Local Option Tax Relief for Damaged or Destroyed Property
September 2010
In Minnesota, an owner of a damaged or destroyed property not located in an approved disaster or emergency area may seek property tax relief through a local option disaster abatement or credit granted by the county board. This assistance provides a reduction in the amount of property taxes payable in the year the destruction occurs and/or the following year. It is only available to an owner of a homestead or non-homestead property (i.e. any class of taxable real or personal property such as agricultural, apartment, commercial/industrial, residential, and seasonal recreational residential) that was accidentally or unintentionally damaged by fifty percent or more, including cases of arson and vandalism when the destruction was committed by someone other than the owner. To receive a tax reduction or refund, the property owner must contact the assessor as soon as practical after the damage has occurred and submit a written application requesting this help.
How does one qualify for the local option disaster abatement or credit?
The county board may approve a disaster abatement for taxes payable in the year in which the destruction occurs or a credit for taxes payable in the year following the year in the which the damage happened to property that is not part of an approved disaster or emergency area if certain requirements are met: (1) the assessor has determined that at least fifty percent or more of a dwelling or other building was accidentally or unintentionally damaged by unknown sources, the forces of nature, or human acts caused or carried out by anyone other than the owner; (2) the structure is uninhabitable or unusable for at least one calendar month; and (3) the owner presents a written application to the county board through the assessor in a timely manner.
How does one apply for local option tax relief?
An owner should contact the assessor within a reasonable period of time, say no later than one month, after the calamity to report the damage and inquire about property tax relief. If the assessor receives a telephone call or correspondence from the owner about this matter, the details of the communication will be documented and kept on file until there is closure. The assessor will also encourage the owner to send a written request seeking a tax reduction along with an insurance damage report, an insurance claim, and any other pertinent information that provides a description of the damage regarding the date, cause, and extent of loss. The assessor will schedule an appointment to physically review the destruction and reassess the structure’s estimated market value in its damaged condition. If the loss is estimated to be fifty percent or more, a tax relief application will be processed by the assessor. However, if the damage threshold is not met, no tax relief will be provided and the application process ends.
Is the county board required to approve a tax reduction for a property owner whose structure has been damaged or completely destroyed?
No, the decision to abate property taxes is discretionary. The county board may either approve or reject the tax relief application based upon the facts and findings presented by the owner, the county assessor, and the county auditor. As a standard of practice established in the county’s abatement policy, a reduction involving less than $50.00 will not be considered.
If the local option disaster abatement or credit is approved by the county board, how is it calculated?
The local option disaster abatement or credit is pro-rated and limited to the number of months the structure was unusable. It does not apply or carryover to the land or other improvements which have not experienced a loss. In basic terms, any reduction in the amount of tax payable is determined by multiplying the difference in the net tax on the property computed using the estimated market value of the property established for the January 2nd assessment of the year of the destruction, and the net tax computed using the reassessed estimated market value established after the destruction by a fraction representing the time the estimated market value was reduced (the number of months the structure was unusable divided by 12). If the structure is occupied or used for part of a month, it is considered a full month of use and not included in the calculation as an unusable month.
For example, a home sustained damage in excess of fifty percent by an accidental fire on April 10th, and the owner had to vacate the property because it was uninhabitable. The property became livable again and the owner moved into the house on August 28th. The January 2nd estimated market value of the property was $250,000 and the net tax was $3,126.00. The reassessed estimated market value in the damaged condition was $100,000 with a net tax of $1,200.00. Since the owner was unable to occupy the house for three full months (i.e. May through July), the tax relief equals the difference in the amount of the tax multiplied by 3/12, or say $482.00 rounded.
If an owner chooses to keep living in a home or using a structure that is more than fifty percent damaged, will this choice negate any tax reduction?
Yes, the law is very clear in saying that the structure must be damaged or destroyed to the extent that it is uninhabitable or unusable. No tax relief in part or whole will be granted to the owner if the home or structure continues to be occupied or used.
If a building is either damaged or completely destroyed and the owner decides not to repair or rebuild it, will this decision affect the ability to get some tax relief?
No, the owner is eligible to receive a reduction or refund of taxes on the damaged or destroyed structure for the number of months that it is unusable. However, this relief is not carried over to the assessment year following the year of the destruction (i.e. for taxes payable in the second following year), or any years thereafter, because the normal course of assessment and taxation cycles will eventually reflect the value as damaged or rebuilt.
If a building is either damaged or completely destroyed and the owner decides to sell the property, will this decision affect the amount of tax relief that is due?
Yes, the owner is still eligible to receive some tax relief on the damaged or destroyed structure. If the property is sold, gifted, or transferred to another person or party, the assessor will process the application based only upon the number of months the structure is uninhabitable or unusable during the grantor’s time of ownership.
How long does it take to receive the local option tax relief benefit?
Once the uninhabitable or unusable time frame has been firmly established, the local option tax relief application is processed by the assessor and presented to the county board for action. Then, if approval is granted, a tax reduction or refund is provided to the owner. This benefit could possibly cover a portion of taxes over a period of two years if a dwelling or building is damaged or completely destroyed in one year and not repaired or rebuilt until sometime in the following year.
How will the owner get the tax reduction or refund?
The county has the preference of making this tax relief benefit available to the owner in one of two ways---as a tax reduction or refund through an abatement in the year in which the destruction occurs or as a tax reduction through a credit for taxes payable following the year of destruction that specifically relates to the assessment year the damage occurred. When tax relief is provided in the year of the destruction, a credit is applied by the county treasurer to the total tax if the owner moves back into the dwelling or puts the building to use before the first half tax is due. If the first half tax payment was paid and the owner occupies the home or uses the structure before the second half tax is due, a credit is then applied to the second half tax. In cases where the owner returned to the house or utilized the structure after the second half property tax was paid, then a refund check is generally mailed within one month. Conversely, if tax relief is provided for taxes payable following the year of destruction, it is applied by the county treasurer to the tax bill as a credit.
Should an owner applying for local option tax relief pay the current taxes if they are going to be adjusted by the county?
The owner is still responsible for the property taxes that are payable on the established payment dates. Although the taxes may be reduced by the county, the owner should comply with the due dates to avoid delinquency and the added costs attributable to the accrual of penalty and interest.
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