1. Property Tax Principles and Indicators
Eric Willette
Minnesota Department of Revenue
Presentation to House Property Tax Division
February 9, 2011

2. Introduction to the Property Tax System
Property is taxed according to value
Predictable for government
May not reflect ability to pay

3. A brief history of the property tax
1849: 1st Territorial Legislature enacts property tax
1913: Classification of property
: ‘Minnesota Miracle’
2001: ‘Big Plan’

4. Administering and monitoring the system
Administered by 87 counties
3,300 individual taxing jurisdictions
2.5 million property parcels
Total market value of taxable property is $580 billion
Over $8 billion in tax revenue
Department of Revenue Oversight
Equalization of local assessments
Monitoring compliance
Licensing, education and training
Research

5. Property Tax Inventory Map
For Governments:
Property Tax Levy ÷ Tax Base = Tax Rate
Levies are impacted by:
Number and scope of taxing authorities
Service demands/mandates
Property Tax Aids and other Revenues
State-imposed levy limitations
Tax Bases are impacted by:
Exemptions
Exclusions
Special valuations/deferments
Tax base definitions/ classification
Tax Rates are impacted by:
Disparity Reduction Aid
Special service areas
Parcel Tax Bills are impacted by:
Credits
Senior Deferral Program
Refunds
For Taxpayers:
Parcel Tax Base x Tax Rate = Parcel Tax Bill

8. Property Tax Preferences:
Estimated Market Value to Net Tax

9. Tax Principles Simplicity Efficiency Equity Stability Competitiveness
Responsiveness

10. Transparency, Understandability, Simplicity & Accountability
Taxpayers should understand how their tax is determined, which governmental unit is responsible for the tax and what services are funded by the tax.
Is the system clear for taxpayers?
for public officials?
for administrators?
Are decision makers identified?

11. Efficiency & Compliance
The tax should maximize voluntary compliance, minimize economic distortions caused by tax-motivated behavior, minimize compliance and administrative costs.
What are state and/or local administrative costs?
What are taxpayer compliance costs?
Can administrators easily make determinations?

12. Equity
The tax should minimize regressivity (vertical equity). The system should treat similar properties similarly (horizontal equity).
Do tax burdens decrease or increase as income rises?
Are similar properties or taxpayers taxed similarly?

13. Stability & Predictability
The tax should provide stable revenues over the economic cycle. Significant unexpected changes in tax laws, tax bills to taxpayers and revenues to governments should be minimized.
Is system stable / predictable for taxpayers?
For public officials?
For administrators?

14. Competitiveness for Businesses
The system should minimize any competitive disadvantage of the state relative to other states and nations.
Does tax harm ability of Minnesota businesses to compete?
Consider services funded by the tax as well.

15. Responsiveness to Economic Conditions
Tax should change with changes in value. Lags in system between a market change and a corresponding tax change should be minimized.
Does tax change with value in a timely way?
Are data for aid, credit and refund formulas current?

16. Major Indicators

17. Price of Government Report

18. Price of Government Report
Source: Minnesota Department of Revenue and
Price of Government, End of Session 2010

19. Price of Government Report
Minnesota Price of Government
____________
State and Local Revenues as a % of Personal Income

20. Property Tax Levies
Source: Minnesota Department of Revenue

21. Market Value Trends

22. Effective Tax Rates

23. State Tax Rankings

24. Regional Median Tax Burdens
Homestead Property Tax Burden Report
Regional Median Tax Burdens

25. Determinants of Property Taxes
Parcel share of tax base and total local levies
These are affected by:
Level of public services
Intergovernmental aid and other non-property tax resources
Tax base composition and property tax classification system
Property tax refunds, credits, exclusions

26. Homestead Property Tax Burden Report
Homestead Tax Burden by Income
Income range*
Median burden before MVHC
Median burden before PTR
Median burden after PTR
$10,000 -$30,000
7.6
6.4
3.8
$30,000 - $45,000
4.8
4.2
3.3
$45,000 - $65,000
3.7
3.1
$65,000 - $90,000
2.8
$90,000 - $125,000
2.6
2.5
2.4
$125,000 or more
1.9
1.8
Overall
3.0
*Homesteads with income under $10,000 not shown due to data issues

28. Other Indicators Tax Incidence Study Tax Expenditure Budget
Assessment sales ratio study
Local impact notes

29. Source: Minnesota Taxpayers Association

30. Questions?