Rental Income effecting Property Taxes?

[Brett Whitmore]

I own 3 student rental properties in a city in Michigan that closely regulates rental properties. All single family houses are licensed for one family or a specific number of unrelated individuals. For example, 2 of my houses are licensed for "one single family or 4 unrelated individuals" and 1 is licensed for "one single family or 6 unrelated individuals". The city no longer allows any house to be newly licensed for more than "one family or 2 unrelated individuals", but previously licensed houses for more than 2 individuals are grandfathered into the system. Since there is such a large demand for student housing, the price of these rental houses has continued to skyrocket since the licensing rules were put into effect about 15 years ago.

Single family homes with rental licenses sell for double what an identical single family home without a license would sell for. As you can imagine, property taxes are ridiculous on these rental properties. To counteract the taxation issue, sellers tried selling the rental license separate from the house since the value of the house was not in the houses itself, but in the rental income they bring in. For example, a house may sell for $150,000 (actual value of comparable houses without rental license) and the rental license would be sold as a separate business transaction for $150,000. However, the city has figured this out and doesn’t like that they are not getting taxes on the full $300,000. Therefore, they just use the rental income approach to determine rental property value even though the house itself is only worth $150,000 without the license. Is this double taxation? I am taxed the non-owner occupied rate and essentially taxed again for the value of the rental license (rental income I bring in). Does Wal-Mart pay more property taxes on their building because they make millions of dollars? Or is the value of the building the same regardless of whether the tenant is Wal-Mart or another business that makes much less?

I assume I am incorrect in my argument above since the city has been doing this for years, but I would still love to hear some opinions from the experts on this site. Thank you!