How is Taxable Value Calculated?
Taxable value - the value for which your tax bill is calculated, is determined each year by comparing the sev/assessed and capped values of your property - then choosing the lower of the two. The assessed value is the assessor’s estimate of 50% of the market value of the property.
Capped value is determined using the following formula:
(Prior year taxable value – losses) x [CPI or 5% (which ever is lower)] + additions
Losses, in most cases, are equal to the taxable value of any buildings, or portions thereof, that were removed or destroyed in the previous year.
Additions, in most cases, are equal to the assessed value of any new buildings, or portions thereof, that were built in the previous year.
Consumer Price Index (i.e., CPI, or the inflation rate) is equal to that which was experienced in the state of Michigan in the prior year. This figure is determined by the Michigan Department of Treasury.
Here's and example from 2004:
2004 Taxable Value for a parcel of property is the lower of either (a) the 2004 SEV for the parcel, or (b) the 2004 capped value for the parcel - calculated as follows: (2003 taxable value - losses) x (the lower of 1.05 or the inflation rate multiplier of 1.023) + additions.
The following calculates the taxable value for a 2003 property with no physical changes (meaning that the property’s land size remained the same and neither the buildings nor the property were destroyed or improved in whole or part). The example property also experienced a 2% market value increase in 2004 and there was no "transfer of ownership" in 2003.
- 2003 SEV = 50,000
- 2003 Taxable Value = 49,000- 2004 SEV = 50,000 + 2% = 51,000
The 2004 taxable value is the lower of:
1) The 2004 SEV of 51,000
- OR -
2) The 2004 capped value, calculated as follows:
(2003 taxable value - losses) X (the lowest of 1.05 or the inflation rate multiplier of 1.023) + additions
Since there are no additions or losses for this example, the capped value formula is:
(49,000 - 0) X 1.023 + 0 for additions
It can be further simplified as:
49,000 X 1.023
2004 capped value = $50,127
The 2004 taxable value is $50,127 (since this is lower than the 2004 SEV of $51,000)