State General Tax Levy
June 2010
In Minnesota, all commercial-industrial and seasonal residential recreational property owners annually pay a state general tax to the county treasurer. Occasionally, these owners have asked questions relating to the property taxes owed to the State. These inquiries have varied from owner to owner because it is unclear as to the reason why the State levies a property tax, how the levy is determined, and why it is added to the local property tax bill. There are also some concerns expressed by these owners about how the money raised through this tax is used. The origin and purpose of this tax is summarized in the Property Tax Reform Act enacted during the 2001 legislative session.
Why was a state general tax imposed on commercial-industrial and seasonal residential recreational property owners?
The Property Tax Reform Act of 2001 provided major property tax relief to all property owners and changed the sources of school funding in Minnesota. As a result, local school district levies were drastically reduced in favor of more state funding through school aids. The state general tax imposed on commercial-industrial and seasonal recreational properties was created to increase the amount of money that went into the general fund, along with many other state taxes, from which school aids are paid. This additional tax was considered a tradeoff counterbalancing the relief that these two property tax classifications received in the form of class rate reductions for taxes payable in 2002 and beyond.
What kinds of commercial-industrial and seasonal residential recreational properties are subject to the state general tax?
All real, personal, and manufactured home property that have a commercial-industrial or seasonal residential recreational property tax classification pay a state general tax. Specifically, the types of properties subject to this tax are classified as: (1) class 1c, tier III “ma and pa” resorts with a market value in excess of $2.3 million; (2) class 3 commercial/industrial properties except for any property of the Minneapolis-St. Paul International Airport and Holman Field in St. Paul; (3) public utility properties exclusive of electric generating machinery; (4) class 4c(1) seasonal residential recreational properties, both commercial and non-commercial; and (5) class 5(1) unmined iron ore properties.
What is the amount of the state general levy and how is it established?
According to a formula defined in current law, the levy base amount is to be increased for each subsequent year by multiplying the previous year’s base amount by the sum of one plus the rate of increase, if any, in the implicit price deflator for government consumption expenditures and gross investments for state and local governments. This index of inflation used in the calculation of the annual levy base amount is prepared by the Bureau of Economic Analysts of the U.S. Department of Commerce for the 12-month period ending March 31st of the year prior to the year the taxes become payable. For taxes payable in 2002, the state general tax levy base amount was $592,000,000 and was levied by applying the same tax rate to the tax capacity values of both commercial-industrial and seasonal residential recreational properties. However, a law change in 2005 altered this application by requiring that 95% of the state general tax levy be applied at a uniform rate to all commercial-industrial tax capacity value and 5% of the state general tax levy be applied at a uniform rate to all seasonal residential recreational tax capacity value. Thus, the state general tax levy amount for commercial-industrial is $742,641,561 and the seasonal residential recreational amount is $39,226,020 for taxes payable in 2010.
When is the state general tax levy rate certified to each county auditor?
The Department of Revenue is required to certify the preliminary state general tax levy rates to each county auditor by October 1st for use in preparing the notices of proposed property taxes. By January 1st of each year, the final state general tax levy rates are provided to each county auditor for calculating the final tax to be reported on the property tax statements. These rates are based on details from the real and personal property abstracts and are certified as two separate rates based upon the levy amounts and tax capacity values for commercial-industrial and seasonal residential recreational properties. The final rates sometimes differ slightly from the preliminary rates to account for tax base changes or errors.
What factors determine how much tax is paid by a commercial-industrial or seasonal residential recreational property?
Some of the factors that determine how much tax a property will pay are the taxable market value, property tax classification, and the state tax rate. Typically, the higher the taxable market value of the property, the higher the tax. Depending upon a property’s tax classification, the resulting tax may be higher or lower than another property with the same taxable market value given the applicable tax classification rates--- the commercial-industrial class rates are higher than the seasonal residential recreational class rates. For purposes of the state general tax levy, only the tax capacity value of non-commercial class 4c(1) seasonal residential recreational property has a lower class rate structure than other property types. In regards to the referendum market value levies, class 1c “ma and pa” resorts have a lower class rate structure than other properties and non-commercial class 4c(1) seasonal residential recreational property is excluded from the referendum market value levies. Last of all, the state property tax rate is higher for commercial-industrial property than it is for seasonal residential recreational property given the differences in the levy base amounts and tax capacity values. The final commercial-industrial state general levy property tax rate for payable 2010 is 45.881% while the rate for seasonal residential recreational property is 17.775%.
Does the payment of the state tax go directly to the local school district?
Unlike other property taxes that are levied and collected, the state tax is not treated as a local tax rate and is not a levy of a local governmental unit. It is a state property tax levy that has become associated with the assessment and taxation processes administered by local officials. The money raised through the state tax does not go directly to the school district where a property is located. The county treasurer forwards the state tax to the Department of Revenue for deposit in the general fund.
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