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140423 - Klooster v City of Charlevoix

Nathan Klooster,
 
Steven F. Stapleton
 
Petitioner-Appellee,
 
v
(Appeal from Ct of Appeals)
 
 
(Michigan Tax Tribunal)
 
City of Charlevoix,
 
James G. Young
Bryan E. Graham
 
Respondent-Appellant.
 

Summary

​In 1994, Michigan voters approved Proposal A, which amended article 9, § 3 of the Michigan constitution to limit the annual increase in property tax assessments, and authorized enabling legislation to accomplish this change. The legislature fixed the cap on assessment increases to either 5 percent of the assessed value of the property for the previous year, or the increase in the rate of inflation from the previous year, whichever is less. The limitation on assessment increases does not apply after certain transfers of ownership occur. This process is referred to as “uncapping.”

The property involved in this case is located at 908 May Street in Charlevoix. James Klooster initially owned the property with his wife as tenants by the entireties. By 2004, the wife had relinquished her interest, and James Klooster owned the property with his son, Nathan Klooster, with the two holding the property as joint tenants with the right of survivorship. On January 11, 2005, James died and, by operation of law, Nathan became the sole owner of the property. On September 10, 2005, Nathan executed a quitclaim deed creating a joint tenancy with right of survivorship with his brother, Charles Klooster.

In early 2006, the assessor for the city of Charlevoix sent Nathan and Charles a notice of assessment, taxable valuation and property classification form. This form stated that, based on a transfer of ownership, the property’s taxable value had been reassessed using the actual true cash value of the property. As a result, the taxable value of the property increased from $37,802 to $72,300.

Nathan Klooster filed a petition with the Board of Review, claiming that the assessor erred in uncapping the property because there had been no transfer of ownership. After the board denied the appeal, Klooster appealed to the Tax Tribunal, which affirmed the taxable value for the property. The tribunal ruled that the transfer of ownership to Klooster by virtue of his father’s death was a conveyance within the meaning of GPTA. In addition, the Tax Tribunal ruled that the statutory joint tenancy exception did not apply to the transfer because Klooster was not an original owner or an already existing joint tenant at the time the joint tenancy was created.

Klooster appealed by right to the Court of Appeals, claiming that the transfer of ownership between himself and his father was not a “conveyance,” and even if it was, it qualified for the exemption for joint tenancy transfers. In a published per curiam opinion, the Court of Appeals reversed the Tax Tribunal. By using the word “conveyance,” the Legislature had employed a legal term of art, the appeals court determined. Because “conveyance” requires transfer of title by a written instrument, the Court of Appeals concluded that James’ death and transfer of title by operation of law did not constitute a “conveyance” under GPTA such that the assessed value/taxable value of the property would be uncapped. Since the transfer of sole title to Klooster was not a conveyance, he met the exception for joint tenancy transfers because James was an original owner at the time the joint tenancy was created, the appellate court said, and no other statutory conditions applied. The city of Charlevoix appeals.