it would have to be demonstrated that agricultural land rentals provide a standard of value compatible with those utilized with respect to all other classes of taxable property. Rent paid for agricultural property is not a compatible indicator of that land's value vis-a-vis the standard mandated for use in the remaining classes of property. Sales prices of agricultural land are generally more accurate indicators of the value for assessment purposes than are cash rents paid.

Const 1963, art 9, Sec. 3, mandates that all classes of property be assessed at the same percentage of true cash value. As House Bill 4596 does not contemplate that agricultural land would be assessed at a common standard of value, it fails to meet the constitutionally mandated uniformity requirement.

In answer to your third question, it is my opinion that House Bill 4596 would be unconstitutional as it would result in the taxation of agricultural property in varying proportions of true cash value rather than at a uniform standard.

Frank J. Kelley