The property tax bill on each parcel is the product of three factors:
Property tax bill = "True Cash Value" of parcel x Assessment Ratio x Total Millage Rate.
Each of these factors is discussed below.
Property taxes are ad valorem taxes, or taxes levied on the value of an asset. Thus, assessing the value of property is just as important in determining the property tax bill as the millage rate.
Market value, called true cash value in the Michigan Constitution, is the value of a parcel of property at a normal sale. Since parcels do not sell every year, their value must be estimated using some method, other than reviewing a sale price. These estimates, or assessments, are made by local tax assessors employed by local governments.
The assessments of all property in each jurisdiction are then collected, and adjusted or equalized by the counties and finally by the State Tax Commission. Equalization ensures that local assessors do not under-assess their parcels, in the hopes of passing off some of the tax burden on other areas within the same taxing jurisdiction. Normally, this happens in the background with little input notice or input from the taxpayer. After local assessments have been equalized by the State Tax Commission, the values given to property are known as State Equalized Value (SEV). This SEV, or a preliminary estimate of SEV, appears on a notice issued in the spring of each year to property owners.
The assessment and equalization processes are intrinsically inaccurate, and inequities and abuses are common.
The SEV of a parcel of property should be about half the actual market value. This ratio is known as the assessment ratio, or the portion of the value of property on which taxes are paid. The Constitution sets the assessment ratio at no more than 50%, and the Michigan Legislature, in the General Property Tax Act, set the ratio at the maximum 50%.
At the current assessment ratio of 50%, a home with a true cash value of $100,000 should be given an assessment or SEV of $50,000. A millage rate of 57 (about the current statewide average) would produce the following property tax bill:
$100,000 x .50 x 57/1000 = $2,850.00.
A mill is a rate of 1/1000. In the equation above, a millage rate of 57 mills is expressed as 57/1000, and multiplied by the assessed value of $50,000.
Millage rates are levied by schools (about 70% of total millage), counties (11%), cities (15%) and other authorities. The Constitution sets a 50-mill limit on property tax rates, but exempts voted for generalobligation debt millage, cities, and certain other chartered authorities from the limit. Thus, most urban and many suburban areas levy substantially more than 50 mills, and the statewide average now totals about 57 mills.