For years the League has been working on a tax reduction loophole that was created due to the 2002 Michigan Supreme Court case of WPW Acquisition Company v. City of Troy. After Proposal A created the term taxable value, the Legislature passed legislation that allowed for an increase and decrease of certain commercial property’s taxable value based on their occupancy. This was meant to allow the taxable value of income producing property to reflect the ebb and flow of the economy.

Under that system, the City of Troy granted a reduction to WPW Acquisition Company due to a reduced occupancy. However, when the City increased their taxable value when they were more fully occupied, WPW Acquisition Company sued the City, claiming they could not increase their taxable value above 5% or the rate of inflation, whichever is less, due to Proposal A. The Supreme Court addressed the question of increases in occupancy and agreed with WPW. However, the reduction issue due to occupancy was never in question, so a legal loophole, creating tax inequity, was born.

Yesterday morning the House Tax Policy Committee heard testimony on Senate Bill 114, a bill introduced by Senator Vince Gregory (D-Southfield) that amends the General Property Tax Act. The Act’s definition of “losses” includes an adjustment in value, if any, due to a decrease in the property’s occupancy rate, to the extent provided by law. The definition of “additions” includes an increase in value attributable to the property’s occupancy rate if a loss had been previously allowed because of a decrease in occupancy rate, or if the value of new construction was reduced because of a below- market occupancy rate.

The bill would limit the use of occupancy rates in the determination of losses to the period before December 31, 2013. The use of occupancy rates in the determination of additions would be limited to the period before December 31, 2001.