What a Leelanau Co. case means for property tax exemptions statewide
A family in Leelanau County can claim property tax exemptions in both Utah and Michigan, according to a recent ruling from the Michigan Supreme Court.
And the ruling could affect the way other people claim exemptions on their property taxes.
The case comes from Leelanau County, where Mack Stirling applied for what’s called a “principal residence exemption” on his home of more than 30 years.
Leelanau County denied Stirling’s application because, according to court documents, his wife, Dixie Stirling, had also claimed an exemption in Utah — on property they rent to long-term tenants.
Leelanau County said you can’t claim similar exemptions in two states. The Stirlings argued that the situations were different enough that it was allowable.
In a 5-1 ruling, the Michigan Supreme Court said the two exemptions are, indeed, different enough for the Stirlings to claim both exemptions.
“Simply put, the (Michigan principal residence exemption) is for homesteads while the Utah exemption is for landlords,” Justice Brian K. Zahra wrote for the majority. “Comparing the two exemptions reveals that they are not alike in substance or characteristics.”
In a dissenting opinion, Justice Richard H. Bernstein said “the mere fact that Utah statute applies to rental properties” doesn’t demonstrate that it’s substantially different from Michigan’s law.
“The overall effect … on property taxes,” he wrote, “is essentially the same — both statutes are designed to lower property taxes on homes being used as principal or primary residences.” And, he wrote, it is the property owners, not the tenants, who will benefit from the tax break in Utah.
Read the full opinion and the dissent. (PDF)
Leelanau County raised its own concerns in reacting to the decision.
Treasurer John Gallagher III said in a statement to IPR that the county was pleased that the Supreme Court agreed that the test for this case should be whether the two tax breaks are similar.
“But we believe that the Court was mistaken in its application of that test to Utah’s residential exemption here,” Gallagher wrote in the statement. “This result could allow taxpayers to game the system based on relatively minor differences between two state’s residential exemptions.”
Karla Stirling isn’t so sure people will try to game the system.
She is the daughter of Mack and Dixie Stirling, and also their attorney in this case.
“The courts in Michigan have been really consistent with other people who have attempted to game the system — where they have second homes in other states and then have argued, ‘well, the exemption in that other state was so small it shouldn’t count against me,’” she said. “The Michigan courts have been really good at tamping that down.”
But Karla Stirling says her parents were not trying to skirt the rules.
“The Utah exemption at issue is definitely different,” she said. “What’s confusing is that there’s a separate subsection in Utah that is similar to Michigan’s (exemption), which is for the home that someone lives in. But that’s not what was at issue here.”
Stirling said her parents moved into their Leelanau County home in 1990. Nearly $27,000 in tax payments from 2016 to 2019 were at stake in this case.
“My parents have always only had one home in Leelanau County,” she said. “And they went and got two rental units in Utah that they rented out to full-time tenants and never imagined that their (exemption) on the home they’ve lived in over 30 years could have been denied.”
She said her parents were “really pleased” with the ruling.
IMPACT ON COUNTIES
This ruling could affect county tax rolls if more people claim Michigan’s principal residence exemption, said Bob Robinson, Eaton County treasurer and the immediate past president of the Michigan Association of County Treasurers.
“Anything like this is a serious consideration,” Robinson said. “In and of itself, it wouldn’t be crippling to the county budget, but I’m a treasurer, and I do believe that nickels and dimes add up.”
Robinson said this case might have flown under the radar for some treasurers, who are keeping their eyes on the U.S. Supreme Court, which is considering a case over the power counties have to seize properties for nonpayment of taxes.
But he said his counterparts in other Michigan counties shouldn’t let this Michigan Supreme Court ruling go unnoticed.
“It’s a significant tax exemption,” he said, “and I think it’s something we all should pay attention to.”
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