The property tax reforms instituted under "Proposal A" required a "cap" or limitation on the annual increase in a property's taxable value while it is owned by the same person. An excerpt from the Michigan 1963 Constitution, Section 3, states: "For taxes levied in 1995 and each year thereafter, the legislature shall provide that the taxable value of each parcel of property adjusted for additions and losses, shall not increase each year by more than the increase in the immediately preceding year in the general price level, as defined in section 33 of this article, or 5 percent, whichever is less until ownership of the parcel of property is transferred." Therefore, in the tax year following the transfer of the property, the taxable value will "uncap" and become equal to the "assessed value". The year following the uncapping, the limitation will begin anew until such time the property transfers again.
The assessed value is one-half of the assessor’s estimate of market value of your property. The capped value is calculated annually using the following formula: (Prior Year Taxable Value - LOSSES) x (lesser of the consumer's price index or 1.05) + ADDITIONS = CAPPED VALUE.
Taxable value is equal to the lesser of Assessed Value or Capped Value. The taxable value, the number upon which the property taxes are levied, is determined each year by comparing the assessed and capped values and choosing the lower of the two.
On March 15, 1994 the voters of the State of Michigan approved Proposal A which made significant changes to the State Constitution. Most notably, for Boards of Review, Proposal A implemented a cap on the growth in Taxable Value. Taxable Value was a new term. Starting in 1995, property taxes have been calculated using Taxable Value rather than State Equalized Value which was used prior to 1995.
On December 29, 1994 the Governor signed into law Public Act (PA) No. 415 of 1994. PA 415 of 1994 contains many changes to the General Property Tax Act regarding the implementation of Proposal A. Significant additional changes were implemented by PA 476 of 1996.
What has not changed is the method of computing Assessed Value and the system of county and state equalization. The "traditional" Assessed Value is still required to be 50% of market value. There shall still be a State Equalized Value (SEV) for each property in the State of Michigan. Properties of similar value within a township or city must still have similar Assessed Values. In other words, the uniformity provisions of the 1963 Michigan Constitution still apply.
The biggest change, starting in 1995, was the requirement to calculate a Taxable Value for each property in the State of Michigan. Starting in 1995, property taxes were calculated using Taxable Value rather than State Equalized Value. It is Taxable Value, not assessed or equalized value, which is subject to the cap required by Proposal A.
The Assessor and the Board of Review ARE REQUIRED BY LAW to increase the Taxable Value by the applicable rate of inflation.