Michigan State Tax Commission Property Classification MCL ..., Summaries of Marketing

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Michigan State Tax Commission

Property Classification

MCL 211.34c

Issued November 2018

Table of Contents

• Definitions and Introduction
• Residential Real Property
• Agricultural Real Property
• Commercial Real Property
• Developmental Real Property
• Industrial Real Property
• Timber-Cutover Real Property
• Agricultural Personal Property Classification
• Commercial Personal Property Classification
• Industrial Personal Property Classification
• Residential Personal Property Classification
• Utility Personal Property Classification........................................................................................
• Appeal Procedures:

Residential Value Calculation: House $22,591 True Cash Value Recreational Value (adds to residential value): 173 Acres at $980 per acre $169,540 True Cash Value Total Residential Use: $192,131 True Cash Value Therefore, the property in this example would be classified residential.

Residential Real Property

MCL 211.34c defines residential real property as: (i) Platted or unplatted parcels, with or without buildings, and condominium apartments located within or outside a village or city, which are used for, or probably will be used for, residential purposes. (ii) Parcels that are used for, or probably will be used for, recreational purposes, such as lake lots and hunting lands, located in an area used predominantly for recreational purposes. (iii) For taxes levied after December 31, 2002, a home, cottage, or cabin on leased land, and a mobile home that would be assessable as real property under section 2a except that the land on which it is located is not assessable because the land is exempt. Does there have to be a house on the property for it to be classified residential? No. As indicated above, the definition of residential property includes parcels with or without buildings. Recreational property is to be classified residential even though there is not a house on the property or I don’t live there? There is no separate classification for recreational property. Lands whose primary use is for recreational activities such as hunting, fishing, camping, snowmobile use, mushroom hunting, photography, bird watching, and other recreational pursuits are properly classified as residential. What about my cottage or hunting camp? A vacation cottage or hunting camp is a recreational property and should be included in the residential classification. A hunting or fishing camp owned by an individual or a group of individuals is a recreational property. These properties should be included in the residential classification provided a fee is not charged to the users of the property.

What about a small apartment building? A single housing unit or single structure consisting of four or less subunits is generally included in the residential classification. My house is used as a bed and breakfast. Should the classification be residential or commercial? Houses used as Bed and Breakfast establishments are sometimes classified residential and sometimes classified commercial. If the main use of the house is as a private residence and the bed and breakfast is only a minor use, the property should be classified residential. If the primary use is to generate income similar to a motel, the property should be classified commercial.

Agricultural Real Property

MCL 211.34c defines agricultural real property as: Agricultural real property includes parcels used partially or wholly for agricultural operations, with or without buildings. For taxes levied after December 31, 2002, agricultural real property includes buildings on leased land used for agricultural operations. If a parcel of real property is classified as agricultural real property and is engaged in agricultural operations, any contiguous parcel owned by the same taxpayer, that is a vacant parcel, a wooded parcel, or a parcel on which is located 1 or more agricultural outbuildings that comprise more than 50% of the taxable value of all buildings on that parcel as indicated by the assessment records for the local tax collecting unit in which that parcel is located, shall be classified as agricultural real property. Contiguity is not broken by a boundary between local tax collecting units, a section boundary, a road, a right-of-way, or property purchased or taken under condemnation proceedings by a public utility for power transmission lines if the 2 parcels separated by the purchased or condemned property were a single parcel prior to the sale or condemnation. For purposes of this subsection, contiguity requires that the parcel classified as agricultural real property by reason of its agriculture use and the vacant parcel, wooded parcel, or parcel on which is located 1 or more agricultural outbuildings must be immediately adjacent to each other, without intervening parcels that do not qualify for classification as agricultural real property based on their actual agricultural use. It is the intent of the legislature that if a parcel of real property is classified as agricultural real property and is engaged in agricultural operations, any contiguous parcel owned by the same taxpayer, that is a vacant parcel, a wooded parcel, or a parcel on which is located 1 or more agricultural outbuildings that comprise more than 50% of the taxable value of all buildings on that parcel as indicated by the assessment records for the local tax collecting unit in which that parcel is located, shall be classified as agricultural real property even if the contiguous parcels are located in different local tax collecting units. Property shall not lose its classification as agricultural real property as a result of an owner or lessee of that property implementing a wildlife risk mitigation action plan. As used in this subdivision: (i) "Agricultural outbuilding" means a building or other structure primarily used for agricultural operations.

