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Golf Course Property Taxes Can Be Unreasonably High

Randall P. Whately PLLC July 15, 2022

For purposes of property tax assessments, golf courses are “special use” properties, which are income-producing properties designed for a specific use. Special use properties like golf courses are more difficult to assess because they do not fit into traditional property categories.

Michigan state law requires that the Tax Tribunal make a finding of the true cash value of the special use property in arriving at its determination of a lawful property assessment. The true cash value of the property is the amount that the property could be sold for in a private sale.

In Michigan, the Tax Tribunal uses three methods to find the true cash value of property:

  • The comparable sales approach

  • The cost approach

  • The income approach

The Tax Tribunal can use all three methods to assess property if it so chooses.

The Comparable Sales Approach

This approach compares the property to similar property that sold, is currently listed or has pending offers. The assessors attempt to factor in differences between the property being appraised and comparison property.

While this approach directly reflects the market value of the property, it works best when that type of property is bought and sold regularly in a limited geographical area. Golf courses tend to change owners less frequently and be spread out in location, making the comparison approach difficult.

The Cost Approach

The cost approach uses a substitution method to determine the true value of a property. This approach examines the cost it would take acquire similar land and then build similar structures upon it. The cost approach assumes that a buyer would not pay any more money than it would take to both buy the land and build similar constructions on the property.

The problem with this method when assessing golf courses is that the land value, when assessed, was often inflated during the housing bubble. This is because property adjacent to a golf course can have a 30-60 percent markup, thus unrealistically overvaluing the actual land. In addition, during the housing bubble the highest value of a golf course wasn’t necessarily as a golf course, but as a potential housing development property. Finally, the cost approach factors in depreciation that reduces the true value of the property – but the value of the land on a golf course does not depreciate.

The cost approach is a common method for assessing special use property. This has resulted in many golf courses being overtaxed in recent years.

The Income Approach

In Michigan, the courts have determined the income approach to be the most accurate and preferred method for valuing income-producing property. The income approach uses the net operating income of a business to determine the value of property. Lenders generally use this method when determining an owner’s ability to repay a loan, and buyers use this method when considering purchasing a golf course.

A Tax Appeals Attorney Can Help

Golf course owners should obtain the assistance of a skilled tax appeals attorney to ensure that they are not paying more property taxes than absolutely necessary.