Until this year, one of the greatest frustrations taxpayers have had with Michigan’s property tax system has been its inflexibility with respect to correcting obvious mistakes. While the statutes permit retroactive correction of “clerical errors” and “mutual mistakes of fact,” the courts had gradually narrowed the definition of these terms to the point where many obvious errors could not be corrected if they were discovered after the usual valuation appeal deadlines. This was often true even when the taxpayer and assessor agreed an error existed and should be corrected.

The law permits clerical errors and mutual mistakes of fact to be corrected by local boards of review for the current and the immediately preceding tax year. In addition, taxpayers who paid tax on an erroneous assessment resulting from a clerical error or mutual mistake of fact may petition the Tax Tribunal for refund within three years of the date the taxes were paid. However, due to the narrow definition of the terms, these provisions have had limited usefulness.

During 2006, two important changes occurred. First, Public Act 13 of 2006 was passed to give the local boards of review more latitude in the types of mistakes they may correct. Rather than being limited to mutual mistakes of fact and clerical errors, the Boards could correct errors related to the following:

1. the measurement of a building’s physical dimensions;
2. inclusion or exclusion of real estate components;
3. taxable status of property;
4. taxable value uncapping;
5. principle residence exemption and
6. the preparation of a personal property tax return.

The new law was a good start, but it still limited what the Boards could fix and it did not apply to the Tax Tribunal.

Then, in June, the Michigan Supreme Court issued a decision in Ford Motor Co. v City of Woodhaven, which effectively expanded the definition of “mutual mistake of fact.” The case involved a situation where Ford discovered that it had reported the same personal property twice on its personal property statement to the City of Woodhaven.

Ford petitioned the Tax Tribunal claiming a mutual mistake of fact. The Tribunal, following earlier cases, denied the claim holding an incorrect assessment based on a faulty personal property filing was a unilateral mistake by the taxpayer and the assessor, by relying on the statement filed, made a separate and different mistake. Hence, there was no mutual mistake of fact.

The Supreme Court rejected this reasoning and found the assessor’s erroneous belief that the statement was accurate did not practically differ from Ford’s belief that it was accurate. The parties shared the mistaken belief about a material fact that went to the very nature of the transaction, that is, all of the personal property Ford claimed in its statement was taxable. Hence, assuming Ford can prove the double reporting and other errors, it is entitled to refund.

The new law and the Ford case will provide many more taxpayers the opportunity to receive refunds when errors are discovered after the fact. However, there are still situations where there is no way to remedy obvious errors. Additional legislation to provide more flexibility for taxpayers and assessors alike is still needed.

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