How is contiguity defined? Contiguity is not broken by a boundary between local tax collecting units, a section boundary, a road, a right-of-way, or property purchased or taken under condemnation proceedings by a public utility for power transmission lines if the two parcels separated by the purchased or condemned property were a single parcel prior to the sale or condemnation. Contiguity requires that the parcel classified as agricultural real property and the vacant parcel, wooded parcel, or parcel on which is located one or more agricultural outbuildings must be immediately adjacent to each other, without intervening parcels that do not qualify for classification as agricultural real property based on their actual agricultural use. What if the parcels are in different tax collecting units? It is the intent of the legislature that the parcel shall be classified as agricultural real property even if the contiguous parcels are located in different local tax collecting units. What is an agricultural operation? Agricultural operations include: Farming in all aspects that include the cultivating of soil. Growing and harvesting any agricultural, horticultural, or floricultural commodity. Dairy farming. Raising livestock, to include, but not limited to, cattle, sheep, new world camelids, goats, bison, privately owned cervids, ratites, swine, equine, poultry, aquaculture, and rabbits. Livestock does not include dogs and cats. Raising bees, fish, fur-bearing animals, or poultry. Operating a game bird hunting preserve licensed under part 417 of the natural resources and environmental protection act. Farming operations that harvest cervidae on site where not less than 60% of the cervidae were born as part of the farming operation. Raising, breeding, training, leasing, or boarding horses. Turf and tree farming. Performing any practices on a farm incident to, or in conjunction with, farming operations. Commercial storage, processing, distribution, marketing, or shipping operations are not part of the agricultural classification. Gardening and woodlot/forest management are also not considered agricultural for classification purposes. Are there minimum size requirements to be classified agricultural? There are no minimum size or income requirements for the agricultural classification. For instance, viable agricultural operations growing herbs or mushroom crops are possible on just a few acres of land.

My property is zoned agricultural, so I should automatically be classified agricultural, right? Property that is zoned agricultural may not necessarily be classified as agricultural. While the zoning of a particular property may be an influencing factor, the zoning does not dictate the classification. If my property is not classified agricultural does that mean I can’t farm anymore? The classification of your property has nothing to do with your ability or “right” to farm. Classification is for property tax equalization purposes and does not dictate the use of the property. What is the benefit to my property being classified agricultural? Property that is classified agricultural is exempt from certain school taxes (18 mills of school operating) and is the same benefit as a homestead or principle residence exemption. If my property is not classified agricultural is there a way to still be exempt from the 18 mills? Yes, your property may be eligible for the Qualified Agricultural Program Exemption. This program is explained in detail in a STC publication available on our Web site at www.Michigan.gov/statetaxcommission. If my property is in a federal set aside program, that would cause it to be classified agricultural. Correct? The inclusion of some or all of the acreage of a property in a federal set aside program does not necessarily mean that the property should be classified as agricultural. If the property is in an area of heavy residential or recreational use and the market for agricultural property is limited or nonexistent, the residential classification may be determined as the most appropriate. If the property is under active cultivation or other agricultural use and the property is in an area of heavy residential or recreational use and the market for agricultural property is limited or nonexistent, developmental may be the appropriate classification. Should property in the PA 116 program be classified agricultural? Inclusion of land in the Farmland and Open Space Preservation Act (P.A. 116) does not necessarily mean the property should be classified as agricultural. There are situations in which a property subject to a farmland development rights agreement could be classified other than agricultural – for example:

