Real Estate Transfer Tax
The Real Estate Transfer Act of 1993 requires that a tax be levied on the seller or grantor of a property for contracts dealing with any act of selling or exchanging the property and on deeds or instruments of conveyance of the property or any interest in the property. If the transaction occurs outside the state for property "wholly located within" Michigan, the statute requires that the tax be levied.
The tax is levied at the rate of $3.75 per $500.00 of the total value of the real property being transferred — in other words, 0.75 percent of the total value of the property. For example, if a $125,000 property is sold, the tax on the transfer of the property for which the seller is liable is $125,000 × ($3.75 / $500) = $125,000 × 0.0075 = $937.50.
In fiscal 2006, the tax augmented the school aid fund by $297,680,118.
State Education Tax
The state education tax is authorized by the State Education Tax Act of 1993 (the tax became effective on March 15, 1994, with the passage of Proposal A). It is a 6 mill levy on all property except exempted property in the state with the exception of certain exempted properties. The education tax is collected by the local taxing authority and deposited by the state treasurer into the state school aid fund. In fiscal 2006, the school aid fund received $2,003,526,578 from the state education tax.
Note that the state education tax is not subject to the Headlee rollbacks described earlier (Calculation of an Individual Tax Bill). Thus, revenues from the state education tax can increase at rates that exceed inflation.
Certain Properties in Local School Districts
Taxes levied on a number of other kinds of property in a local school district are not credited to the districts, and in most cases are credited directly to the state school aid fund. Note that these properties are not subject to the local nonhomestead property tax; rather, they are subject to the tax rates discussed below. Several primary examples are listed, though other taxes and fees exist as well.[lviii]
Under Public Act 451 of 1994, a property can qualify as "commercial forest" if an owner shows that the property produces three things: 20 cubic feet or more per acre of forest growth when mature; species that have value commercially or economically; and a stand of timber for commercial purposes "within a reasonable period of time." Under the statute, such land is subject to various state mandates.
Public Act 451 of 1994 stipulates that the state school aid fund receive an amount from commercial forest property taxes[lix] equal to the difference between the number of general property tax mills levied for school operating purposes in 1993 and the number of mills levied for the 6 mill state education tax. For example, consider Emmet County’s Harbor Springs Public School District, which had a school operating tax of 16.68 mills in 1993. Subtracting the 6 mills levied for the state education tax from 16.68 mills yields a 10.68 mill tax rate that is credited to the state school aid fund.
A "private forest reservation" is timber on property that is smaller than 160 acres and mostly devoted to agriculture. Private forest is assessed the same number of mills as the school operating tax on nonhomestead properties, except that the assessment of the tax on the property is limited to $1 per acre and includes taxes of 5 percent of the value of a timber cut and 5 percent on the value of any property the owner wishes to withdraw from the private forest reservation. The revenue from this tax is deposited in the state school aid fund.
Property designated by law as an "industrial facility" is taxed at the number of general school operating tax mills levied in 1993 minus the 6 mills levied for the state education tax. The millage rate, in other words, is determined in the same way it is for commercial forest. This property tax on industrial facilities is placed in the state school aid fund.
Technology Park Facilities
The tax on technology park facilities is applied to the SEV of the facilities themselves, not to the land on which the facilities are sited and not to the personal property contained in the facilities. According to Michigan law, the tax rate for such facilities is one-half of the total mills levied by all taxing authorities in the area in which the facilities are located — except both the state education tax and those taxes levied by local and intermediate school districts for operating purposes — plus one-half of the number of mills levied for school operating purposes in a facility’s district in 1993.[lxi] The state school aid fund receives revenue from this tax according to the number of mills levied for school operating purposes in 1993 minus the 6 mills levied for the state education tax.
Enterprise Zone Facilities
"Enterprise zones" are created by the state Legislature in troubled areas of the state "to promote economic growth." Businesses in these regions are often exempt from certain state requirements, including some taxes.
The law provides that owners of businesses in enterprise zones created before the passage of Proposal A in March 1994 pay a specific tax directly to the local governmental unit in which they are located, but not to the local school district. Owners of businesses in enterprise zones created after 1993 pay an education tax directly to the state school aid fund if the business does not lie in a "renaissance zone."[lxii] This tax is calculated through a complex formula.[lxiii]
Neighborhood Enterprise Zone
Properties in areas designated as "neighborhood enterprise zones" are taxed for school operating purposes at the millage rate levied in 1993 minus the 6 mills levied for the state education tax. A neighborhood enterprise zone can be defined by the governing body of a local unit of government without specific state approval, and properties that receive tax exemptions with a neighborhood enterprise zone certificate are governed by the Neighborhood Enterprise Zone Act. This tax is paid to the state treasury and credited to the state school aid fund.
