In 2006, the legislature passed tax reform legislation, Act 388, which made several changes to the way municipal governments can raise revenue. A compromise part of that legislation gave local governments the authority to put property on the tax rolls at full market value when property is sold (referred to as “point of sale”). This was to alleviate some of the consequences of another provision that gave a property tax break to anyone owning property that increased in value more than 15 percent over a five-year period.
The rationalization behind this tax break was to ensure that current property owners were not taxed out of their homes. When property sold, the property value was recorded for tax purposes at the point of sale to effectively “true up” the tax value of the property to the actual sales price.
This is fair since the person purchasing the home or property is well aware of the value of the home or property at the time of purchase and is not in the situation that the original intent of the cap was meant to protect – the long-time home owner with an inability to control the increase in the value of their home due to more expensive homes being built close by.