UNDERSTANDING YOUR ASSESSMENT
Property Tax Credits (Updated 7/26/11)
There are many reasons why the property tax burden in Minnesota varies by property type. These differences are attributable to value exclusions or deferments, dissimilar tax classification rates, variations in local tax rates, the application of state general tax and school district operating referendum levies to some properties but not to others, and the deduction for certain property tax credits. All of these causes play a significant role in determining the amount of property taxes that are actually paid. However, property tax credits are the means that the state uses to help various taxpayers pay some of their taxes. They are automatically calculated by the county auditor and are shown on property tax statements for qualifying properties. Many of these credits require property owners to submit an application to the county assessor and meet specific requirements to be eligible.
What kind of tax credits help reduce property taxes, how are they applied, and who pays for this property tax relief?
Several different property tax laws provide relief in the form of tax credits which include: (1) disaster credits; (2) power line credit; (3) metropolitan agricultural preserves credit; (4) disparity reduction credit; (5) county conservation tax credit; (6) agricultural market value tax credit; (7) taconite homestead credit; (8) supplemental taconite homestead credit; and (9) bovine tuberculosis zone credit. The deduction for any applicable property tax credit is subtracted from the gross tax amount calculated for a property in the order shown above to establish a net payable tax amount. The combination of all relevant property tax credits cannot exceed the gross tax. These credits which reduce the amount of payable taxes are generally reimbursed by the state to the local taxing authorities unless funded by special accounts permitted by law.
What are disaster credits?
Disaster aid is occasionally provided to taxpayers in the form of homestead disaster credits, local option abatements, and local option disaster credits. These credits are available to both homestead and non-homestead property in either the same year or year following significant damage or destruction to the property.
The homestead disaster credit is presented to qualifying residential and agricultural homestead property located in a disaster or emergency area. The amount of the credit is the difference between what the property tax on the home would have been had it not been damaged and the property tax on the new adjusted value after reassessment by the county assessor. This credit is shown on the tax statement in the year following the year of the disaster. Taxpayers do not need to apply for this credit. There is no maximum credit amount, but the credit does not apply to any land value or to any auxiliary buildings on the property.
Local option tax relief may be granted by the county board for both homestead and non-homestead property that is either in or not located in a disaster or emergency area. If relief is provided in the year the damage occurred, then it is given as a local option abatement. If relief is provided in the year following the year damage occurred, then it is given as a local option disaster credit.
The local option abatement requires the property owner to submit an application to both the county assessor and county board as soon as practical after the damage has occurred. It must also be determined by the county assessor that 50% or more of the homestead dwelling or other buildings has been unintentionally or accidentally destroyed, or destroyed by arson or vandalism by someone other than the owner. For property located in a disaster or emergency area, the abatement is based on the net tax on the property calculated from its market value established for the January 2nd assessment in the year in which the damage occurred and the net tax computed using the reassessed market value. For property not located in a disaster or emergency area, the abatement is pro-rated and is limited to the number of months the property was unusable.
The local option disaster credit works similarly to the local option abatement except that the relief is provided in the year following the year in which the damage occurred. An application must be submitted in a timely manner and the same 50% damage threshold as determined by the county assessor applies. The amount of credit is determined by whether or not the property is in a disaster or emergency area just as it is when processing a local option abatement.
What is a power line credit and do all classes of property qualify for it?
The power line credit provides a reduction in tax for certain classes of property that are crossed by transmission lines which were constructed after July 1, 1974 with a voltage of 200 KV or greater. This credit is available to property owners who have an agricultural or residential homestead, class 2a agricultural non-homestead land, rental residential property, and both commercial and non-commercial seasonal recreational residential property. It is calculated from a formula using the length of the high voltage transmission line which runs over the property and the total length of that line extending over all property within the city or township.
What is the metropolitan agricultural preserves credit and why was it created?
The metropolitan agricultural preserves credit is applied to qualifying agricultural land in the seven-county metro area. The credit is either $1.50 per acre or a tax using 105% of the statewide average tax rate if it is less than the calculated tax amount using the $1.50 per acre credit. This credit along with other features of the metropolitan agricultural preserve program (i.e. a valuation standard which ignores the non-agricultural influences, application and termination requirements, and other special protections and restrictions) allow farmers to make long-term agricultural investments with a guarantee that their land will continue in an agricultural use without interference from urban pressures. To qualify, a land owner files an application for the agricultural preserve designation to the county, city, or township that has the planning and zoning authority over the property. The minimum acreage requirement is 40 acres, and it is the land that must qualify and not the owner. If the property is accepted, a restrictive 8-year perpetual covenant is recorded with the deed. It takes another 8 years from application for removal to terminate this agreement. An application must be made by June 1st to be eligible for taxes payable in the next year.
What is the disparity reduction credit and is it available to all taxing districts throughout the state?
The disparity reduction credit gives additional property tax relief to four border cities adjacent to North Dakota. The qualifying cities are Breckenridge, Dilworth, East Grand Forks, and Moorhead. Only class 4a apartments, class 3a commercial/industrial and public utility property, and class 3b employment property located in one of these cities are eligible for the credit. It is based on the difference between the tax using normal property tax procedures and the tax that would be determined by multiplying the property’s taxable market value by 2.3%.
What is a county conservation tax credit?
