Not exactly the same scenario, but we used to co-lo in Canada (I'm in the U.S.). After a while, they started charging VAT on the monthly fee. When I asked, they said technically they were supposed to be doing it from the beginning, but it was their mistake and they weren't going to ask for back payments. Then they got bought out by a U.S. company and the VAT expenses stopped- the billing changed from Canadian dollars to US dollars, so that may have had something to do with it. I decided not to mention anything, just in case it was a mistake, and ended up moving all our servers back to the States a few months later.

When it comes to taxes and IT, I've found that the tax people rarely understand anything about IT or related equipment, and the IT centers rarely understand anything about the taxes. (Then again, the tax people don't always understand about the taxes either...)

Not sure about the specific procedure for that jurisdiction, but I'd dispute the charge and make them explain how/why they came up with the assessment.

Yeah the problem is its all local city-level stuff, so they want me to come down and see the assessor in person.

so they want me to come down and see the assessor in person.

Yeah, and I want a vacation!

I think the issue may be similar to what California does by charging local residents for purchases made out of state/online, equivalent to the amount of sales tax the resident would have had to pay if he/she bought it in-state.

Send a certified letter demanding a copy of the tax code specifically stating their authority to tax you on this specific item. Specify that you are not a local resident and the server was purchased out of state (assuming it was- if it was purchased in Michigan, then it's the seller's responsibility to pay the tax to the government). You can also try specifying that the server was sent to the co-location facility used, in which case it should not be subject to excise tax. (You may not be able to use this argument if you bought it online and had it shipped directly to the co-lo facility. In my case, I ship my servers to my home and install the O/S and do all the setup before taking to our co-lo facility. That way I pay the cheaper tax rate instead of the higher rate in the next county (where the co-lo facility is located). Another option may be to point out that they have to collect the tax from the co-lo company, not you- let the government and the co-lo facility work it out. (If the co-lo facility later tried to pass on the tax to you, then that's a fight for a different time. And depending on your contract with them, they may not be able to charge you for it without prior notice.)

You can also point out that if they are really going to try to charge you for this, you will be more than happy to take your server to a new location. Then they will also be out the amount of tax revenue they could have collected from their local business- not just once, but on a recurring basis.

Also, how much time are you willing to waste dealing with the bureaucracy? Many times (especially in relation to taxes), the government officials have the position that we normal people will find it easier to just pay what we are told to pay instead of questioning/disputing it. They (government workers) have all the time in the world, whereas we are busy trying to run businesses or have lives. So they will churn out layers of red tape and other blockades to try to get you to pay.