Where’s My Tax Revenue?

For districts with a July tax levy, local tax collecting units recently sent summer tax bills to school taxpayers. The municipalities will collect school taxes on behalf of those districts. Every year, however, some Thrun clients report belated disbursement of collected school tax revenue, causing unexpected cash flow problems. School officials should be aware that tax collecting units are required by law to timely transfer school tax revenues. While the flow of tax revenues may end up being different this year due to COVID-19, the General Property Tax Act’s requirements have not changed. On July 8, 2020, Governor Whitmer vetoed a pair of bills that would have allowed tax payers to defer, without penalty, summer property taxes until 2021. There is substitute legislation that would allow for deferment of property taxes working its way through the Michigan Legislature. We will provide any updates and analysis as needed.

Generally, township and city treasurers are responsible for tax collections. While a district may contract with a township or city to set a different collection schedule, General Property Tax Act Section 43 establishes the “default” collection schedule. Township and city treasurers must: (1) remit all school taxes in their possession on the 1st and 15th day of each month; (2) account for and remit 90% of school tax collections in their possession by the last day of February; and (3) transfer all school taxes on hand by April 1.

Unfortunately, the February and April deadlines clearly contemplate a December, rather than a July, tax levy. Michigan law does not establish a comparable default collection schedule for July tax levies.

Revised School Code Section 1613, however, requires that a district enter into a contract with a tax collecting unit before that unit may collect summer taxes on behalf of the district. That contract provides an opportunity to craft a summer-specific collection schedule that does not rely on the statutory timeline. Nevertheless, even for a July 1 tax levy, collecting units must disburse tax dollars in their possession to schools on the 1st and 15th day of each month. Townships and cities that fail to do so are likely violating the General Property Tax Act by unlawfully retaining school property taxes.

Tax collecting officials may be subject to civil and criminal penalties for failing to timely remit collected school taxes. A municipal official who willfully neglects or refuses to perform his or her duties under the General Property Tax Act is guilty of a misdemeanor and potentially liable for damages.

If your district is not timely receiving tax revenue, we recommend contacting the collecting unit’s treasurer or chief administrative officer to inquire about the delay and, if necessary, bringing the statutory or contractual requirements to the appropriate official’s attention. If the delay persists, we suggest contacting your school’s finance attorney. We will keep our clients apprised of any amendments to the General Property Tax Act or related laws.