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Case 4 – The Case of the Mistaken Value


Situation:

A Client with a multi-state property portfolio felt they were paying excessive transfer taxes on their newly acquired Michigan properties.

Problem:
This client expanded its operations with the purchase of several hundred properties, a portion of which were located in the state of Michigan. Michigan has a real estate transfer tax which is based on the market value of the realty. The properties were purchased under an asset purchase agreement. In lieu of securing full appraisals on each property the financier accepted a valuation of the portfolio based on a sampling methodology. Appraisals were performed on a group of representative properties. This was used to establish an average which was applied to individual properties to estimate the value of the whole. An acceptable methodology to value the whole portfolio but not necessarily reliable in establishing the value of any one property. However, these average values were recorded as purchase prices on transfer declarations and subsequently transfer taxes were calculated and paid.

Solution:
Michigan statutes require that a transfer tax be paid based on the "true cash" or market value of a transferred property. By using independent market value information and explaining the purchaser's methodology of arriving at the recorded purchase price we were able to successfully demonstrated to the Michigan State Treasurer's Office that the transfer taxes paid were not based on true cash value and were therefore excessive and erroneous.

Results:
Our successful argument resulted in a partial transfer tax refund to the client of approximately $26,000.


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