Ann Arbor CFO says city is doing its best to catch cases where property owners try to avoid taxes
Ann Arbor Council Member Margie Teall, D-4th Ward, asked CFO Tom Crawford on Monday to address concerns that tax fraud is happening in Ann Arbor.
Ryan J. Stanton | AnnArbor.com
Ann Arbor chief financial officer Tom Crawford stepped to the podium during Monday's Ann Arbor City Council meeting to address concerns that tax fraud is happening in the city.
Newcombe Clark, a commercial real estate professional running for the City Council, alleged as much during a candidate debate last week, saying some property owners in town are defrauding the city of large sums of money through the transfer of limited liability companies.
"I'm just wondering if you could address that, and let us know kind of how aware is the city of this issue, or how the city deals with it," said Council Member Margie Teall, D-4th Ward, inviting Crawford to the podium to speak.
Crawford responded the city is aware of the issue.
"It's been something that the assessing department's been aware of for quite some time," he said. "And, in fact, Ann Arbor has many activities that it does in order to try to ensure that we capture all of those transfers."
The passage of Proposal A in 1994 placed limits on yearly property tax increases in Michigan, but the taxes are supposed to be uncapped when a transfer of ownership occurs.
Tom Crawford, Ann Arbor's chief financial officer, addresses the City Council on Monday.
Ryan J. Stanton | AnnArbor.com
Clark said last week that some local property owners are buying up LLCs, whose assets include real property, and going to great lengths to avoid having the taxes uncapped.
Because closing on an LLC doesn't require recording a transfer of deed with the county, Clark said, the city assessor's office doesn't find out about the transfers through typical mechanisms, and the taxes, in many cases, end up not being uncapped.
Clark believes there could be tens of millions of dollars worth of taxable value unaccounted for, and the additional taxes owed on the properties could number in the seven-figure range.
City Attorney Stephen Postema said during Monday's meeting the city is well-aware of the issue, and that's why it fought aggressively to win two court cases in recent years.
Ann Arbor helped establish new legal precedent in two separate cases involving Signature Villas Apartments LLC and Burlington Property LLC. In both cases, the city found out about LLC transfers, uncapped the taxes, and then was sued by the companies. In both cases, the decision to uncap the taxes was upheld in court.
Around the time of the lawsuits, Clark worked for Oxford Commercial, whose owner was a managing partner for Burlington Property LLC.
Teall asked Crawford on Monday how the city discovers instances where the problem may be occurring. Crawford said the city has "a number of clever ways" to catch companies.
"I'm not sure if you want me to tell you those publicly ... but we do actually look at all commercial sales that we can get our hands on," he said. "We do a fair bit of effort, and it's my understanding that our community is probably doing as much, or more, (than) most communities in this regard. Does that mean we have everybody? No, we don't. There are going to be people who, if they want to avoid being caught, there are ways that they could try to do it."
Clark issued a public statement late last week clarifying the remarks he made at the debate. Read the statement here.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.
Comments
My2bits
Wed, Oct 6, 2010 : 8:56 a.m.
The question is: what is a property transfer? Whatever laws we have, there are attorneys and accountants figuring out how to minimize the tax effects for their clients. That applies to property transfers as well as for IRS issues. It goes on all of the time. A related issue is the ridiculously over-assessment of properties and the absolute refusal of the review board to even consider evidence presented to them. If they continue to be unreasonable, can they expect compliance? The city is opening itself to a class action lawsuit by not reasonably assessing properties and not legitimately addressing the appeals process.
Brian Bundesen
Wed, Oct 6, 2010 : 6:48 a.m.
Several great points have been raised by this comment thread. First and foremost is: "... Why could this not be changed to require a deed update with the county?" If the current method of dealing with this is: a) learning about transfers via 'secretive' ways, b) uncapping the taxes, c) waiting to be sued, d) waiting for a victory in court, e)waiting for the appeals process. This method seems to be a very long, drawn out, inefficient and expensive process in terms of time and resources. I don't know how a government entity, in this time of staff and budgets stretched past the limit, can be efficient in dealing with this. One would think our leadership could come up with a way to be more proactive on this issue. Priorities are definitely way out of whack.
Speechless
Tue, Oct 5, 2010 : 10:46 p.m.
"... the city... was sued for uncapping the taxes, and the courts upheld the city's decision..." Thanks for the clarification. My earlier comment above started out sloppy and didn't correctly note that the city stood its ground in making a successful legal defense, as opposed to being the party which initiated the court action. "... closing on an LLC doesn't require recording a transfer of deed with the county...." "... Why could this not be changed to require a deed update with the county?" Would requirements for reporting LLC changes to the county (or other appropriate unit) be covered under state law? If this is the case, one expects that the city — in the interest of taxpayers — should take part in a statewide drive to adjust the relevant law(s) accordingly, while at the same time it also ramps up an aggressive effort to track down unreported LLC property transfers.
tommy_t
Tue, Oct 5, 2010 : 5:59 p.m.
