- What is the difference between TIF and TIFA?
- TIF = tax increment financing = a financing
TIFA = Tax Increment Financing Authority under P.A. 450 of 1980
Tax increment financing is used by:
DDA (P.A. 197 of 1975)
TIFA (P.A. 450 of 1980)
LDFA (P.A. 281 of 1986)
Brownfields (P.A. 381 of 1996) - not covered here!
It is important to know which authority you have, so you know which act applies. If your community has been referring to its DDA as a TIFA, this can cause confusion.
- What is the difference between an authority district and a plan?
- First - The local unit establishes an authority (DDA, LDFA, TIFA) with a specific geographic district, and appoints an authority board.
Then - The board writes a development plan (and usually a tax increment financing plan to fund it) for a specific geographic area within the district area. There can be more than one plan area in an authority district, but plans may not overlap. (Overlap information does not apply to Brownfields and certified technology parks.) The development plan and TIF plan must be adopted by the local unit before the plans are valid.
DDA mills are levied within the district boundaries.
DDAs and TIFAs capture property taxes within the plan boundaries. LDFAs capture within each eligible property, or within a certified business park (formerly called a "certified industrial park"), or certified technology park.
- What is capture?
Tax increment financing is often referred to as "capture".
If the "initial" year (same as "base" year) value for the plan = $1,000,000
And the second year, the value = $1,250,000
Then the authority gets to "capture" the property taxes on the increase in value, i.e., the "tax increment", of $250,000. This means the authority gets to keep the property taxes on the $250,000 to pay for the plan projects. The taxing units receive the taxes on the $1,000,000.
Current value Initial value Captured value 1,250,000 $1,000,000 $250,000
- How do we form an authority? How do we amend a plan? Etc?
- Some property tax division suggestions for TIF activities:
1. Involve your attorney for all legal matters.
2. Obtain a copy of the latest public act from the State Law Library, 702 W. Kalamazoo St., Lansing, MI 48909, phone 517-373-0630, Email: email@example.com. There is a small charge for this service.
- Downtown Development Authorities (P.A. 197 of 1975)
- Tax Increment Finance Authorities (P.A. 450 of 1980)
- Local Development Financing Authorities (P.A. 281 of 1986)
3. All agreements should be in writing. If an agreement or resolution is not clear, make it clear. If you're not sure whether you need to meet a given requirement in the law, you probably need to meet it. Cover yourselves legally. Do business in a businesslike manner, in writing. If the authority agrees to do something, be sure the DDA, LDFA, or TIFA authority passes the resolution or signs the agreement, not just the municipality. Remember that the DDA, LDFA, or TIFA authority and the municipality are two separate legal entities.
- May TIF plans capture debt millage?
- The law prohibits LDFA's from capturing any debt millage, including school debt. DDA's and TIFA's are not prohibited from capturing non-school debt millage, but they may voluntarily agree not to capture debt millage.
- Which taxes are considered "school taxes"?
- Local school district taxes, including school debt
Intermediate school district (ISD) taxes
State education tax (SET)
- Can school taxes be captured after proposal A?
- Only to the extent they are necessary to make required payments on "eligible obligations", "eligible advances," or "other protected obligations." See the DDA, TIFA and LDFA public acts and the Michigan Department of Treasury form 2604 for details. Please note that the plan may not capture a greater proportion of school operating taxes than the proportion of municipal operating or county operating taxes captured.
- Can non-school taxes be captured after Proposal A?
- Yes, as long as the captured taxes are spent for purposes allowed under the DDA, TIFA and LDFA public acts and the tax increment financing plan. For new authorities, or for amended district boundaries, for which the required public hearing was held after Feb. 15, 1994, the various taxing jurisdictions must be notified and any taxing jurisdiction may "opt out" of having its taxes captured by the authority.
- What is my plan number?
- The number is assigned by the local unit or by the authority. The authority may use any coding system it wishes (e.g., 1,2,3; east, west). However, the authority must use the coding system consistently across years.
- What reports do we need to file annually to the State Tax Commission?
- Form 2604 (or Form 2967)
These forms are titled Tax Increment Financing Plan Report for Capture of Property Taxes and State Reimbursement Amount. Form 2604 is for plans that have only one school district. Form 2967 is for plans that capture from two or more school districts.
Plus, for 1994, you were required to submit the following:
- copy of relevant parts of the plan (see the form instructions);
- copy of the obligation documents (bonds, contracts, etc., see the form instructions); and
- copy of payment schedules for the full term of the obligations/ advances.
- Annual report (AR) as
required by State Tax Commission Bulletin 9 of 1997 (see appendix 3 of the
form 2604/2967 instructions).
- A copy of the assessor's or treasurer's worksheet (ATW) for the authority's tax increment
financing plan district, which was used to determine the plan's tax
increment revenue. This is the worksheet that was used to compute how much
money to send to the authority, and it may be either handwritten or
computed. The worksheet should include:
- initial , current , and captured values by property tax roll (i.e., ad valorem homestead, ad valorem nonhomestead, IFT new, CFT new, Tech Park, IFT replacement, and CFT restored), and
- he source of tax increment revenue, subdivided by each millage levied.
