Principal residence exemptions are attracting greater scrutiny according to three Grand Rapids-based attorneys who recently helped a client secure an exemption after her initial request was denied.
In the case of Nass v. Saugatuck Township, Rhoades McKee attorneys Bruce Courtade, James Schipper, Greg Timmer and Terry Zabel represented Nass against the township.
The case was won in the Michigan Court of Appeals in April.
Saugatuck Township has reportedly decided not to appeal that decision.
A principal residence exemption, or PRE, exempts a residence from the tax levied by a local school district for school operating purposes up to 18 mills.
To qualify for a PRE, a person must be a Michigan resident who owns and occupies the property as a principal residence.
Denial of a PRE can cost a taxpayer thousands of dollars per year.
“It makes a big difference in the property tax bill,” Courtade said. “In this case, a difference of $9,000 or more per year in property tax.”
According to Rhoades McKee, Nass had lived in and run her business out of her home in Saugatuck Township since 2008, but in 2012, she was notified by the local assessor that because her husband claimed a PRE for his home in Illinois, she was not entitled to a PRE for the Saugatuck Township property, and therefore, was assessed for back taxes allegedly owed for 2009 through 2012.
“Mrs. Nass owns property in Saugatuck Township, and she had filed an application for a personal residency exemption on the property, which is her residence where she lives,” Courtade explained.
Nass and her husband also own a home in Illinois, which is the principal residence of Mr. Nash, and he receives a PRE for that property.
The Saugatuck Township assessor based her decision on the Illinois PRE, saying in essence that because a PRE had already been granted for the home in Illinois, the Saugatuck home could not be Mrs. Nass’ primary residence.
“The unique factor here was that the assessor took it upon herself to deny the PRE, and she did so simply because, according to an interview she gave, it was her gut feeling this was not Mrs. Nass’ primary residence, because her husband owned a house in Illinois for which he received a PRE,” Courtade explained. “That is just not the law supported by the facts here.”
Zabel pointed out that a husband and wife can have separate principal residences, which can both receive a PRE.
“That is probably becoming more common as people professionally are working in different locations,” Zabel said. “In this case, what was important is that Mrs. Nass filed a Michigan income tax return. She filed it and used it as her Saugatuck Township address, because that is where her residence is.”
Courtade said in court Nass was able to prove that the Saugatuck Township home was her primary residence using several documents, including her voter registration card, driver license, two years of utility bills showing consistent usage and her car registration.
He noted in a similar case that was brought around the same time as Nass’, another taxpayer in the state had a PRE denial upheld, because the assessor in that location was able to show the utility bills didn’t support the claim that the home in question was the individual’s primary residence.
“In that case, the assessor actually looked at the utility records and found out that the homeowner had not used anywhere near the water that should be used for somebody who is living there full time,” Courtade said.
Related to the Nass case, Courtade added, “This case shows the types of evidence the assessors should be looking for in making their determination and that the tax tribunal should be taking into account when it makes its determination.”
The Nass case highlights a couple of important trends, according to Schipper.
“In years past, it would be very unusual to have a township assessor look at whether there was another exemption claimed in another state or whether there are utility bills that show the property is being used as a primary residence,” Schipper said. “I think it’s a trend that township assessors are really digging into these situations to find out whether or not someone is actually using a property as their primary residence.”
Changes in status
Courtade said he expects to see this trend to continue, particularly along Michigan’s lakeshore communities.
He noted in many cases, lakeshore homes serve as cottages or second homes for people, but over time those homes become a family’s primary residence.
“Over the years, as they get closer to retirement, they are spending more and more of their time along the lakeshore and eventually that becomes their primary residence,” Courtade explained. “If that happens, then they are entitled to switch their PRE to the lakeshore residence. Then the burden is to show that they really are using that as their principal residence.”
He noted the Nass case provides a really good roadmap for the types of things that people have to be looking at to determine whether or not that really is their principal residence.
He said once a principal residence shift has occurred, homeowners should apply to change their PRE.
“Usually people will fill out exemption form when they purchase the property, but there are times when a person basically shifts their residence from one location to another,” Courtade said. “And when they make that change in their residence, that is when they should file the application.”
He noted there is a very narrow window to file an appeal if an application has been denied by a township assessor, so an applicant should act fast in appealing an adverse decision.
“I am pleased with the appeals court decision,” Nass said in a statement issued by Rhoades McKee. “I, like other Saugatuck residents, appreciate all that the community offers, and I am proud to call it home.”