"Because closing on an LLC doesn't require recording a transfer of deed with the county..." Why could this not be changed to require a deed update with the county?
Ryan J. Stanton
Tue, Oct 5, 2010 : 2:14 p.m.
Some people seem to be under the impression that the city sued these companies for something illegal. In fact, as the story states, it was the city that was sued for uncapping the taxes, and the courts upheld the city's decision to do that. Just for clarification.
Speechless
Tue, Oct 5, 2010 : 12:13 p.m.
The city administration deserves props for its successful past lawsuits against Signature Villas Apts. and Burlington Property. It was willing to tenaciously go after a couple bigger players on the local level, and see it through in the court system. The issue that I see Newcombe raising is the development of a more aggressive, open process that seeks out the full range of tax evaders who skate by via unreported LLC property transfers. "... I went the "ask a real-estate attorney" route last year... They all had convoluted, complicated, wordy non-answers to "does transfer of property between family members, who are already on the deed. uncap taxes?"..." Might at least some realty lawyers feel inclined to see premeditated obfuscation on this question as a good career move? Unreported property transfer under an LLC framework sounds like one of the dark corners in the real estate business. It's an area where big players or the well-connected can access loopholes and make out like bandits through evasion of tax reassessment. These lawyers fill an essential role in making it all happen, and the more confusion they can create, the longer it goes on and the more indispensable they become as hired guns for elites who can afford them.
Lifelong A2
Tue, Oct 5, 2010 : 11:49 a.m.
@Barb- By alleging that the Council is a Johnny-come-lately on this issue, perhaps you didn't read the story. The City Council has been addressing this issue for YEARS by, among other things, suing property owners. In fact, as noted in the story, the City sued Newcombe Clark's company -- and won -- for doing the very thing about which Newcombe complains.
Trepang674
Tue, Oct 5, 2010 : 11:36 a.m.
I second the Brad thought...We have a strange City Council with slowly maturing values. They need to be continually reminded what their job is and who they represent. For the good of the people not the "feel good" of the people.
jondhall
Tue, Oct 5, 2010 : 11:15 a.m.
@ Brad: I have to love a man with your thoughts!!!
A2K
Tue, Oct 5, 2010 : 11:11 a.m.
So what ARE the general rules for property transfer? I went the "ask a real-estate attorney" route last year, and after 3 different offices and $1,500 in fees - I gave up trying to find out (all were LOCAL, all were THIEVES!) They all had convoluted, complicated, wordy non-answers to "does transfer of property between family members, who are already on the deed uncap taxes?" Jeezo, I hate attorneys.
cibachrome
Tue, Oct 5, 2010 : 10:43 a.m.
But that is a lovely fleece she's wearing isn't it? The phlegm green is a symbol of the shared fleecing of taxpayers she represents. I'm sure it was hand made by a visiting local fibre artist using virgin llama neck wool which was fed organic ragweed stems produced in Guatemala. These are actually the real issues before us. The Medium is Still the Message.
Tim Darton
Tue, Oct 5, 2010 : 10:42 a.m.
Buggy: As most know, the mayor gave up his real estate license shortly after being elected and he was a RESIDENTIAL Realtor. They help people buy and sell homes, very different than a commercial Realtor. Did anyone here read the article? It is plain to see that Ann Arbor was the first town to figure out what was going on with these transfers and to go after them. They established a "new legal precedent" in two court cases." Sure sounds like they are way ahead of other cities.
bugjuice
Tue, Oct 5, 2010 : 8:54 a.m.
Hieftje is a realtor. What does he know of this issue and how long has he known about it? Who among his real estate buddies know about this scam?
Barb
Tue, Oct 5, 2010 : 8:22 a.m.
Ms. Teall (and City Council in general) is very good at jumping on issues that have been sitting there awhile that other people bring to Council's attention.
Dave Thibault
Tue, Oct 5, 2010 : 7:47 a.m.
Go get'em, Tom!...=)
AA
Tue, Oct 5, 2010 : 7:47 a.m.
It is sad in such a 'Progressive' city.
Brad
Tue, Oct 5, 2010 : 7:36 a.m.
"We're doing more than most". "We're doing our best". Translation: we're doing squat. But we sure are on top of Arizona's immigration laws.
Awakened
Tue, Oct 5, 2010 : 5:51 a.m.
@ Alan. Its only someone else's money.
racerx
Tue, Oct 5, 2010 : 5:26 a.m.
So was Newcombe comments out of line? Or is there really some discrepancies? The city fought two court cases in recent years, but both City Attorney Postema and CFO Crawford are well aware of the issue? So who's right? If the city is aware of these issues, why aren't they moving more aggressively? Does the city have any idea of the amounts? Hundreds? Millions? Ann Arbor seemingly wants to cling to their small town values while the "real world" has grown up and plays with much bigger and clever toys in its sandbox. Time for the city to grown up too.