Case Name: WASHTENAW COUNTY v. STATE TAX COMMISSION; LAPEER COUNTY v. STATE TAX COMMISSION; OAKLAND COUNTY v. STATE TAX COMMISSION
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1983-06-21
Citations: 126 Mich. App. 535
Docket Number: Docket Nos. 64939, 64970, 65037
Parties: WASHTENAW COUNTY v STATE TAX COMMISSION LAPEER COUNTY v STATE TAX COMMISSION OAKLAND COUNTY v STATE TAX COMMISSION
Judges: Before: Bronson, P.J., and T. M. Burns and Allen, JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 126
Pages: 535–558

Head Matter:
WASHTENAW COUNTY v STATE TAX COMMISSION LAPEER COUNTY v STATE TAX COMMISSION OAKLAND COUNTY v STATE TAX COMMISSION
Docket Nos. 64939, 64970, 65037.
Submitted December 8, 1982, at Lansing.
Decided June 21, 1983.
Leave to appeal applied for.
The Counties of Washtenaw, Lapeer and Oakland appeal by leave granted from determinations by the State Tax Commission establishing the state equalized valuation of property at values higher than those determined by the county boards of commissioners.
Washtenaw County alleges that the commission erred in refusing to discount the salés prices of real estate to reflect the effect of so-called "creative financing”, which involves some form of seller-extended credit and which results in the enhancement of the selling price. Washtenaw County also alleges that sales data should be weighted in favor of those values closer in time to tax day, December 31, to reflect a more accurate valuation in a changing market and that the county was denied due process by various actions of the commission.
Lapeer County likewise alleges that the commission erred in not discounting sales for the effects of "creative financing” and that the commission’s study of agricultural lands was based on nonrandom samples.
Oakland County, like Washtenaw, alleges that the commission erred in not allowing a weighting of sales data to reflect the changing market.
The appeals of the three counties were consolidated. Held:
1. The State Tax Commission has erred by applying a method for assessing property for equalization without accounting for the effects of "creative financing” on sales prices. The effect of such financing arrangements must be considered in determining the true cash value of property. The case is to be remanded to the commission to develop a method for accounting for such financing.
References for Points in Headnotes
[1] 71 Am Jur 2d, State and Local Taxation §§ 152, 169.
[2-5] 71 Am Jur 2d, State and Local Taxation §§ 125, 759.
[6] 5 Am Jur 2d, Appeal and Error § 830. 73 Am Jur 2d, Statutes §§ 46, 145, 146.
[7] 71 Am Jur 2d, State and Local Taxation § 20.
[8] 72 Am Jur 2d, State and Local Taxation §§ 831-833.
[9] 2 Am Jur 2d, Administrative Law §§ 610 et seq., 653, 677. 72 Am Jur 2d, State and Local Taxation § 712.
2. The 30-month or 12-month studies of sales data required by the commission for equalization purposes provide inaccurate data in a market which is in a period of change at or near tax day. Therefore, the commission should develop a formula for weighting those sales occurring closest to tax day.
3. Washtenaw County’s allegation of a denial of due process is rejected. In light of the assumption by the Court of the accuracy of the county’s findings of fact in regard to the creative financing issue, the delays complained of by the county were harmless.
4. The commission’s cross-check of Lapeer County’s valuations of agricultural property was not improper.
Affirmed in part, reversed in part, and remanded for further proceedings.
• Allen, J., concurred in part and dissented in part. He would hold that the State Tax Commission did not err in refusing to make adjustments for the effect of "creative financing”. He would hold that, while the sale price is not always the "true cash value” and may be adjusted on an individual basis, there is no authority for, nor did the Legislature intend to permit, across-the-board adjustments to reflect price enhancements in sales involving seller-extended terms.
Opinion of the Court
1. Taxation — Property Tax Assessment — Uniform Taxation.
All real property owners within a taxing district must be taxed under an unvarying standard and at a uniform rate; the goal of equalization is to be achieved both within and among the different counties (Const 1963, art 9, § 3).
