On July 20, 2023, the Michigan Court of Appeals issued an important decision regarding the conflict between an exemption to property tax uncapping for close family members and the required uncapping when the majority of the ownership of a business entity is conveyed. In Jeff Properties, LLC v City of Warren, 2023 WL 4670261, two parents (the Andlers) owned two residential rental properties through a limited liability company. In 2014, the Andlers conveyed their ownership in the LLC to their son, whom the Court identified as “John Junior,” which also had the effect of conveying the ownership of the two rental properties to John Junior, as those properties remained titled in the name of the LLC. In 2021, John Junior filed a property transfer affidavit with the City of Warren. The City determined that the transaction seven years prior had “uncapped” the property taxes on the two properties, in accordance with Section 27a(6)(h) of the Michigan General Property Tax Act (“GPTA”), MCL 211.27a(6)(h).
Generally, Section 27a(6)(h) of the GPTA states that an uncapping event occurs when more than 50% of the ownership interest in a business entity is conveyed. The Court agreed that the 2014 conveyance of the LLC ownership interest invoked Section 27a(6)(h), which meant that the property taxes were uncapped at that time. John Junior contested the uncapping by arguing that the conveyance of the LLC ownership interest was still exempt from uncapping under Section 27a(7)(t) of the GPTA, MCL 211.27a(7)(t). Section 27a(7)(t) exempted transfers between close relatives during calendar year 2014, and it is similar to other related-party uncapping exemptions. However, the Court disagreed and found that this related-party exemption did not apply because the transfer was done through a conveyance of the LLC ownership or membership, rather than an exchange in title of the real estate. The Court upheld the City’s uncapping of the two properties. If you have questions about property tax uncapping, our attorneys are here to help.