Michigan License Law Practice Test

On what basis is the state and county transfer tax calculated for property transactions?

1. The appraised value

2. The assessed value

3. The selling price

4. The buyer's offer price

The correct answer is: The selling price

The state and county transfer tax in Michigan is calculated based on the selling price of the property being transferred. This approach aligns with the principle that the tax reflects the actual amount paid in the transaction, thereby ensuring that it is proportional to the economic activity occurring during the sale. Utilizing the selling price rather than the appraised value, assessed value, or buyer's offer price ensures that the tax is based on what was agreed upon by both the buyer and seller, providing a clear and tangible figure that represents the transaction. The selling price captures the real market conditions and reflects the true value exchanged in the sale, making it the most relevant basis for tax assessment in property transactions. In contrast, appraised or assessed values may not reflect the final negotiated price, and the buyer's offer price may also differ from the agreed-upon transaction value if negotiations result in a different selling price. Therefore, the selling price is the appropriate and reliable measure used for calculating state and county transfer taxes.