Traverse City Record-Eagle

October 5, 2012

Legislation aims to keep cottages in the family

Bill would prevent tax increases for in-family property tranfers

Special to the Record-Eagle

LANSING — A widely supported bill that would prevent property tax increases for owners who transfer family owned land has a high chance of becoming law before the end of the year.

Its sponsor, Rep. Peter Pettalia, R-Presque Isle, said the bill primarily would benefit families who own cottages or lakefront property.

Current law decrees that the taxable value of a home cannot increase from one year to the next by more than 5 percent or the increase in the consumer price index.

When property is sold or transferred, the restriction doesn't apply, and property taxes generally increase to reflect the value of the property.

That law can put families planning to pass on their cottages or waterfront property in a bind, Pettalia said.

If taxes jump to a level the new owners cannot afford, properties that have belonged to the same family for generations are in danger of being sold to non-relatives, resulting in loss of family history, he said.

"Once it leaves the family, it's gone forever, and the heritage associated with it will be lost," Pettalia said. "My bill would protect that history."

The proposal has seen support from both sides of the aisle. When the House approved the bill this year, 106 legislators voted in support and only four voted no.

Fiscal analysts from both the House and Senate concluded the change would lower state and local property tax revenue, but couldn't determine an exact amount because the value of real estate varies greatly.

The biggest potential negative impact would be on local governments and school districts, which use property tax dollars to help fund operations. Some associations representing those entities support the bill, but others remain wary of its potential implications.

Deena Bosworth, legislative coordinator for the Michigan Association of Counties, said its membership supports the measure, despite the potential ramifications it could have on property taxes in cottage-heavy areas.

"Typically it's not our type of bill that we'd be supportive of, but we recognize that it's family homes and vacation homes that are passed down from generation to generation," Bosworth said. "Our board voted to support it."

The Michigan Townships Association remains opposed, primarily because of the potential negative effect it could have on local units, legislative liaison Bill Anderson said.

"I'm sure this bill is a popular concept, but this bill has an impact on many local entities — schools, local governments, libraries, fire departments and others," Anderson said. "This would have an impact on all of those."

Anderson said the association also questions the legality of the bill because Michigan's constitution states all properties will move to their designated tax value when ownership is transferred, and a transfer between family members is still technically a transfer.

The Michigan Association of Realtors supports the bill, said Doug Merriam, the association's public policy director for West Michigan.

"This bill really promotes the culture of the family cottage," Merriam said. "It helps folks keep an eye towards the long term in real estate investment, and I think it's going to promote a lot of economic activity in the state."

Lauren Gibbons writes for Michigan State University's Capital News Service.