Legislative Property Tax Working Group Completes Its Work

Working group recommendations for property tax reform will be forwarded to the 2013 Legislature.
(Published Dec 19, 2012)

The legislative Property Tax Working Group, established by the 2010 legislature, completed its work and released its recommendations to the legislature. The Working Group was charged with examining the state’s property tax system and developing recommendations on making the system more understandable, transparent, accountable, and efficient.

The 12-member group held 20 meetings from October 2010 through November 2012 and included legislators, local government officials, and citizens. The League’s representative on the working group was Luayn Murphy, the city administrator for the city of Mayer.

The group’s report includes a list of guiding principles as well as a list of more specific policy recommendations. The most far-reaching proposal is to reduce the number of property tax classifications from 55 to four (residential, agricultural, commercial, and other). While this would greatly simplify the property tax system—one of the primary statutory goals of the group—it will face significant resistance from the groups who benefit from the current classification system.

Guiding Principles: “Defend the Purpose”
The working group seeks to focus property tax collection on its primary and original purpose—to provide local revenue to pay for local services. Property taxes should not be used as a vehicle for state policies, and the state’s involvement should be limited. The property tax system should be simplified and made more transparent. Other key guiding principles include:

  • Base property taxes on full estimated market value.
  • Base property taxes on the attributes of the property, not on the ownership or occupancy. Tax programs based on individuals should be delivered via the income tax system.
  • Eliminate classifications or benefits for individual or narrow subgroups.
  • Require local impact notes for any property tax changes, and value or intention statements for any new property tax legislation.

Specific Policy Recommendations
The group’s recommendations include:

  • Consolidate the number of classifications from 55 to four (residential, agricultural, commercial, and other) to eliminate the targeting of benefits to specific properties through micro-classification.
  • Expand the Property Tax Refund (PTR) program to be the primary method of providing homestead benefits.
  • Consolidate the property tax reporting around a few key dates to increase understandability, predictability, and compliance.
  • Make improvements to notices, statements, and the truth-in-taxation (TNT) process. Show basic budget information or provide links on TNT notices, and direct the public to websites with more detailed information.
  • Convert Minnesota’s unique tax capacity system to a more traditional assessed value system. Use assessed values and mill rates to make Minnesota’s property tax system more understandable, transparent, and competitive across the nation.
  • Eliminate the use of property taxes for state funding. If not eliminated, designate revenues directly for local governments, not the general fund.
  • Do not impose limits, caps, or freezes on values, tax amounts or levies. This undermines budgeting and causes inequities. Let local governments be accountable to local voters.
  • Review all exclusions, credits, and exemptions and eliminate those that benefit limited interests and not broad public policies.
  • Impose sunset dates on all special valuations and deferrals to prompt review. 8Expand the homeowner PTR program to be the primary method of providing benefits tied to ownership or occupancy. Keep special targeting PTR as a tool to ease impacts of other reforms.
  • Re-evaluate the Renter PTR in light of the recommended class consolidations, which may reduce the need for the program.

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