Gregory Gamalski, Partner in the Real Estate Practice Group was recently published in the Michigan Real Property Review.
Ten million acres of agricultural land in Michigan contain 56,000 farms which produce $5.7 billion in products annually. These farms and other lands are eligible for real property tax relief and transfer emptions under the General Property Tax Act, MCL 211.1 et seq. and Farmland and Open Space Preservation Act, MCL 324.36101 et seq.
Under the General Property Tax Act Section 211.7ee, agricultural land is entitled to the Qualified Agricultural Property Exemption. The Qualified Agricultural Property Exemption exempts certain defined property from the state 18 mill school operating millage. As an example, Holly Township in Oakland County levies a total of about 56 mills including the state school operating millage. On a property with a taxable value of $200,000.00 the property tax bill is about $11,200.00. But if the Qualified Agricultural Exemption is used, the real property taxes are reduced by 32%, to about $7,600.00.
Additionally, the sale of Qualified Agricultural Property is not a “transfer of ownership” or an uncapping event that reassesses the property. In most other instances when real property in Michigan is sold, the sale triggers a so called uncapping event and the taxable value, which is usually lower than the State Equalized Value (“SEV”), rises to the SEV thus increasing total property taxes. Transfers of Qualified Agricultural Properties do not uncap provided that: (a) the property remains Qualified Agricultural Property after the transfer, and (b) after the transfer the new owner files certain forms with the local assessor’s office and register of deeds where the property is located.
“Qualified Agricultural Property” is either (a) property that is classified as agricultural, or (b) property that is not classified as agricultural, but which nonetheless uses more than 50% of its acreage for agricultural uses. The definition allows for some interesting scenarios. For example, a property that is classified or zoned as residential will nevertheless be eligible for the exemption if more than 50% of the acreage is used for agricultural purposes. On the other hand, if a property is zoned as agricultural, the owner may qualify for the exemption even if none of the property is used for agricultural purposes.
Aside from the exemption from the 18 mill state education millage, the owner of property enrolled in the Farm Land and Open Space Preservation tax credit program can receive a credit against state income taxes. Under this system, the owner is entitled to a tax credit equal to the amount of property tax in excess of 3.5% of the owner’s income. The Michigan Department of Agriculture gives the following example, “if the owner has an income of $20,000 and property taxes on the farm total $2,000, he/she would subtract $700 (3.5 percent of $20,000) from the $2,000 property tax for an income tax credit of $1,300.”
There are further benefits under the Farmland Preservation Act Credit program. Property enrolled in this program is also exempt from future (not current) special assessments for water, sewer and some drainage projects, though road improvement levies still apply. While the exemption from special assessments is subject to recapture if the property is sold (or the farmland/open space preservation contract is released prior to the expiration date of the agreement), the amount of the recapture cannot exceed the amount the assessment would have been at the time of the exemption and does not include any interest or penalty. Also, if the land is sold and the agricultural usage terminates (e.g., the property is developed), then there is a recapture of part of the actual income tax credit (usually the past 7 years’ credits).
In any of these instances there are a number of fact-specific scenarios which require deeper analysis. Improved parcels, especially those with a functioning house or related commercial operation, may only partially qualify for the Qualified Agricultural Exemption and the local unit of government may require satisfactory proof that land not zoned for agricultural use is indeed being farmed before granting the exemption or credit. Additionally, there are other rules that can exempt certain timberland from the 18 mill state school operating millage under Michigan’s Qualified Forest Program. Finally, keep in mind that these exemption and credit programs are not like conservation easement donations under federal income tax laws, and are not subject to deductions from income for federal income tax purposes.
For these and other reasons, we recommend the services of an attorney, especially if you are negotiating the purchase or sale of agricultural land, considering enrolling land in one of the programs or planning to claim one of these exemptions.
The State Bar of Michigan Real Property Law Section E-Newsletter dated May 1, 2012 took note of the litigation being handled by Bill Horton and Greg Gamalski on behalf of Oakland County against Fannie Mae and Freddie Mac. Summary judgment was granted in favor of the County. Damages are now being calculated. See article below…
By K.J. Miller and Jeffrey Jamison, Dykema Gossett, PLLC
Last month, Judge Victoria Roberts, E.D. Michigan, ruled that Fannie Mae and Freddie Mac are not exempt from paying real estate transfer taxes and are liable for millions of dollars of unpaid taxes. The two mortgage giants have long claimed exemptions based on specific federal statutes exempting them from “all taxation.” In Oakland County v. Federal Housing Finance Agency (E.D. MI., No. 11-12666, March 23, 2012), Judge Roberts rejected this argument and granted summary judgment in favor of plaintiffs.
