1/24/2012
by Chris Caldwell, Cottage Law Attorney and
Laura Radle, Cottage Law Attorney
A common concern among Michigan homeowners is the dreaded “uncapping” of real estate taxes. But the rules in this regard are somewhat confusing. In general, for as long as someone owns a parcel of real estate, the “taxable” value of that property remains “capped” and increases only incrementally from year to year. However, when property is conveyed to another party, a “transfer of ownership” usually occurs and the property taxes are uncapped. Specifically, the transfer of property to children upon the death of the cottage owner is an uncapping event. In some cases, the uncapping can raise the property taxes so dramatically that the children cannot afford the property, effectively defeating a client’s attempt to keep the cottage in the family.
However, Michigan law currently contains several exceptions to the “transfer of ownership” rule. Most importantly for cottage planning purposes, a transfer of the property that creates or terminates a joint tenancy, if certain other conditions are met, will not uncap the cottage. The joint tenancy exception has two requirements:
- First, at least one of the joint tenants must have been an original owner – that is, that person must have owned the property before the joint tenancy was created and at the time the property was last uncapped.
- In addition, at least one person involved in the transfer must have been a joint tenant for the entire time that the joint tenancy was in existence.
The joint tenancy exception was recently confirmed by the Michigan Supreme Court in Klooster v. City of Charlevoix. In that case, Mr. Klooster’s father was the “original owner” of a parcel of real estate and later created a joint tenancy with Mr. Klooster by adding him to the title of the property. When Mr. Klooster’s father died, the entire property passed to Mr. Klooster by operation of the joint tenancy. The court held that Mr. Klooster’s father was an “original owner” and that his death, which terminated the joint tenancy, did not uncap the property taxes for the cottage. Because Mr. Klooster was not an original owner himself, however, his subsequent creation of a joint tenancy with his brother resulted in an uncapping.
So what does this case mean for cottage owners? In Klooster, the Supreme Court concluded that “original owners” of property may use certain joint tenancies as a means for transferring property without uncapping property taxes. However, people must be careful, because, as Klooster demonstrates, not every joint tenancy will allow parties to avoid uncapping. There is also the possibility that the legislature could change the law to avoid this result. For the time being, this approach can be an important part of a successful cottage planning strategy to keep your family cottage in the family. Yet, joint tenancy alone is not the silver bullet. It won’t solve the other problems related to cottage ownership such as who gets to spend which prime summer weeks at the lake and how the cost of the new roof will be divided among the owners. In many cases, the concerns regarding the future management of the cottage will outweigh any tax concerns. Therefore, while Klooster provides an interesting planning tool, one must consider various other options when planning for the family cottage.
Image credit: Dave Sizer
1/23/2012
By Tim Lundgren, Water Law Attorney
The DEQ’s Office of the Great Lakes announced that it has initiated the 2011 Ballast Water Reporting Program, authorized by Section 3103a (MCL 324.3103a) of the Natural Resources and Environmental Protection Act, which was added in 2001. The program requires the DEQ to determine the following:
- whether ballast water management practices provided by the Shipping Federation of Canada are being complied with by all oceangoing vessels operating on the Great Lakes and the St. Lawrence waterway; and,
- whether ballast water management practices provided by the Lake Carriers’ Association and the Canadian Shipowners Association are being complied with by all non-oceangoing vessels operating on theGreat Lakes and the St. Lawrence waterway.
Any owner or operator not identified on the list of complying vessels, or any persons in the state who have contracts for the transportation of cargo with a vessel operator that is not on the list, are not eligible for new grants, loans or awards administered by the DEQ after March 1, 2012.
Ballast Water reporting forms may be submitted electronically. Details of the Ballast Water Reporting Program are available online.
1/11/2012
by Eric Guerin, Riparian Rights Attorney
In Baum, the Michigan Supreme Court reversed a decision of the Michigan Court of Appeals which could have undermined the riparian rights of thousands of Michigan riparians who must cross a public road to acess their water frontage. The Michigan Supreme Court held that front-lot owners whose property is separated by a public road running parallel to the water have riparian rights. In reversing the court of appeals on this point, the Michigan Supreme Court reaffirmed what most riparian rights practitioners believed to be a decades-old and well-settled law in Michigan.
