Calculation of an Individual Tax Bill

Taxes on real and personal property are levied annually in either the summer or the winter, though the taxes may be billed to a property owner semiannually (in the summer and winter) if the school board passes a resolution to collect them in this way and if the local tax collection authority agrees.[39] The annual tax bill for a specific piece of property is calculated by multiplying the taxable value of the real (or personal) property by the number of mills of tax to which the property is subject. For example, assume that a taxpayer has just purchased a property that has a cash value of $100,000 and is subject to an 18 mill tax. Since taxable value is set equal to SEV when a property is transferred, and since SEV is one-half the cash value of the property, the property's taxable value would be $50,000. Given that a mill is defined as the decimal 0.001, the 18 mill tax rate is equivalent to the decimal 0.018. Thus, the annual property tax bill would be calculated as follows:

Tax Due = Taxable Value x Millage Rate = $50,000 x 0.018 = $900

Hence, the property owner would be required to pay $900 for this 18 mill tax on his or her $100,000 piece of property.

This calculation is reasonably straightforward. Examples of actual tax bills are reproduced in the two graphics below. In each case, a variety of different tax rates have been applied to the taxable values of the two properties in order to pay for different government activities. In Graphic 4, for instance, a 0.64 mill rate is assessed on the property to pay for city debt, while other millage rates are used to calculate taxes owed for the Midland Public Schools sinking fund, Delta Community College operating expenses and so forth.

Graphic 4: Summer Real Property Tax Bill Example, Midland County

Graphic 4 - click to enlarge

Graphic 5: Winter Personal Property Tax Bill Example, City of Norton Shores

Graphic 5 - click to enlarge

Note that in Graphic 4, the taxable value of the property differs from the property's SEV. As discussed above under "Assessment of Taxable Property", taxable value will diverge from SEV when a property's value increases above the inflation rate or 5 percent, whichever is less (Graphic 2 in that section shows how taxable value is calculated in such instances).[xxvii]

As noted earlier, this property tax cap on taxable value would apply to both real property and personal property. In general, however, the value of personal property tends to decline, rather than increase.

The 'Headlee Rollback[xxviii]

Article 9, Section 31, of the Michigan Constitution stipulates that if the percentage increase in the assessed value of real and personal property in a taxing jurisdiction (excluding new construction) exceeds the inflation rate, the authorized property tax millage must be reduced to a level that would limit the annual increase in property tax revenue to the rate of inflation. This property tax limitation is part of what is popularly known as the "Headlee amendment" to the Michigan Constitution, so this reduction in the millage rate is often referred to as a "Headlee rollback."[xxix] Headlee rollbacks, which are calculated by the county equalization director,[40] are automatic, but a majority of the qualified local electors can override a rollback and hold the tax rate constant in a process known as a "Headlee override."

An alternative form of Headlee "override" can occur as well: In some instances, school districts ask voters to increase the local operating millage beyond the maximum amount that can be levied by law. Although the district cannot collect more than the maximum, all subsequent Headlee rollbacks are calculated on the larger, voter-authorized millage rate. Since the rollbacks calculated on this higher millage are unlikely to fall back to the maximum millage rate for many years, Headlee rollbacks are effectively pre-empted throughout that time.[41]

There are two important points to note about the Headlee rollback. First, the rollback does not apply to the statewide property tax known as the "state education tax".[xxx] Second, the rollback limits the revenue growth districtwide; it does not limit the increase in the property tax bill of an individual property owner. If an owner's assessment jumps well above the inflation rate in a given year, a Headlee rollback might not reduce the millage rate enough to offset the assessment increase and yield a tax increase that is less than the inflation rate for that property owner.

Because of Headlee rollbacks, a local millage rate may vary from year to year. For example, let us say that the taxable value of the properties subject to a particular tax in a school district increases from $150 million in one year to $175 million in the next year with no losses or additions of property.[42] This is a percentage increase of

($175,000,000 − $150,000,000) x 100 percent = $25,000,000 x 100 percent = 16.67 percent,
              $150,000,000                                      $150,000,000

Assume, however, that the rate of inflation during this year is 2 percent – much less than the 16.67 percent increase in taxable value. The millage rate must then be reduced in order to make sure that actual tax revenue from the taxable properties (excluding new construction) does not exceed the inflation rate. The formula for calculating that "rolled-back" millage rate is

MR2 =TV1 x MR1 x (1 + IR),


MR2 is the new, "rolled-back" millage rate;

TV1 is the taxable value in the first year (adjusted to exclude any subsequent property losses);
TV2 is the taxable value in the second year (adjusted to exclude new construction);
MR1 is the millage rate in the first year; and
IR is the inflation rate, expressed as a decimal, from the first year to the second.[xxxi]

Applying this formula to the current example and assuming that last year's rate on the property type in question is 18 mills, the new millage rate would be

MR2 =TV1 x MR1 x (1 + IR) = $150,000,000 × 18 mills × (1 + 0.02) = 15.7371 mills.

