COMMENTARY: Michigan Supreme Court subjects STC property reclassifications to judicial review

By Kasturi Bagchi In a consolidated opinion filed on May 23, 2011, the Michigan Supreme Court unanimously concluded that property classifications determined by the Michigan State Tax Commission (STC) pursuant to MCL 211.34c "constitute final decisions that are quasi-judicial and affect private rights"; therefore, the Michigan constitution guarantees taxpayers judicial review of such property classifications. Accordingly, the Court invalidated the last sentence of MCL 211.34c (6) which provides: "An appeal may not be taken from the decision of the State Tax Commission regarding classification complaint petitions and the State Tax Commission's determination is final and binding for the year of the petition." In Iron Mountain, plaintiff taxpayers owned machinery and equipment that is subject to personal property taxes. The local assessors had classified such personal property as commercial property for the tax year 2008. Pursuant to MCL 211.34c(3)(c), the plaintiffs timely petitioned the applicable boards of review to reclassify the personal property to industrial personal property, in order to preserve certain tax exemptions and credits. In each case, the boards of review rejected plaintiffs' request and plaintiffs then petitioned the STC to reclassify the personal property. The STC also denied plaintiffs' petitions. The plaintiffs then filed for relief in various circuit courts and were awarded judgments in their favor. Relying on MCL 211.34c(6), the STC argued before the Court of Appeals that circuit courts lack subject matter jurisdiction over reclassification of properties. The Court of Appeals agreed, reversed each circuit court judgment and directed entry of orders in favor of the STC and assessors. The Michigan Supreme Court, however, found that without access to circuit courts, a taxpayer had no other forum to appeal an STC reclassification decision which affected private rights. As such MCL 211.34c(6) is unconstitutional and the judgment of the Court of Appeals was reversed so that plaintiff taxpayers can seek relief in circuit courts from STC decisions. The Michigan Supreme Court's decision in Iron Mountain compels a certain amount of transparency in the decision making process of the STC, now that it is subject to judicial review. This closer scrutiny is sure to impact the strategy of the STC in their campaign to preserve the State's treasury by preventing owners of personal property classified as industrial from continuing to claim certain tax benefits. At press time, no bulletin has been posted on the STC website to reveal their approach in light of the Iron Mountain decision. It is unlikely that the STC will retreat completely given the directive set forth in a Memorandum dated December 7, 2010 from the Executive Director of the State Tax Commission to "prepare orders to change the classification for properties believed to be inappropriately classified for the 2009 and 2010." ---------------- For a discussion of tax advantages, see "Reclassification of Property by the State Tax Commission Threatens Loss of Tax Incentives," by Kasturi Bagchi and Michael K. Hauser, Real e-State, July 2010, Volume 7, Issue 3, available at www.maddinhauser.com. ---------------- Kasturi Bagchi is a shareholder at Maddin, Hauser, Wartell, Roth & Heller PC. She manages risks for clients in loan, real estate, or asset-based transactions. Published: Fri, Aug 26, 2011