2. Taxation — Cash Value — Sales Price.
Sales price does not necessarily determine the true cash value of property.
3. Taxation — Property Tax Assessment — "Creative Financing”.
A tax assessment system which does not consider the effects of so-called “creative financing” on the sale price of real property violates the constitutional requirement of equality of taxation (Const 1963, art 9, § 3).
Concurrence in Part, Dissent in Part by Allen, J.
4. Taxation — Cash Value — Usual Selling Price.
The "cash value” of real property is deñned by statute to be "the usual selling price” at private sale; thus, the majority of sales of a particular class of property are indicative of the usual selling price, regardless of how ñnanced (MCL 211.27[lj; MSA 7.27[1]).
5. Taxation — Property Tax Assessment — "Creative Financing”.
The statutory exclusion, for purposes of assessment of real property, of amounts paid for obtaining ñnancing of the purchase price of the property does not include the amount by which the purchase price may have been increased because the seller is being paid on a land contract or other so-called "creative ñnancing” arrangement (MCL 211.27[3j; MSA 7.27[3]).
6. Appeal — Judicial Construction — Statutes.
The Court of Appeals should not by judicial interpretation change the effect of a statute where the Legislature has refused to pass legislation designed to so change the statute’s effect.
7. Taxation — Property Tax Assessment.
The State Tax Commission may devise a formula for weighting real estate sales data in the assessment process in order to reflect changing market trends close to tax day; sales ratio studies should, however, extend over periods of not less than 12 months.
8. Taxation — Equalization Hearings — Contested Cases.
Inter-county equalization hearings before the State Tax Commission are not "contested cases” subject to the rules promulgated under the Administrative Procedures Act (MCL 24.201 et seq.; MSA 3.560[101] et seq.).
9. Taxation — Appeal — State Tax Commission.
Review by the Court of Appeals of decisions of the State Tax Commission is limited to questions of fraud, adoption of wrong legal principles, and errors of law; the Court is bound by the commission’s factual determinations.
Robert J. Harris, for Washtenaw County.
Eugene G. Wanger, for Lapeer County.
Leo Goldstein, for Oakland County.
Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Richard R. Roesch and Ross H. Bishop, Assistants Attorney General, for the State Tax Commission.
Amici Curiae:
Cohl, Salstrom, Stoker & Aseltyne, P.C. (by Patrick A. Aseltyne), for Ingham County and Livingston County.
Before: Bronson, P.J., and T. M. Burns and Allen, JJ.

Opinion:
T. M. Burns, J.
Although we join Judge Allen in Issues II, III and IV, we cannot join in Issue I because we do not agree that "usual selling price" necessarily means whatever a buyer pays for property.
Because of extraordinarily high interest rates, some real estate buyers and sellers have recently used different forms of "creative financing" to finance their property sales. Using such financings, a buyer might pay more for a property where the payments are made over an extended number of years than he or she would have if the sale were financed through a conventional mortgage. Although the property's value remained constant, the selling price would differ considerably.
This fact was recognized by Judge Bronson while dissenting in Antisdale v Galesburg, 109 Mich App 627, 635-636; 311 NW2d 432 (1981):
"Suppose both houses are for sale. Seller A is a relatively well-to-do retiree who does not immediately need the sale price of his home. Indeed, A is happy to take monthly payments from a buyer over a period of years and would consider these payments a pseudo-annuity. A wants to move to Florida and would like to sell his house quickly. Seller B, on the other hand, needs the entire sale price from his house forthwith. B plans to use the proceeds of the sale to embark on a new business venture. Furthermore, B can offer no creative financing arrangements.
"A contracts with C for the sale of his house. C can only make a $10,000 down payment. However, C recently has been promoted within his corporation and has received a 50% increase in salary; The contract price for the sale of the house is set at $80,000. Of this amount, C puts down his $10,000 and agrees to pay the remainder at 7-1/2 percent interest over 25 years. B contracts with D. However, D must obtain a 30-year, 16 percent conventional mortgage to buy B's home. Thus, the contract price established for the house is $65,000. As I read the majority opinion, A's house would be assessed at a true cash value of $80,000. I believe, however, that what A's buyer, C, has really purchased is a house along with favorable financing terms."
