(October 8, 2015) This summer, the Michigan Supreme Court issued an opinion in Gardner v. Department of Treasury, ruling that homeowners who can demonstrate, when they sell their principal residence, that the state equalized value (SEV) at the time of sale is less than or equal to the SEV at the time of their purchase are exempt from the real estate transfer tax and may seek a refund.
In Gardner, several taxpayers sold their principal residences in a depressed real estate market and the SEV of the properties was not surprisingly less than the SEV at the time they purchased the properties in a more robust real estate market. These taxpayers sought a refund of the transfer tax paid pursuant to MCL 207.526(u), which provides an exemption to the tax for properties sold and “the state equalized valuation of that property is equal to or lesser than the state equalized valuation on the date of purchase or on the date of acquisition by the seller or transferor for that same interest in property.” The Department of Treasury initially denied their request for a refund based on its interpretation of “true cash value” as “two times the property’s SEV or less in the year of sale.” The taxpayers then appealed to the Tax Tribunal, who awarded the taxpayers full refunds. The Michigan Court of Appeals reversed the Tax Tribunal and concluded that “the exemption only applies if the property’s SEV at the time of sale was precisely twice the property’s SEV at the time of purchase.” The Michigan Supreme Court reversed, concluding that the taxpayer simply need establish that the SEV at the time of sale is the same or lower than when the property was first acquired.
Thus, any residential homeowners who have sold or will sell their principal residence in an arm’s-length transaction may be entitled to the transfer tax exemption if the SEV at the time of sale is less than or equal to the SEV at the time of acquisition. For more information about how to pursue a refund for residential transfer taxes, please contact an attorney from Rhoades McKee’s Real Estate Law Team.