A local government authority may award a commercial rehabilitation tax exemption to qualified properties in a locally designated "commercial rehabilitation district." The owner of such an exempted property must instead pay a specific commercial rehabilitation tax that is the sum of three things: taxes paid on the real and personal property of the facility after certain deductions[lxiv] in the year before the property’s tax exemption; the taxes paid for the state education tax; and the tax for school operating purposes after certain deductions[lxv] in the year before the exemption was granted. The amount that would otherwise have been received by a conventional or intermediate school district is paid instead to the school aid fund.[lxvi]
State Housing Development Service Fees
The owner of a tax-exempt "housing project" pays a service fee to the municipality in which the property is located instead of the taxes to which the property would otherwise be subject. If the housing project involves new construction, the service fee to be paid is the greater of the tax rate on the property in the year before the new construction of the housing project began or 10 percent of the rent obtained from the project. If the housing project involves rehabilitation, the service fee is the lesser of the previous year’s property tax or 10 percent of the rents. The revenue from these service fees is distributed to local authorities that levy property taxes. The portion that would have gone to local school districts is instead transferred to the state school aid fund.
The state Legislature has allowed local government authorities to establish certain geographical areas in which properties will be temporarily exempt from property taxation. The purpose of such zones is "to assist certain local governmental units in encouraging economic development, the consequent job creation and retention, and ancillary economic growth in this state." Because properties in these zones are generally exempt from property taxes, the state of Michigan reimburses local and intermediate school districts for revenues lost as a result of the tax exemptions in renaissance zones within the districts’ boundaries.
Mobile Home Trailer Coach
Of the $3.00 monthly tax levied on an eligible coach in a mobile home trailer park, $2.00 is credited to the state school aid fund by the treasurer of the municipality in which the park is located.
Low Grade Iron Ore Specific
The tax on low grade iron ore and low grade iron ore mine property depends upon a mine’s operating status. The portion of the low grade iron ore specific tax levied for school operating purposes is, as with several of the taxes above, equal to the number of mills levied for school operating purposes in 1993 minus the 6 mills currently levied as the state education tax. The total amount levied for school operating purposes is credited to the state school aid fund, rather than to the local school district.
Certain Properties in Intermediate School Districts
Like revenues from some of the local school district property taxes discussed above, revenues from some taxes that would otherwise be received by an ISD are credited to the state school aid fund, rather than sent to the ISD. These taxes include the following:[lxvii]
tax on properties liable under the Enterprise Zone Act;
tax on properties liable under the Neighborhood Enterprise Zone Act;
the specific tax on owners under the Commercial Rehabilitation Act;
the industrial facility tax under the Plant Rehabilitation and Industrial Development Districts Act.
If the total of the ISD property taxes deposited in the school aid fund is more than the amount of state aid to the ISD,[lxviii] the state treasury is obligated to send not just the state aid to the ISD, but also the difference between the two amounts.
[lviii] Some taxes, fees and other income sources not listed include the following: funds that were intended to be part of a “brownfield redevelopment plan,” but were unused and subsequently distributed to both a local school district and the state school aid fund (MCL § 125.2665(20)); property tax monies that were redirected to a technology park through state development programs and that were subsequently reimbursed to local and intermediate school districts and the state school aid fund (MCL § 125.2162a(12)); revenue from the obsolete properties tax (MCL § 125.2790); monies that were transfered from the state’s general fund and that allow the state school aid fund to be “held harmless” from tax credits or deductions granted to motion picture companies (MCL § 205.54cc); penalty fees for failing to change a homestead or qualified agricultural property tax exemption status (MCL §§ 211.7cc, 211.7ee); local school districts’ excess debt levy retirement funds transmitted to the state school aid fund (MCL § 211.905a); and revenue from the specific tax on eligible tax-reverted property (MCL § 211.1025).
[lix] For the tax rate, see MCL § 324.51105.
[lx] Note that the statutes cited here will be repealed on Sept. 1, 2007, and be replaced by Public Act 378 of 2006, which will exempt qualified forest property (MCL § 211.7jj(11)(f)) from school taxes (MCL § 211.7jj(1)).
[lxi] See MCL § 207.712(2).
[lxii] MCL § 125.2121b. See MCL § 125.2121c for the exemption from the specific tax on properties — except casinos — located in renaissance zones as governed by the Renaissance Zone Act (MCL §§ 125.2681 – 125.2696).
[lxiii] The tax rate is the sum of the following three products: (1) 50 percent of the average tax rate on industrial, commercial and utility property in the unit of government, minus the state education tax (currently 6 mills), multiplied by the difference between the SEV in the year before the enterprise zone exemption was granted and the current SEV of the property (MCL § 125.2103(g), (h)), excluding exemptions; (2) the state education tax rate (currently 6 mills), multiplied by the difference between the SEV in the year before the enterprise zone exemption was granted and the current SEV of the property, excluding exemptions; and (3) the sum of all millages levied on the property by all local units of government in whose jurisdiction the property lies, multiplied by the SEV in the year before the enterprise zone exemption was granted. See MCL § 125.2121b(2)(a)-(c).
[lxiv] For these deductions, see MCL § 207.850(2)(a).
[lxv] For these deductions, see MCL § 207.850(2)(b).
[lxvi] See MCL § 207.850(4) for the provision concerning ISDs and MCL § 207.850(5) for the provision concerning conventional local school districts.
[lxvii] Taxes and fees not shown above include those described in footnote lviii.
[lxviii] This includes the amounts disbursed under sections 56, 62 and 81 of the School Aid Act, (MCL §§ 388.1656, 388.1662 and 388.1681).