This particular property tax credit was created as a means of promoting agricultural land use in non-metro counties. Only land located in an agricultural preserve established under Minnesota Statutes, Chapter 40A is eligible. (i.e. three counties---Waseca, Winona, and Wright---currently participate in this program). This program combines state policies and guidelines with local implementation/enforcement procedures and private incentives to preserve and conserve soil and water resources; preserve and conserve agricultural land; and encourage the orderly development of rural and urban land uses (i.e. three counties---Waseca, Winona, and Wright---currently participate). To qualify, a property owner must file an application for an agricultural preserve restrictive covenant before January 2nd. Land located in an agricultural preserve qualifies for a property tax credit of $1.50 per acre.
What is an agricultural market value tax credit?
The agricultural market value tax credit only applies to agricultural homestead property identified as class 2a agricultural land, agricultural buildings, and any contiguous class 2b rural vacant land under the same ownership, or to agricultural property which qualifies under one of the special agricultural homestead provisions (i.e. special agricultural homestead, special agricultural homestead property owned or leased by a qualified entity, and special agricultural homestead property held under a trust). It does not apply to the house, garage, and first acre of land associated with the homestead property. The credit is calculated on the entire homestead rather than as separate credits for each individual parcel. In other words, if two or more agricultural parcels are part of an agricultural homestead, these parcels would be linked together and would receive only one credit. If a property has a fractional homestead, the credit is calculated on the entire property but is pro-rated on the homestead recipient’s percentage of ownership.
The agricultural credit is equal to 0.30% of the first $115,000 of taxable market value of the land and buildings excluding the house, garage, and first acre. This credit is limited to $345 for each homestead. It is reduced by a credit phase-out equal to 0.05% of the taxable market value in excess of $115,000, subject to a maximum reduction of $115, or say a minimum credit amount of $230.
To be eligible for this credit in the following payable year, the owner or qualifying relative/entity must satisfy certain requirements on or before December 1st and submit an application to the assessor by December 15th.
What is the taconite homestead credit?
The taconite homestead credit was created to benefit property owners in the Iron Range, where taconite production companies pay a production tax in lieu of certain property taxes. The property must be classified as a homestead and located within a taconite “tax relief area”. There are two levels of credits that apply based upon a property’s location. If the property is located within a “municipality” defined by law, the tax to be paid shall be reduced 66 percent, provided that the reduction does not exceed $315.10. If the property is located within the boundaries of a school district which qualifies as a taconite “tax relief area”, but it is outside the boundaries of a “municipality” defined by law, then the tax shall be reduced 57 percent, provided that the reduction does not exceed $289.80.
What is the supplemental taconite homestead credit?
The supplemental taconite homestead credit provides credits which are equivalent to the regular taconite homestead credits to certain areas which are outside the taconite ‘tax relief area” but face similar issues. There are three sets of qualifications for this credit, each describing property located in school districts that do not meet the qualifications as being part of the tax relief area for which the regular credit is provided. This credit is equal to either the 57 percent or 66 percent with the same maximum amounts depending on location.
What is the bovine tuberculosis zone credit?
This property tax credit is available to property located in an area proposed as a bovine tuberculosis zone by the Board of Animal Health. It is equal to the property tax attributed to all class 2a agricultural land and class 2b rural vacant land including the first acre supporting the house and garage on the property where the herd was located excluding the tax attributed to the residential structures. The amount of the credit is determined to be the greater of: (1) $5.00 per acre on the first 160 acres of property where the herd has been located; or (2) an amount equal to $5.00 per acre times the highest number of animals tested on the property for bovine tuberculosis in a whole-herd test as reported by the Board of Animal Health in 2006, 2007, or 2008. To qualify, the property owner must file an application with the assessor by December 1st. The amount of credit is then shown on the tax statement in the following year.
Is there a residential market value homestead credit?
Yes, there was a residential market value homestead credit for taxes payable in 2011 as well as in prior payable years. However, this credit has been eliminated for taxes payable in 2012 and turned into a homestead market value exclusion.
What is the homestead market value exclusion? Will it provide a tax benefit like the residential market value homestead credit?
The homestead market value exclusion replaces the residential market value homestead credit. This exclusion will provide the same tax benefit that was received when it was calculated as a credit. It will be computed for class 1a (residential homestead), class 1b (blind/disabled homestead), and the house, garage, and first acre of class 2a agricultural homestead property. If there is more than one use of the property, as is the case with class 1c resort property, the law requires that a portion of the property used as a homestead be classified as class 1a. As for duplexes and triplexes in which one of the units is occupied and used for homestead purposes by the owner or a qualifying relative, the entire property is classified as class 1a and the market value exclusion applies to the entire property. If two or more residential parcels are used for homestead purposes, these parcels will be linked together and would receive a market value exclusion based on the total value of the properties. Additionally, if a property has a fractional homestead, the market value exclusion is calculated on the entire property but is pro-rated on the homestead recipient’s percentage of ownership.
Before a property’s net tax capacity value is determined, the eligible homestead property will have its taxable market value adjusted according to specific provisions written into the law. For a homestead valued at $76,000 or less, the exclusion is 40 percent of market value. For a homestead valued between $76,000 and $413,800, the exclusion is $30,400 minus nine percent of the valuation over $76,000. For a homestead valued at $413,800 or more, there is no value exclusion. The valuation exclusion shall be rounded to the nearest whole dollar, and may not be less than zero.
To sum it up, this tax benefit is no longer a state-paid credit but one that is available as a part of the taxation process. It is a calculation that reduces the taxable market value of a homestead property prior to determining its net tax capacity value, resulting in a similar payable tax once the local tax rates are applied.
If you have any questions regarding this information or suggestions for a future column, please contact me.
Stearns County Assessor’s Office
Administration Center, Room 37
705 Courthouse Square
St. Cloud, MN 56303
Phone: 320-656-3680
or e-mail: gary.grossinger@co.stearns.mn.us