Date of Award

Spring 2019

Degree Name

Bachelor of Science (BS)

Advisor(s)

Stanley Veliotis

Second Advisor

Luke Kachersky

Abstract

Prior to 2018, individuals’ property tax payments were fully deductible in the year paid for filers who itemize their deductions on the federal tax return. This paper analyzes the federal tax planning behavior behind the timing of property tax payments. More specifically, this study will analyze whether a December effect occurs with property tax payments in Michigan using a binary logistic regression model. Based on the property tax payment history of a random sample of properties in two Michigan cities, I find strong evidence that Michigan taxpayers delay their August-due property tax payments to the due date and accelerate their February-due property tax payments to December as opposed to January or February of the year in which due, thus indicating that the December effect occurs. I find evidence that taxpayers with higher property tax liabilities are more likely to accelerate their February-due property tax payments than those with lower liabilities. I also find evidence that taxpayers are more likely to accelerate their property tax payments in years when there are increases in the federal tax rate. The results of this research provide further knowledge about human taxpayers’ reactions to tax benefits related to the time value of money and marginal tax rate shopping, as well as the extent to which these taxpayers take action.

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