                           TV2             $175,000,000

Note that this new millage does precisely what the Headlee amendment stipulates. When the new millage rate is applied to the new taxable value of $175,000,000, the tax revenue is $175,000,000 ¡Á 0.0157371 = $2,753,992.50. Since the previous tax revenue was $150,000,000 ¡Á 0.018 = $2,700,000, the resulting percentage increase in tax revenue is

($2,753,992.50 − $2,700,000) x 100 percent = $53,992.50 x 100 percent = 2.00 percent,

                $2,700,000                                       $2,700,000

meaning that the increase is, correctly, no more than the 2 percent inflation rate.

[xxvii] For an actual example of a total SEV annual increase as compared to a total taxable value annual increase, see Daryl J. Delabbio and Robert J. White, "2005 Financial Overview, Kent County, Michigan," (Kent County, Michigan, 2005), 6, 2005FinancialOverview.pdf (accessed February 2, 2006).

[xxviii] Headlee rollbacks are a form of property tax limitation. Another is a "Truth in Taxation" rollback (see MCL § 211.24e), which is more strict than a Headlee rollback, but according to the Michigan Department of Treasury, less likely to be invoked. This property tax limitation requires that millage rates be reduced so that property tax revenue does not exceed the previous year’s revenue (unlike the Headlee rollback, this limitation does not allow for inflationary increases in a district’s taxable value).

A district may be exempted from the "Truth in Taxation" rollback in one of two ways. First, it may adopt the "Truth in Taxation" provisions (see MCL § 141.436 and MCL § 211.24e(3)), which require school districts (and other local government authorities) to estimate revenues by source (see MCL § 141.436(3)) and taxes the district will levy — within all other applicable statutory limits and constitutional limits (discussed below) — to fund its projected expenditures (see MCL § 141.436(1) and MCL § 141.436(6)). Second, it may hold a "Truth in Taxation" hearing (see MCL § 141.412) to discuss publicly the additional millage required to maintain millage rates at the authorized limit, and then may adopt a resolution to approve the additional mills required to keep the millage rate at the authorized limit ("Michigan Public School Accounting Manual (Bulletin 1022): Section II, Requirement," (Michigan Department of Education, 1998), 16).

[xxix] MCL § 211.34d. This is referred to by the State Tax Commission as the "Headlee Millage Reduction" or an "L-4029 levy," after the name of the form used to report it.

[xxx] See, for instance, Michigan State Tax Commission, "Bulletin No. 4 of 2006: Millage Requests and Rollbacks," (Michigan Department of Treasury, 2006), 4, (accessed April 3, 2007). The Headlee amendment was passed before the existence of a statewide property tax.

[xxxi] County equalization directors usually calculate this millage reduction using a "Headlee Millage Reduction Fraction." Computations of the Headlee MRF for each taxing jurisdiction are provided annually by the State Tax Commission in a document issued to tax collection officials, such as county clerks, county treasurers, equalization directors, and the boards of local school districts and intermediate school districts.

The MRF formula divides the product of the prior year’s taxable value minus losses and an inflation rate multiplier by the current year’s taxable value minus additions. Generally defined, the inflation rate multiplier is the current year’s general price level divided by the previous year’s general price level. Under Michigan statute, the general price level is the average of the previous year’s monthly consumer price index (CPI) values, which reflect the change in the average urban consumer’s price for certain goods and services.

The general formula is expressed in the following way:

MRF = (Taxable ValuePrevious Year - Losses) x Inflation Rate Multiplier.

                  (Taxable ValueCurrent Year - Additions)

For 2005, the State Tax Commission’s formula was the following:

2005 MRF = (Taxable Value2004 - Losses) x 1.023.

                  (Taxable Value2005 - Additions

This product of this fraction and the previous year’s nonhomestead millage rate is then the new millage rate.