- Form 2604 (or Form 2967)
- How do I get a form for bulletin 9's annual report (AR)?
- There is no form. Ask for a copy of State Tax Commission Bulletin 9 of 1997 with the accompanying "City of Example." Call the Property Tax Division at (517) 241-2029 to request the bulletin. The bulletin is included in the form 2604/2967 instructions as appendix 3.
- Why can't you use our audited financial statements as our annual report (AR)?
- The information provided in each is different in many respects. The annual report (AR) is mandated by law, and DDA's are required to publish their annual report (AR) in a newspaper. State Tax Commission Bulletin 9 of 1997 describes the annual report (AR) in detail and lists the additional information the State Tax Commission requires beginning with 1997.
- If we do capture school taxes and are not asking the state for reimbursement, do we have to complete form 2604 (or 2967)?
- If we don't capture school taxes and are not asking the state for reimbursement, do we have to complete form 2604 (or 2967)?
- Please fill out the first identification page of form 2604 (or 2967), and check either the 'yes, but" box or the "no" box if appropriate. Then complete the rest of the page, sign it and send it to us. If we don't hear from you, we have no way to clear your file for that year. Please remember that all plans (whether or not capturing taxes) must submit the required annual report (AR) described in State Tax Commission Bulletin 9 of 1997. Once we have audited your file, we will notify you when you no longer are required to file form 2604/2967.
- Can we exclude personal property taxes from capture?
- No. Plans may exclude certain mills from capture, such as debt mills, but may not exclude any property. DDA's and TIFA's may exclude value increases due to inflation. However, you must include all real and personal property.
- Can we exclude homesteads from capture?
- What is "other revenue pledged? in Step 7 of form 2604/2967?
- This means: "Other than the captured taxes, any other money that was promised for making payments on the obligations you claimed in Step 3 and Step 4 of form 2604/2967." This does not include "full faith and credit" pledges by the municipality.
- We made a mistake on our submitted form (or the values have changed). What should we do?
- Submit an amended form. For value changes, submit an amended Step 2, and we will adjust the computations. You may submit a photocopy of your original page with the corrections marked in red. Write "Amended" in large red letters at the top of the page.
- The authority is inactive. What should we do?
- The local unit should review to see if the authority should be or has been dissolved. If so, submit a copy of the resolution (TIFA or LDFA) or ordinance (DDA) that dissolved the authority. As long as the authority exists, it is required to submit all appropriate reports.
- We don't have this authority and never did!
- Please contact us and we will research our information. Some communities have been surprised to discover the existence of long forgotten authorities.
- What is the "initial year" (Step 2 of form 2604 (or 2967)?
In most cases, if the tax increment financing plan was approved before the 4th Monday in May, the initial year is the year before the year the plan was approved. If the plan was approved after the 4th Monday in May, the initial year is the year the plan was approved.
The 4th Monday in May is when the State Tax Commission adopts final state equalization. This date for recent years has been:
May 23, 1994
May 22, 1995
May 27, 1996
May 27, 1997 (Tuesday, due to holiday)
May 26, 1998 (Tuesday, due to holiday)
May 24, 1999
May 22, 2000
- Who is responsible for completing form 2604 (or 2967)?
- Under the law, the authority is required to complete a form for each plan. The local unit assessor, treasurer and other officials may be called upon to assist the authority in completing this form. In some communities the assessor, treasurer or manager is the contact person for the authority.
- What is Opt Out?
The "opt out" provision is provided in the acts:
- DDA PA 197 of 1975 MCL 125.1653, Section 3 (3)
- TIFA PA 450 of 1980 not applicable
- LDFA PA 281 of 1986 MCL 125.2154, Section 4 (3)
These provisions only apply to public hearings for the formation of new authorities and for the amending of authority district boundaries. The municipality must notify the affected taxing jurisdictions. (To notify the state, notification should be sent to Property Tax Division, Michigan Dept. of Treasury, PO Box 30471, Lansing, MI 48909-7971.) The taxing jurisdictions may "opt out" as follows:
- The DDA act states "Not more than 60 days after a public hearing held after February 15, 1994, the governing body of a taxing jurisdiction levying ad valorem property taxes that would otherwise be subject to capture may exempt its taxes from capture by adopting a resolution to that effect and filing a copy with the clerk of the municipality proposing to create the authority."
- The LDFA act states "Not more than 60 days after a public hearing held after February 15, 1994, the governing body of a taxing jurisdiction with millage that would otherwise be subject to capture may exempt its taxes from capture by adopting a resolution to that effect and filing a copy with the clerk of the municipality proposing to create the authority."
The "opt out" provision does apply to new authorities or to amending the authority district boundaries.