Sideliners (25 – 300 colonies) Commercial (300 or more colonies) Hobbyists generally produce for themselves, relatives and friends. Sideliners produce honey for sale to consumers and processors. Commercial producers generally produce honey for sale to consumers, processors and distributors of honey and honey products. If I am a hobbyist can my property be classified agricultural? While raising bees is an agricultural activity, raising them as a hobby would usually not result in being classified agricultural. Sideliners are generally a unit of other agricultural operations. Commercial producers may best be classified Agricultural although the commercial storage, processing, distribution, marketing or shipping portions of the operation are not agricultural. What is a hobby farm and are they classified agricultural? Hobby farms are not generally part of the agricultural class. “Hobby farms” usually consist of a home, a few acres (in rare occasions many acres), and out buildings. They frequently include the raising of livestock which are being used by the property owner such as horses, a few cows, sheep or goats, chickens for household use (meat and eggs), or a small fishpond. Occasionally excess produce from a garden may be sold to a list of clients or at a roadside stand. Small orchards and gardens used for family consumption are common on the hobby farm. In many cases the hobby farm may have been a part of a past agricultural operation. The farmstead may have been sold or the land may have been sold, but in any case, the property value is mainly in the residential property. What about a captive cervidae operation? The raising of captive cervidae for sale as breeding stock or for the sale of the meat to a store is an agricultural activity. Habitat manipulation and the feeding of wild cervidae to encourage cervidae to remain in or visit an area to assist in the viewing and/or hunting of the animals is not an agricultural activity. What if an owner implements a wildlife mitigation action plan? Statute indicates that property shall not lose its classification as agricultural real property as a result of an owner or lessee of that property implementing a wildlife risk mitigation action plan. These projects are to assist in the reduction of risk of a spreading a communicable disease between wildlife and livestock and are done with the approval of the Department of Agriculture.

Commercial Real Property

MCL 211.34c defines Commercial Real Property as:

Commercial real property includes the following: (i) Platted or unplatted parcels used for commercial purposes, whether wholesale, retail, or service, with or without buildings. (ii) Parcels used by fraternal societies. (iii) Parcels used as golf courses, boat clubs, ski areas, or apartment buildings with more than 4 units. What if I have a small business in my house? When a small part of a house is used for a commercial or retail operation, and the house is in a residential area, the property will usually be classified residential. What if my business is in a building that at one time was a residence? Many areas have structures that were built for residential use but are now used as commercial, office, or retail space. These parcels should generally be included in the commercial classification. What if my business is on the same property as my home? The heavy equipment repair shop of a contractor, logger, or trucker located on the same property as the homestead will require the assessor to determine the value of each use. See MCL 211.34c (5) and the discussion of multiple uses of a property. This also applies to offices, storage or warehouse facilities, fabrication areas, and retail areas in conjunction with homestead properties. What about a pay to hunt operation? If 60% or more of the cervidae were born and raised on site, the property is to be classified agricultural. If less than 60% were born and raised on site, a fee is paid to hunt, and this is the predominant use of the property, then it is classified commercial. I have a fishing camp where I rent out rooms, gear and boats. Would this property be classified commercial? Fish camps that include lodging and/or may include the rental of fishing gear and boats should be classified in the commercial class. If the property includes the owner's residence, the total value of each use must be calculated to determine the proper classification. If the residence is worth $200,000 and the commercial uses are worth only half that, the land would be classified residential. What about a youth day camp or residential camp? Youth activity day camps and residential camps that are not part of an exempt organization should be included in the commercial classification. Examples of this type

How do we decide if our property should be timber-cutover or not? In determining if a wooded parcel should be classified as timber-cutover or another classification, you need to look at the use of the property. Some questions an assessor may ask before determining that a parcel should be classified as timber-cut over are: Does the property have a history of timber sales? Does the owner have a written forest management plan? Does the property owner keep a business journal with records of expenses, receipts, timber additions, and removal? Does the owner complete IRS Form T (Timber)? Frequently, an indication that wooded lands should be classified as other than timber- cutover is when there are buildings on the land, such as a home, cottage, or a hunting and fishing camp. However, this is not always the case. For example, there may be a building on the property that is used to store timber-harvesting equipment. Or the total usage of a parcel may include more than one classification, but the timber-cutover use most significantly influences the total valuation of the parcel. What about marshland or sand dunes? Marshlands, sand dunes, and other "barren land" that is in areas that cannot be used for recreational or residential purposes are generally included in the timber-cutover classification.

