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Minnesota Tax Law Change Could Increase Businesses' Property Tax Burden

Non-homesteaded properties such as apartment and commercial buildings would pay more to if local governments sought to recoup state money.

A tax law change the Minnesota Legislature made this year to balance the state’s budget could lead to higher property taxes for Oakdale’s businesses, rental homes and apartment buildings.

Now Oakdale and Washington County leaders must decide whether they’re going to recoup lost state funds by passing budgets that would result in property tax hikes for non-homesteaded properties.

Program’s Repeal Likely to Increase Tax Rates

To help balance the state’s budget, the Minnesota Legislature repealed the market value homestead credit, a program created in 2001 through which the state would cut homeowners’ property taxes, and then reimburse the cities and counties the amount of the cut (although the state often didn’t pay the local governments the full amounts they were owed). The credit applies to homes valued less than $413,778 that are homesteaded—or the homeowner’s primary residence.

But to protect these homeowners from a property tax increase once the program disappears, legislators decided to reduce the taxable values of these properties, which drives down the tax base, said Kevin Corbid, director of Washington County Property Records and Taxpayer Services.

“It will likely make the tax rates go up, and when you take those higher tax rates on these non-benefited properties, that’s going to lead to some increased tax burden on those properties,” Corbid said. “It doesn’t give the county any more revenue than we had before, we’re just getting it from other places.”

Cities, Counties Weren’t Getting Reimbursed

One wrinkle to the issue is that Washington County hasn’t been getting the full amount it’s due from the state in reimbursements for the program.

Deputy Washington County Administrator Molly O'Rourke said the county’s initial allocation from the state in market value homestead credit aid was roughly $3.4 million, however the county will get just $1.3 million in state reimbursements in 2011.

The City of Oakdale is in the same boat.

According to the city’s 2010 financial report the city was owed more than $500,000 in state reimbursement, yet it received nothing. Oakdale is likely to lose the same amount in 2011, said Oakdale Finance Director Suzanne Warren.

The state’s elimination of the program starts in 2012.

The state started reducing payments to cities to balance its budget in 2003, and then did so again in 2005, 2006, 2008, 2009 and 2010, according to a fact sheet on the program from the League of Minnesota Cities.

“It used to drive us nuts,” City Administrator Craig Waldron said at the Oakdale City Council workshop Tuesday, July 26, “because we levy for it and then we don’t get paid and the state was supposed to make up the payment for us and they never did.”

Now, the council has the opportunity to get the money it was owed all those years, however it could result in a tax increase for area businesses and other non-homesteaded properties.

The Oakdale City Council discussed the issue at its July 26 meeting, and plans to revisit it at its Aug. 9 meeting.

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