2000 Baum Family Trust v Babel, 488 Mich. 136 (2010)
1/10/2012
by Harvey Koning, Business and Corporate Services Law Attorney
2012 brings another year of change to how the State of Michigan taxes Michigan businesses. Beginning January 1, 2012 Michigan businesses are subject to the new Corporate Income Tax (CIT) which replaces the Michigan Business Tax. The CIT is a simpler 6% tax applied to income. The CIT applies only to C Corporations that have $350,000 or more of gross receipts. The CIT retains the Small Business Credit which reduces the effective tax rate for businesses with gross receipts of $20 million or less and adjusted business income of $1.3 million or less.
The CIT does not apply to the wide variety of entities taxed under the former Michigan Business Tax, such as S corporations, partnerships, and LLCs. However, the shareholders, partners and members of pass-through entities (S corporations, partnerships, and LLCs) will be taxed on their pass-through distributions and income under the Individual Income Tax. The individual income tax rate is 4.35% for 2012 while the CIT rate for C corporations is a flat 6% (lower if the business qualifies for the Small Business Credit). The difference between these tax rates is one more factor affecting the decision of which entity is right for your business.
In addition to Corporate Income Tax, some businesses are also subject to sales and use tax. Businesses that sell, lease or rent tangible personal property to the final consumer are required to remit sales tax. Use tax is a companion to the sales tax and imposed on the use, storage or consumption of taxable property and services where no sales tax has been paid. Sales and use tax can be complicated and it is important to understand how those taxes apply to your business so that the required taxes are paid, and to avoid fines and penalties for failure to comply.
If you have sales or do business in states other than Michigan, it is important to understand how those states’ taxes apply to you. How much connection with a given state will trigger tax requirements in that State? How is your businesses income apportioned between the states in which you do business? How are internet sales taxed? In these difficult economic times, states are incentivized to collect as much revenue as possible, which often leads to more state tax audits and enforcement.
Each year the State of Michigan audits a substantial number of businesses to determine if those businesses have paid all necessary state taxes. Your accountant can be a good resource for helping you respond to a state tax audit.
Varnum has extensive experience helping clients with state tax compliance and audits. Varnum’s team includes John Ray who was employed by the Michigan Department of Treasury for 28 years as an auditor, audit supervisor and audit manager.
1/3/2012
by Steve Kluting, Food Law Attorney
Happy New Year! I’ve promised myself and our marketing department that 2012 will a year of blogging. And that the blogging will reflect much more of my focus on the food industry generally, and not a bunch of legalese or lawyer tales. So, with that, I wanted to share my thoughts on a presentation I heard while attending the December Michigan Agriculture Commission meeting.
Jim Byrum, the President of the Michigan Agri-Business Association, discussed the importance of Michigan’s rail infrastructure to our the growth of our food industry. His presentation can be found here. The insights he provided were best illustrated through a case study of the Thumb area (Huron, Tuscola, and Sanilac counties). According to his presentation, the loss of rail in the Thumb would results in approximately 9,200 more trucks on the road hauling wheat, 46,000 more trucks hauling soybeans, 3,700 more trucks hauling dry beans, and 160,000 more trucks hauling corn. I’m not against our trucking industry, but I’m not sure there are enough trucks or roads to withstand those sorts of demands.
Rail infrastructure is an interesting read and a topic not typically thought about – until you realize that the loss of it would put us at a significant competitive disadvantage.
11/11/2011
By Tim Lundgren, Water Law Attorney
EPA’s controversial and much-delayed Final Pesticide General Permit has been issued. In the Great Lakes region, the EPA permit will mainly apply to Indian Country lands, but will serve as a model for the states, who will issue their own versions of the permit. Michigan has been awaiting the issuance of the federal permit before issuing its own permit.
Under EPA rules, a permit is required for applications of pesticides that result in discharges to regulated waters from the following use patterns: (1) mosquito and other flying insect pest control; (2) weed and algae control; (3) animal pest control; and (4) forest canopy pest control. Such applications can include farms with drainage ditches requiring pest control. Those required to obtain permit coverage include “operators” who performs or has control of the pesticide application, and “decision-makers” who controls the decision to apply pesticide. Some permittees are also required to submit Notices of Intent (NOIs) prior to beginning to discharge and implement integrated pest management-like practices. An EPA fact sheet is available.
