Taxpayers recently received property tax statements and many were surprised to see increases across the board. How could this happen? Minnesota property owners have become the largest "beneficiary" of the latest Minnesota tax shift.
The shift, in one form or another, is the state's most used means to finding revenue to close budget gaps. Schools have been long-time targets of the shifts in Minnesota.
So what happened? The simplest answer comes courtesy of the Association of Metropolitan School Districts (AMSD) and Minnesota Public Radio.
Expiring Law
Previously, homestead owners received a credit on their tax statements reducing their gross tax. The credit equaled 0.4% of the first $76,000 in market value. It was reduced by 0.09% of the market value over $76,000 until the credit hit $0 at $413,800 of market value.
The state reimbursed local governments for the sum of the market value credits granted to individual taxpayers on tax statements. As a result, some of the local governments' levy came from the state as credit reimbursement payments, and some from property tax payments.
Previously when the state cut its reimbursement payments, local governments had to budget for a gap between their levy and what they received. Local governments may have levied more, cut some spending or both.
New Law
The change requires that a portion of homestead market value be excluded from taxation. The exclusion equals 40% of the first $76,000 in market value. It is reduced by 9% of the market value over $76,000 until it hits $0 at $413,800 of market value.
The state will no longer pay a share of the tax on homesteads, but homesteads have less value subject to taxation. The removal of the state spending on credits means property taxpayers, as a whole, will pay more if levies remain the same. The reduction in the tax base for homesteads means non-homesteads will pay a higher share of the levy, and a large share of homesteads could pay more given that exclusion amounts and other factors vary. Local governments will receive the full amount that they levy from their taxpayers. So even though levies have remained stagnant, property taxes rise.
The video below provides a brief description on how the homestead market value exclusion impacts various properties.