The Court explained that the “Supreme Court in [United States v. Wells Fargo Bank, 485 U.S. 351 (1988)] made clear that where a statute prohibits the collection of ‘all taxation,’ an excise tax is still due.” The facts in the Oakland County case were largely undisputed and the sole issue in controversy was whether the federal statute at issue precluded the imposition of state and local real estate transfer taxes. According to the decision, the parties did not dispute the characterization of the real estate transfer taxes as excise taxes, and the Court concluded: “Wells Fargo dictates that the defendant’s exemptions do not cover the Transfer Taxes,” and that Fannie Mae and Freddie Mac “are liable for the Transfer Taxes.” The damages in the Oakland County case are estimated to be $13.5 million.
An appeal of this ruling—the first ruling involving Fannie Mae’s and Freddie Mac’s claim of exemption from real estate transfer taxes—is expected given its potentially far-reaching implications. Although borrowers may attempt to use this ruling as an affirmative defense or a counterclaim, such claims would fail as the real estate transfer tax statutes do not provide private causes of action or defenses for borrowers.
By Gregory Gamalski, Giarmarco, Mullins & Horton, P.C. and Melanie Duda, University of Detroit Mercy School of Law, 3L UDM Law Review, Symposium Editor
Michigan is a hothouse for the national urban agriculture movement. But commercial agriculture remains illegal in many Michigan municipalities because the Right to Farm Act (RTFA) protects farmers and preempts local ordinances that prohibit or control agriculture once established. A sticking point has been the RTFA provision that allows industrial agriculture as long as it complies with Generally Accepted Agriculture and Management Practices (GAAMPs). Allowing agriculture can be like letting the camel’s nose in the tent. By authorizing agricultural operations, municipalities may have no control over the operation if it complies with GAAMP. Once established, an agricultural operation could expand to unwelcome things like concentrated animal feeding operations (CAFOs). The Michigan Agricultural and Rural Development Commission responded to this problem by changing the GAAMPs’ Prefaces in January, 2012. The Prefaces now state that GAAMPs do “not apply in municipalities with a population of 100,000 or more.” See, e.g., Michigan Department of Agriculture and Rural Development, Generally Accepted Agricultural and Management Practice for Site Selection and Odor Control for New and Expanding Livestock Production Facilities, (January 2012). The revision allows large municipalities to approve agricultural activities while preserving the right to regulate them. The change may encourage municipalities to write ordinances opening the Urban New Frontier to agricultural uses. While urban farmers may still desire changes to the Right to Farm Act, large municipalities are now exempt from GAAMPs and may start to encourage urban agriculture so it more fully blossoms. To paraphrase Horace Greeley: Go urban, young people!
Giarmarco, Mullins & Horton, P.C., Attorneys Co-Chair Second Annual Urban Farming Symposium May 18, 2012
The University of Detroit Mercy School of Law, along with the Real Property Law Section of the State Bar of Michigan are Co-Sponsoring the Second Annual Urban Farming Symposium on May 18, 2012 at 8:00am. Co-chairing the event are Gregory J. Gamalski, a partner in the Business Practice Group of Giarmarco, Mullins & Horton, P.C. in Troy, Michigan; Paul Thursam, an associate at GMH; and Professor Jacqueline Hand of the University of Detroit Mercy School of Law. Mr. Gamalski is currently a Council Member for the Real Property Law Section. Mr. Thursam has moderated roundtables for the Section on Urban Farming. The presentations will focus on policy and practical issues related to urban farming and agriculture as part of creative and adaptive re-use of the urban landscape. The Symposium will be open to the public but focused on the legal community and planning communities. Detroit is a laboratory where urban farming is fermenting, evolving and growing. The Symposium is intended to establish a reasoned framework for discussions about the legal and policy issues that should be considered by local units of government and citizens grappling with this dynamic concept. For more information contact Paul Thursam at 248.457.7189 or email@example.com
Giarmarco, Mullins & Horton, P.C. is ranked as the 12th largest law firm in Michigan. Founded 35 years ago, located in Troy and Detroit, Michigan, it is a full service law firm with 70 attorneys. Areas of practice include family law, corporate and business law, health care law, estate planning, commercial litigation, governmental law, real estate, creditors’ rights, criminal law, and employment and labor law. Giarmarco, Mullins & Horton, P.C. is named in U.S. News & World Report as a Best Law Firm in America 2012, Tier 1.