Assessing Process Definitions

On March 15, 1994 the voters of the State of Michigan approved Proposal A which included significant changes to Section 3 of Article IX of the State Constitution.  This law limits the value used to compute property taxes.  The following definitions may be helpful in understanding the assessment process.

Assessed Value
Assessed Value is determined by the local assessor which is equal to 50% of true cash value. The assessed value of a property may change from year to year based on the activity of the real estate market.  Comprehensive reviews and verifications are performed annually of all sales within the city and within designated neighborhoods.  Ultimately, the Assessor does not create the value for a property, it is created by people's actions in the market place.  A field review is also initiated to account for any physical changes that may have taken place.  These factors may create increases and or decreases in values.

SEV (State Equalized Value)
The SEV or State Equalized Value is half the true cash value of the property.  This value is what is determined to be Market Value. There is no limitation on the percentage that is increased or decreased each year. Those values are determined by a 24-month sales study based on what is happening in your neighborhood.  Therefore, half of the purchase price will not automatically become the new SEV.

Market Value
This is the usual selling price of property on the open market with no stress or unusual conditions placed on the sale, not the actual selling price.

Capped Value
The prior year’s taxable value minus any losses (demolition of a structure, etc.) multiplied by the Inflation Rate Multiplier (IRM) for the current year, plus any additions (new construction, etc.).  The maximum increase in any one year is limited to 5% plus any construction changes.  The capped value is a mathematical calculation which is mandated by the State of Michigan and no one on the local level has the authority to change it.

Taxable Value
The value on which property taxes will be computed.  Taxable value is the value to which the millage rate is applied thereby determining your taxes.  The taxable value can be increased only by the amount of the Inflation Rate Multiplier (IRM) or 5% whichever is less (Proposal A 1994). Taxable value may increase or decrease if buildings/structures are added or removed from a property.  The taxable value can also change due to uncapping. 

Taxable Value Uncapping
Except for additions and losses to a property, annual increases in the property's taxable value are limited to 1.05 or the inflation rate multiplier, whichever is less.  In the year following a transfer of ownership, that limitation is eliminated and the property's taxable value is set at the state equalized value (SEV) 50% of the property's true cash value. (See MCL 211.27a (3)). 

Note: A property's true cash values is usually not the same as its sale price for a variety of reasons.  An assessor must determine the true cash value of a property which has sold in the same manner as properties that have not sold.  Therefore, an assessor may not automatically set an assessed value or a taxable value at 50% of a property's selling prices.  See State Tax Commission Bulleting No 19 of 1997.  Uncapping is state statute and cannot be disregarded by the assessor. 

The following is a historical list of the Inflation Rate Multiplier (IRM):