Agricultural Personal Property Classification

MCL 211.34c defines agricultural personal property as: any agricultural equipment and produce not exempt by law. MCL 211.9 provides a specific exemption for agricultural personal property: Property actually used in agricultural operations and farm implements held for sale or resale by retail servicing dealers for use in agricultural production. As used in this subdivision, "agricultural operations" means farming in all its branches, including cultivation of the soil, growing and harvesting of an agricultural, horticultural, or floricultural commodity, dairying, raising of livestock, bees, fur-bearing animals, or poultry, turf and tree farming, raising and harvesting of fish, collecting, evaporating, and preparing maple syrup if the owner of the property has $25,000.00 or less in annual gross wholesale sales, and any practices performed by a farmer or on a farm as an incident to, or in conjunction with, farming operations, but excluding retail sales and food processing operations. Property used in agricultural operations includes all of the following:

(i) A methane digester and a methane digester electric generating system if the person claiming the exemption complies with all of the following: (A) After the construction of the methane digester or the methane digester electric generating system is completed, the person claiming the exemption submits to the local tax collecting unit an application for the exemption and a copy of certification from the department of agriculture that it has verified that the farm operation on which the methane digester or methane digester electric generating system is located is in compliance with the appropriate system of the Michigan agriculture environmental assurance program in the year immediately preceding the year in which the affidavit is submitted. Three years after an application for exemption is approved and every 3 years thereafter, the person claiming the exemption shall submit to the local tax collecting unit an affidavit attesting that the department of agriculture has verified that the farm operation on which the methane digester or methane digester electric generating system is located is in compliance with the appropriate system of the Michigan agriculture environmental assurance program. The application for the exemption under this subparagraph shall be in a form prescribed by the department of treasury and shall be provided to the person claiming the exemption by the local tax collecting unit. (B) When the application is submitted to the local tax collecting unit, the person claiming the exemption also submits certification provided by the department of environmental quality that he or she is not currently being investigated for a violation of part 31 of the natural resources and environmental protection act, 1994 PA 451, MCL 324.3101 to 324.3133, that within a 3-year period immediately preceding the date the application is submitted to the local tax collecting unit, he or she has not been found guilty of a criminal violation under part 31 of the natural resources and environmental protection act, 1994 PA 451, MCL 324.3101 to 324.3133, and that within a 1-year period immediately preceding the date the application is submitted to the local tax collecting unit, he or she has not been found responsible for a civil violation that resulted in a civil fine of $10,000.00 or more under part 31 of the natural resources and environmental protection act, 1994 PA 451, MCL 324.3101 to 324.3133. (C) The person claiming an exemption cooperates by allowing access for not more than 2 universities to collect information regarding the effectiveness of the methane digester and the methane digester electric generating system in generating electricity and processing animal waste and production area waste. Information collected under this sub-subparagraph shall not be provided to the public in a manner that would identify the owner of the methane digester or the methane digester electric generating system or the farm operation on which the methane digester or the methane digester electric generating system is located. The identity of the owner of the methane digester or the methane digester electric generating system and the identity of the owner and location of the farm operation on which the methane digester or the methane digester electric generating system is located are exempt from disclosure under the freedom of information act, 1976 PA 442, MCL 15.231 to 15.246. As used in this sub-subparagraph, "university" means a public 4- year institution of higher education created under article VIII of the state constitution of 1963.

techniques" means techniques for the conservation of soil and water described in the field office technical guide published by the natural resources conservation service of the United States department of agriculture. Is a building on leased land used for agricultural operations classified as agricultural personal property? No. MCL 211.34c states that buildings on leased land used for agricultural operations are to be classified as Agricultural Real Property. What is the correct classification of a building on leased land when the building is being used for industrial purposes and the land is classified as agricultural? For taxes levied after December 31, 2002, buildings on leased land used for industrial purposes is to be classified as Industrial Real property. Would a building on leased land used for agricultural purposes that is classified agricultural be entitled to the qualified agricultural property exemption? Yes. The leased building is devoted to an agricultural use as defined by law and is eligible for the Qualified Agricultural property exemption. Is the agricultural personal property used in retail sales and food processing exempt? Personal property used in retail sales and in food processing does not generally qualify for the exemption. However, the exemption does extend to equipment used in a manner incidental to the farming operation that prepares a crop for market and does not substantially alter the form, shape, or substance of the crop, if not less than 33% of the volume of the crops processed in at least three of the last five years were grown by the Michigan farmer who is the owner or user of the processing equipment.