The "opt out" provision includes ad valorem taxes and specific taxes (e.g. Industrial Facilities Tax). When DDA or LDFA authority district boundaries are being expanded, the opt-out provision only applies to the area being added to the district. If a taxing unit exempts its millage from capture in an added area, the captured value for that taxing unit's millage will be calculated excluding the added area. The captured value for the other millages will be calculated including the added area.
The "opt out" provision does not apply to:
- amending plan projects without expanding authority district boundaries.
- amending the duration of the plan without expanding authority district boundaries.
- amending the boundaries of a DDA plan's development area, within the existing DDA district boundaries.
- A new DDA plan within the existing DDA district boundaries.
- The amendment to an LDFA development plan or tax increment finance plan within existing LDFA district boundaries.
When a DDA is expanding the boundaries of both its authority district and a plan's development area, the authority may capture taxes from the revised development area, including the property added to the authority district and the development area, except that:
- if a taxing jurisdiction exempts its millage ("opts out")from capture in the added area, its taxes may not be captured from the added area;
- the capture of school taxes from the revised development area is subject to the act's limitations on capturing school taxes.
When an LDFA expands its authority district, non-school taxes from the new area may be captured unless the taxing jurisdictions "opt out". If the added area is an expansion of a certified business park (formerly called a "certified industrial park") located in the LDFA district, and if the taxing jurisdictions do not "opt out", the plan may also capture school taxes from the entire certified business park, subject to the act's limitations on capturing school taxes for eligible property in the certified business park.
- If an LDFA plan contains more than one eligible property, how does it complete form 2604?
- For LDFA properties located within a "certified business park" (formerly called a "certified industrial park"), an LDFA should file a single report for all "eligible property" within that park. For LDFA "eligible property" not located within a "certified business park", the LDFA must file a separate 2604 for each "eligible property".
- Can a DDA or TIFA plan spend revenue outside of its development area?
- According to state law, the plan may spend revenue only for projects described in the development plan and/or tax increment financing plan, and the projects must be allowable under the law. The revenue must be spent for the benefit of the development area. Revenue of one plan may not be used to pay an obligation or expense of another plan. The State Tax Commission's policy is that revenue must also be spent on improvements or properties located in the plan's development area. The State Tax Commission will enforce this policy on a prospective basis as of April 14, 1998, but not retroactively. After April 14, 1998, a plan may not start any new projects outside of that plan's development area. The State Tax Commission may waive this requirement for certain infrastructure improvements made in the development plan that must extend outside the development area's boundaries. Note: LDFA's are not included here because section 12(2) of the Local Development Financing Act (P.A. 281) has specific provisions regarding restrictions on the use of tax increment revenue.
- How do I report initial value? How do I report current value?
The State Tax Commission has ruled that the initial value of the property is reported on the tax roll on which it was assessed in the initial year. The current value of the property is reported on the tax roll on which it was assessed in the current year.
For initial value, show SEVs for properties included in a plan before May 22, 1995, and show taxable values for properties added to a plan after May 22, 1995. All values should be reported at 100% (including IFT, CFT and Tech Park properties).
Note that initial values will usually remain the same from year to year after the plan is begun. The initial values will change only if the boundaries of the development area were amended, if there was a Board of Review change, or if there was a Tax Tribunal change affecting the initial year.
Example 1: real property that has switched tax rolls since the initial year:
- IFT property initial value $200,000
- Certificate expired, so current value of $250,000 moves to the ad
valorem non-homestead roll
- Ad valorem roll Initial
Value Current Value
ABC Company 0 250,000 250,000
- IFT roll
Initial Value Current Value
ABC Company 200,000 0 <200,000>
- Ad valorem roll Initial Value Current Value Captured value
Example 2: personal property that has been removed from the premises:
- Ad valorem roll Initial
Value Current Value
XYZ equipment 500 0 <500>
Example 3: personal property that is new:
- Ad valorem roll Initial
Value Current Value
MMM equipment 0 400 400
- Do we calculate captured value property by property, or roll by roll? (for Step 2 of form 2604/2967)
Calculate captured value roll by roll. You will still need the base year value and the current year value for each parcel in the plan, but you should add them roll by roll, and then calculate the captured value for each roll.
A simple example is:
Parcel Base Year Current Year Captured Value Homestead property A $100 $175 B* $ 25 $ 0 Homestead ad valorem roll $125 $175 $ 50 Non-homestead real B* $ 0 $ 50 C $ 75 $125 D $ 95 $ 90 Personal property E** $ 35 $ 0 F $ 80 $105 Non- homestead av roll $285 $370 $ 85 IFT New, post 1993 G $0 $205 H $0 $400 IFT New, post 1993 roll $0 $605 $605
* Note that parcel B switched rolls.(see "How do I report initial value? How do I report current value?").
** Parcel E personal property was removed from the area after the initial year.
Once these values are calculated roll by roll, you must compute the captured taxes by tax roll. Do not net the roll values together. Doing so would give you an incorrect calculation, because each roll is taxed at a different rate.
- Why are you auditing my plan?
- We audit every plan to verify/determine school tax capture and state reimbursement eligibility.