Local governments lose in Michigan tax case

By Ed White

Associated Press

DETROIT (AP) -- The Michigan Supreme Court said last Thursday that local governments are not allowed to increase the taxable value of some properties only because a joint owner has died.

The court said in a unanimous decision that death doesn't trigger a new valuation, or the resulting higher tax bills. It's a major ruling that will be celebrated by people who want to share a cottage or another property with someone without that co-owner later taking a financial hit.

Since Michigan voters approved Proposal A in 1994, the taxable value of a home can't go up much each year unless there's a new owner, typically through a sale.

The court's ruling came in the case of Nathan Klooster, who in 2004 was added as a joint tenant, or co-owner, of a modest house in Charlevoix in northern Michigan. When the other owner, Klooster's father, died the next year, the city treated it as a transfer of ownership and nearly doubled the taxable value. The Supreme Court said that was wrong.

Despite the ruling, the court said Charlevoix can raise the taxable value for other reasons.

"This changes the law in Michigan considerably," said Klooster's attorney, Steven Stapleton. "Mr. Klooster ultimately lost but the taxpayers win. For estate and trust purposes, this is a big deal."

A message seeking comment was left with Charlevoix's attorney.

The Michigan Municipal League and Michigan Assessors Association had warned the Supreme Court that local governments would suffer financially if joint ownerships like the one in the Klooster case could be used to keep property values capped. They fear "perpetual tax shelters."

Attorney Paul McCord, who filed a brief at the court on behalf of Michigan tax lawyers, doubts local governments will suffer much but said the decision is significant.

"Mom and dad could buy a cottage and hold it for 30-odd years and pass it to the next generation for 30 or more years. The value could stay capped," McCord said. "Up north, there are a lot of cottages -- and some are beyond cottages."

Published: Mon, Mar 14, 2011