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A Better Partnership
April 25, 2012

COA Opinion: Improvements a builder made to property were taxable when the builder re-conveyed property back to the purchaser of a home.

In Eastbrook Homes, Inc. v. Department of Treasury, the Michigan Court of Appeals held that the improvements a builder made to property were taxable when the builder re-conveyed property back to the purchaser of custom built home. In Eastbrook, the builder of custom homes would require the buyer of the home to quitclaim the property to the builder as security for the contract price for the home. Once construction was complete and the buyer paid the contract price, the builder would quitclaim the property back to the buyer. The treasury argued that the quitclaim deeds should be subject to tax under Michigan's tax statutes which require a tax on the conveyance of 'any interest in property,' subject to certain exemptions. One exemption includes 'a written instrument given as security' or 'a discharge of the security interest,' and the builder argued that the conveyance was within the scope of this exemption. The Court of Appeals concluded that the conveyance was taxable because there was no language in the quitclaim deed reserving any property rights to the buyer, and quitclaim deeds are generally considered to convey all of the grantor's interest unless some interest is explicitly reserved. Accordingly, the re-conveyance did more than just discharge a security interest; it actually transferred all of the property rights in the lot and the improvements made by the builder were therefore taxable.

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