Commercial Personal Property Classification

MCL 211.34c defines commercial personal property as: (i) All equipment, furniture, and fixtures on commercial parcels, and inventories not exempt by law. (ii) All outdoor advertising signs and billboards. (iii) Well drilling rigs and other equipment attached to a transporting vehicle but not designed for operation while the vehicle is moving on the highway. (iv) Unlicensed commercial vehicles or commercial vehicles licensed as special mobile equipment or by temporary permits.

What types of businesses would be considered as having a commercial use? The following businesses are commercial and would have commercial personal property associated with their respective enterprise: automotive repair, construction company, contractors, concrete providers, data center, distribution center, engineering, excavating, financial service, inspection, installation service, investment service, leasing company, loan service, moving company, packaging, printing service, rental company, repair service, retail, sales, service company, shipping and receiving, storage company, supply, technology support service, transportation, trucking-common carrier, and warehousing. Is a building on leased land used for commercial purposes classified as commercial personal property? No. MCL 211.34c states that buildings on leased land used for commercial purposes are to be classified as Commercial Real Property. Are communication towers on leased land assessed as personal property? No. The tower is valued and assessed as a real property improvement. When a communication tower is built on leased land, the owner of the tower is required to report the original construction costs of the tower in the year the tower was built on Section N of the Personal Property Statement, in same way that it would report any other structure on leased land.

Industrial Personal Property Classification

MCL 211.34c defines industrial personal property as: (i) All machinery and equipment, furniture and fixtures, and dies on industrial parcels, and inventories not exempt by law. (ii) Personal property of mining companies. (d) For taxes levied before January 1, 2003, residential personal property includes a home, cottage, or cabin on leased land, and a mobile home that would be assessable as real property under section 2a except that the land on which it is located is not assessable because the land is exempt. Is a building on leased land used for industrial purposes classified as Industrial Personal Property? No. MCL 211.34c states that buildings on leased land used for industrial or utility purposes are to be classified as Industrial Real Property.

(iv) Gas wells with allied equipment and gathering lines. (v) Oil or gas field equipment stored in the open or in warehouses such as drilling rigs, motors, pipes and parts. (vi) Gas storage equipment (vii) Transmission lines of gas or oil transporting companies. Is a building on leased land which is used for utility purposes to be classified as Utility Personal Property? No. MCL 211.34c states that buildings on leased land used for utility or industrial purposes shall be classified as Industrial Real Property.

Appeal Procedures:

Property owners that disagree with the assessor’s decision regarding the property’s classification must file a petition with the March Board of Review to appeal the classification. If a taxpayer disagrees with the decision of the Board of Review’s decision, they must fully complete and submit a Form 2167 to the State Tax Commission (STC), for each parcel being appealed, by June 30th^ of the current year. Upon receipt of a classification appeal, a response form is sent to either the assessor (when a property owner files) or the property owner (when the assessor files). The assessor or property owner has 30 days to provide a response to the Commission. Those responses, along with the original petition, are reviewed by STC staff. STC staff then makes a recommendation to the STC. The STC makes a final determination by reviewing the petition filed, the response provided by the assessor or property owner and the staff recommendation. A taxpayer that disagrees with the determination of the State Tax Commission can either file for reconsideration with the STC within 21 days of the determination or file an appeal in Circuit Court. The request for reconsideration must include information not previously submitted to the STC. An assessor who wants to appeal the March Board of Review’s decision can appeal to the STC by completing and submitting Form 2167A not later than June 30th^ of the current year. However, Pursuant to a decision ordered by the Court of Appeals, an assessor cannot appeal the classification of a subject property that was not protested before the March Board of Review.

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