The American Institute of Real Estate Appraisers recently supported this conclusion when it concluded that "[l]and contract terms typically create a higher selling price than the house would sell for cash, or cash down to a new mortgage at market rates". As such, the "terms of a sale are a critical adjustment factor that can have a significant effect on sales prices and should be considered by all appraisers". American Institute of Real Estate Appraisers, Michigan Chapter No 10, Report of the Research Committee, p 27.
The State Tax Commission has, however, concluded that this factor should not be considered when equalizing assessments. Apparently, the Legislature has also reached this conclusion, as evidenced by their refusal to amend MCL 211.27(1); MSA 7.27(1) and MCL 211.27(3); MSA 7.27(3) to permit adjustments for creative financing. However, the Legislature is to a large extent bound by our constitution. Const 1963, art 9, § 3 states:
"The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law. The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed, which shall not, after January 1, 1966, exceed 50 percent; and for a system of equalization of assessments."
The Convention Comment to this constitutional provision says: "The important constitutional objective is uniformity of assessment, regardless of the level at which property is commonly assessed." 2 Michigan Compiled Laws Annotated, p 513. This uniformity requirement means that all real property owners within a taxing district must be taxed under an unvarying standard and at a uniform rate. It implies equality in the burden of taxation. Titus v State Tax Comm, 374 Mich 476; 132 NW2d 647 (1965). See also Pine Grove Twp v Talcott, 86 US (19 Wall) 666; 22 L Ed 227 (1873). A tax rate imposed by a single taxing unit must be identical throughout its territory. East Grand Rapids School Dist v Kent County Tax Allocation Bd, 415 Mich 381; 330 NW2d 7 (1982). This goal of equalization is to be achieved both within and among the different counties. Ann Arbor Twp v State Tax Comm, 393 Mich 682, 688; 227 NW2d 784 (1975). Finally, the courts of this state have often held that sales price does not necessarily determine the true cash value of property. See Fisher-New Center Co v State Tax Comm, 380 Mich 340, 362; 157 NW2d 271 (1968); Antisdale, supra, p 636 (Bronson, J., dissenting).
Therefore, a tax assessment system which does not consider creative financing is in fact unconstitutional. Two people owning identical pieces of real property, both worth precisely the same amount and both bought simultaneously, should not be taxed at different rates merely because they purchased their properties under different financing arrangements. As such, the Legislature has no power not to allow appropriate adjustments for SCEPE or "creative financing" sales.
This position was taken by Village Green Co v Derderian, 67 App Div 2d 714; 412 NYS2d 421 (1979), where the lower court had disregarded the sales price when it valued a property. On appeal, the appellate division affirmed by ruling:
"At the time of the sale, there was a favorable 7% mortgage on the premises for about $459,000. The purchaser paid $170,000 in cash and was given a remarkable purchase-money mortgage of about $416,000, which, among other things, forgave all interest and payments for five years and then required payments at the rate of 4% for the next 10 years. The purchaser was also entitled to a $100,000 prepayment discount should it choose to pay within five years of the closing. Given the terms of the purchase-money mortgage, the trial court was justified in finding that the connection between the purchase price of the property and its true fair market value was tenuous."
Consequently, we conclude that the commission has applied the wrong method for assessing property for equalization by not accounting for the effects of creative financing on the sales price. As such, we are remanding all three cases to the commission to develop a method to account for creative financing.
Reversed in part, affirmed in part and remanded. No costs, this being a public question.
Bronson, P.J., concurred.
American Institute of Real Estate Appraisers, Michigan Chapter No 10, Report of the Research Committee, Cover Letter.
Appellant County of Washtenaw's study shows that, to a certain extent, creative financing does artificially enhance the "sales price".
We would like to take the time and space, to thank the State Tax Commission for putting the enormous effort into writing an opinion pursuant to our order of October 27,1982.