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How your property taxes are determined

Fri, Dec 14th, 2012
Posted in All Features

The factors and formulas that determine your property taxes for a given year are many and not easily understood. The county assessor’s office determines the estimated market value of each parcel in the county and that figure will be used to calculate taxes the following year. Each year a change in the market value of some properties in a taxing district affects the share required from other properties to satisfy the total property tax levy. Simply put if some go up others will go down assuming the levy is constant. If new construction adds to the total tax capacity of a taxing district, it could lessen the burden on other properties in that taxing district. The assessor’s market value of an individual property is multiplied by the the state mandated class rate appropriate for the property, which can lower or raise the potential tax burden or tax capacity for that property as compared with other classes of property.

Minnesota has numerous classes and subclasses of property like residential homestead, commercial, seasonal, agricultural homestead, non-homestead, and so on. Each kind of property is assigned a class rate which could change year to year. When the state changes classification rates, it can, in affect, be adjusting the portion to be paid by each type of property owner of the total property taxes paid in a taxing district.

The state can in this way shift the burden. For example, residential homes may comprise about 50 percent of the total market value in the state, but by use of the class rates the actual property taxes paid by residential home owners may be less than that. However, commercial and industrial properties may pay considerably more because their property market values are multiplied by a class rate of 1.5 or two percent.

Property taxes are affected by county, city or township, and school district levies, or special taxing districts. The property tax levied in each taxing district is spread across all taxable property in the district based on the value of each property multiplied by the class rate appropriate for that property.

Due to classification rates imposed by the state commercial and industrial properties along with apartments and public utility properties pay a larger share. Class rate percentages can reduce the share of property taxes owed on lower value homes and farm land. Of course, with the boom in farm land prices over the last decade, agricultural land owners can see increases in their tax burden due to increased valuations.

Many residential property owners have seen their tax burden reduced in recent years. This is in part due to reduced valuations of their property. But, it could be due to the Homestead Market Value Exclusion. Their taxes in many cases have gone down even though the amount of revenue needed by the county, city, township, or school district has increased to some extent. If most residences are paying less, then that means other property owners are paying more. Some of that burden in the county and townships will be taken up by agricultural land owners due to higher valuations on their property. Much of the rest has fell onto commercial/industrial properties especially in cities.

Homestead Market Value Exclusion

Farm homesteads and homes which have a market value under $413,800 are subsidized with the exclusion. These qualifying properties have a reduction in the taxable market value due to the exclusion. This reduces the value that is subject to property tax. This subsidy causes property taxes on other classifications of property to be higher to make up the difference. The state doesn’t pay for this subsidy to homeowners, so property owners that don’t qualify for the subsidy including businesses and high value homes pay the for the subsidy.

Property taxes in Minnesota for some classes of commercial and industrial property are high compared to similar properties throughout the country.

Referendum Levies

Referendum levies must be levied against the market value of all property in the district with the exceptions of agricultural land and seasonal/recreational properties. In the case of school referendums, formulas have the effect of shifting a greater burden onto residential property classes, which are usually taxed at lower rates.

State General Tax

Most property owners are not subject to the state general tax. State General Property Tax and school district operating referendum levies only are imposed by the state on certain types of property. The Fillmore County Assessor’s office reported that for 2012 taxes the state tax rate for commercial/industrial was 51.1 percent and for seasonal/recreational it was 20.75 percent. These rates in preliminary reports are expected to go up to 53 percent and 23 percent for 2013.

This is an additional tax burden put on specific properties and in most cases the higher the value of the property subject to the general tax, the higher the tax will be. In 2005 state law was changed to require 95 percent of the state general tax to come from commercial/residential tax capacity at a uniform rate and five percent to come from seasonal/recreational tax capacity at a uniform rate.

The state general tax is found on the tax statements of properties affected and paid to the county treasurer with local property taxes. The treasurer forwards the portion collected for the general tax to the Department of Revenue. It is deposited in the state general fund. The imposition and purpose of the tax was laid out in the Property Tax Reform Act of 2001, which changed the source of school funding. The general tax was put into place to increase money going into the state’s general fund from which school aid is paid. Money does not go directly to the school district which is in the same location as the property taxed.

The state has a history of delaying payments to school districts in order to balance the state’s budget.

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