Local units of government raise funds for schools by taxing property. For purposes of taxation, property is divided into two broad groups: real and personal. Real property is comprised of land and buildings. Units of real property are placed into six categories for state and local property tax purposes: residential, agricultural, industrial, commercial, timber cutover and developmental property. Personal property, in contrast, involves for-profit business property that is not attached to a structure. Examples of personal property include machinery, office furniture and equipment (there are specific exemptions for certain agricultural crops, and for residents’ personal clothing, furniture and other household goods).[xi] Units of personal property fall into one of five categories for local property tax purposes: residential, agricultural, industrial, commercial and utility property.[xii]
The property types listed above are important for understanding education revenues because of provisions in Proposal A. These provisions differentiate the taxation rate by property classification. Specifically, under Proposal A, primary residential and qualifying agricultural properties are taxed at a different rate than other properties. This distinction will be relevant throughout the explanation of school revenues.
There are three steps involved in taxing property: assessment, determination of the tax rate and calculation of the individual tax bill.
[xi] MCL § 211.9(1). The list of personal property that is exempted from taxation is quite detailed; the main text provides only a broad outline of the property included. For a more complete list, see MCL §§ 211.9-211.9j.
[xii] MCL § 211.34c(3). The tax rates discussed in this section will not include the state education tax, which is a state government property tax, rather than a local government property tax.