Is Manufactured Home Tax Fair

January 7, 2005
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Editor'snote: Second in a two-part series on the manufactured housing industry.)

OKEMOS — Some state lawmakers nearly cast owners of manufactured homes as being tax cheats by failing to pay their fair share of Michigan property taxes. That sentiment, which stopped just short of being an accusation, was thrown around during the lame-duck session in which legislators began to wrestle with finding new revenue sources for the state's gaping budget deficit.

The effort failed, but some lawmakers said they would bring the matter up again when the new Legislature convenes later this month.

About 70 percent of those in Michigan who buy a new manufactured home put their house on private property, while the rest lease a space. And these homeowners are spread fairly evenly across age and income demographics. (See related chart.)

"They reflect the general population," said Bob Eppleheimer, housing director for the Michigan Manufactured Housing Association based in Okemos.

Eppleheimer said a lot of state residents see manufactured homes as housing they can afford and be part of the "ownership society" that President George W. Bush is promoting. Without having this option available, many might be renting.

According to the association, about 40 percent of these owners earn between $20,000 and $40,000 per year, with another 30 percent earning over $40,000 annually. The average owner has an annual salary of $28,000.

"We're appealing to pretty much everybody that is looking for an affordable option and there is a lifestyle issue involved. Some people don't want big yards to maintain. They want close neighbors. They want the security of almost a 1950s style neighborhood," Eppleheimer said.

A little more than a decade ago the design of manufactured homes went from a "plain Jane" box to resemble site-built homes with hinged rooflines and hinged overhangs. These homes now come in up to three sections, complete with front porches and multiple levels. In Michigan, the average new home size is 1,600 square feet.

"We're basically breaking ground into a new customer base that may have seen what our product was in the 1960s, and it just isn't the same today," said Eppleheimer.

Eppleheimer told the Business Journal that the manner in which some state lawmakers characterized these homeowners was disturbing. He said the claim that they only pay $36 a year in taxes on their homes was deceiving because it ignored the other taxes they face, like the 6 percent sales tax that owners of site-built homes don't pay.

"Residents in manufactured housing communities got a 50 percent increase on sales tax under Proposal A. We say go ahead and tax fairly. But to be fair, when you sell your home, instead of paying a 0.75 transfer fee, go ahead and pay a 6 percent sales tax," he said.

"Go ahead and pay a commercial rate on land, septic and all the stuff that's in, and then pay a commercial rate for having that road in front of your house. That is what they're doing in their community; they're paying to have that infrastructure put in and maintained. They pay a commercial rate to not get the service from their local government," he added.

The U.S. government reported the average price for a new manufactured home in the Midwest was $53,000 in 2003. For a Michigan buyer, that purchase would result in a state sales tax bill of $3,180. That sales tax bill would allow a buyer to cover 3.6 years worth of property taxes in Wyoming, 3.9 years in Kentwood, 4.7 years in Grand Rapids, and 5.3 years in Walker.

According to the state Treasury, an owner of that $53,000 home would pay $877 a year in property taxes in Wyoming, $807 a year in Kentwood, $674 a year in Grand Rapids, and $595 a year in Walker. So exchanging the sales tax for a property tax bill would let an owner spread that $3,180 payment over years and earn interest on the amount held in reserve.

But under the current scenario, the state gets that money in a single swoop.

In addition to the sales tax and commercial rates that owners of manufactured homes pay, many can't deduct the interest payments on their home loans like those who buy site-built houses. In some situations, loans for manufactured homes are treated in the same way that borrowing for a new car or boat is — without a tax benefit.

"I think this Legislature got into this and began to look at the numbers and consider all the taxes that are paid by manufactured housing communities and community residents. That is fair," said Eppleheimer.

"I think it was an easy call for legislators to say we can probably do something here to make a change. But if you do ad valorum taxes on manufactured housing homes, that homeowner will end up subsidizing the person in the $200,000 home that is across the street. That's the problem."    

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