11/8/2011
By Tim Lundgren, Water Law Attorney
Democrats in Michigan’s State House have thrown their support behind measures designed to put in place a 2-year moratorium on the issuance of any new permits for hydraulic fracturing (fracking) until the U.S. EPA and the state are able to study its effects. State Representative Jeff Irwin (D-Ann Arbor) cited well and groundwater problems that have arisen in other states. However, representatives from the Michigan Department of Environmental Quality, whose Office of Geological Survey oversees oil and gas drilling in Michigan, insist that with the addition of Michigan’s new requirements for fracking applications (added in May), that the state now has some of the strictest regulations in the country for fracking and that the process has been used safely here for decades for shallower wells. The proposed bills also put into statute DEQ’s May 2011 fracking requirements, thereby helping to protect them from legal challenge.
The bills that have been introduced in the House are: HB 5149, HB 5150, HB 5151 and HB 4736. The last of these creates a presumption of liability for the person doing the fracturing if chemicals used in the fracturing fluid are found in groundwater in the vicinity of the fracturing well. Another bill dealing with chemical disclosure of fracking fluids is expected to be introduced soon.
11/1/2011
by Jessica DesNoyers, Estate planning attorney
It may seem morbid, and it is not something most of us like to think about, but planning your funeral while you are healthy and in a semi-emotionally neutral state is beneficial to you and your family in many ways. Mainly, you will save your family money – when family members make decisions based on strong emotions, they are likely to spend more money. In addition, consider the time value of money: funeral costs are going to continue to go up; by paying these costs now, you’ll save your family money in the future.
Another benefit of preplanning your funeral is that you can decide how you want your funeral or memorial service to honor your memory. By planning ahead, you can have a say in what clothes and coffin you are buried or cremated in, what music is played or flowers are displayed at the service. Finally, if you are concerned about qualifying for Medicaid financially, an irrevocable prepaid funeral plan can be exempt from your countable assets.
While many states have passed laws allowing for funeral directives that create a statutory obligation for the people who survive you to follow your written wishes, Michigan is not one of them. In Michigan you can state in your Will what your wishes are, but your loved ones can choose not to follow them. However, you can purchase your casket or urn, a burial plot, a service, a reception and other parts of your funeral individually; the funds you pay to a funeral home or cemetery directly are held in an escrow account until you die (and you can change your mind before you die). While you may not be able to control every aspect of your funeral, you can control some key parts and make your wishes known for the remainder by working with a funeral director and your estate planning attorney.
10/31/2011
By Tim Lundgren, Water Law Attorney
Michigan’s Attorney General, Bill Schuette, is seeking to have the Supreme Court require the Army Corps of Engineers to install nets blocking carp migration through the Little Calumet and Grand Calumet Rivers, and require the Corps to expedite its study of permanent ecological separation between the Mississippi River and the Great Lakes, so that the part of the study focused on the Chicago Area Water would be finished in 18 months, rather than the projected 5 years.
On August 24, 2011, the U.S. Court of Appeals for the 7th Circuit issued a ruling on the preliminary injunction request by Michigan, Minnesota, Ohio, Pennsylvania, and Wisconsin, concluding that the lawsuit had “a good or even substantial likelihood of success on the merits of their public nuisance claim.” Despite the recognition of the threat posed by Asian carp, the Court denied the states’ request. The states then decided to appeal.
10/24/2011
The Michigan Port Collaborative, an organization of port communities uniting to grow and sustain a robust waterfront economy on the Great Lakes and along Michigan’s coastline, is holding a
one-day Summit in Lansing on October 26. The Summit will host a broad cross-section of Michigan’s maritime industry leaders and port representatives from throughout the state.
The agenda includes a discussion of the shipping industry’s new report on economic impacts of the maritime industry in the Great Lakes/St. Lawrence Seaway system (see our
previous blog entry), Macomb County’s new blue economy initiative, and issues of common interest such as dredging shipping lanes in the lakes and facilitating the ability of cruise ships to cross the international border.
