SBM Real Property Law Section eNewsletter

September 2009

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Tax Incentives for Tough Times
Richard A. Barr, Honigman Miller Schwartz and Cohn

Recently the State of Michigan and many local governments have approved more comprehensive, "layered" tax incentive packages to encourage development and redevelopment. Creative blending and combining of various tax incentives often is key to increasing a project's viability.

Most of the tax incentive enabling statutes impose limitations on their use, such as location restrictions. The Obsolete Property Rehabilitation Act offers a partial property tax "freeze" for certain rehabilitated housing and commercial facilities, but only in "core communities," typically with a high percentage of low-income residents. With local government approval and an exemption certificate from the State Tax Commission, the "obsolete" property's taxable value can be frozen at pre-rehabilitation levels for up to 12 years. School taxes are generally not frozen, although the State Treasurer may approve exceptions.

Recent amendments have increased eligibility for real and personal property tax abatements and exemptions for a wider variety of projects, including but not limited to those in downtown development authorities, enterprise zones, brownfield authorities, and other specialized districts. Additional renaissance zones and expanded eligibility criteria for renaissance zone projects also provide greater opportunities for incentive packages for Michigan job creation and retention.

Michigan now offers a wider variety of business and income tax credits for job attraction and retention. Expanded tax credits for the creation of "high-technology" and film industry jobs, both of which have been targeted for expansion in Michigan, provide other valuable incentives.

Recent amendments to the brownfield tax credit and tax increment statutes expanded the business tax credits and cost reimbursements available for qualified projects. Many "brownfield" projects now are developed on functionally obsolete or blighted (including tax reverted) properties, regardless of their environmental condition. Like the other incentives discussed above, the creative packaging of Michigan's incentives tool box helps attract jobs and investment in these tough times.


No Separate Taxation of Condo Common Elements

Heidi Hohendorf, Charron & Hanisch, PLC

The Michigan Court of Appeals recently overturned a Michigan Tax Tribunal's (MTT) decision to allow a municipality to tax general common elements in a condominium project independently from the appurtenant condominium units. Richmond Street, LLC v. City of Walker (Court of Appeals Docket No # 286454—July 14, 2009, unpublished). The Court of Appeals found that the MTT improperly "used its own definition of 'common elements,' rather than the one provided by statute." The Court of Appeals held that pursuant to Michigan's Condominium Act (MCA), a taxing body has no authority to tax any part of a condominium project separately from the individual units, regardless of whether the developer maintains the reserved rights granted by the MCA to convert, contract, or expand the project.

The condominium form of ownership is extremely popular today; however, there are very few Michigan cases addressing the dynamics of condominium projects or interpreting the MCA. As a result, several municipalities have been misconstruing the provisions in the MCA that set forth the taxation procedures for condominium projects. The Court of Appeals' decision provides guidance on the interpretation of the tax structure contemplated by the MCA—an area of the law in Michigan that was previously devoid of any judicial authority. The pivotal Richmond Street decision offers much needed direction on this issue.

At a Glance

Thursday, October 8, 2009, 7:30–9:30 a.m.
Townsend Hotel, Birmingham
Foreclosure and Beyond

March 11-13, 2009
2010 Winter Conference
Being an Agent of Change
Westin Kierland Resort and Spa, Scottsdale, Arizona