Are property taxes too high for Minnesota businesses – or not high enough?

“Lower the levy” has been a rallying cry for several years among those who believe state tax policy to be unfriendly to business. Those espousing tax cuts frequently target the commercial and industrial property tax that falls under the state’s general levy tax.

That discussion arose again Thursday when two levy-related bills with disparate aims were debated in the House Taxes Committee. One would increase the tax exemption for businesses and lower state revenues, while the other would freeze the tax rate at its current level, increase revenue and effectively raise the levy.

Both were laid over for possible omnibus bill inclusion.

Rep. Dave Lislegard

The state’s general levy tax is applied to certain types of property, with about 95 percent of the tax collected on commercial and industrial property. Currently, the first $100,000 of the market value of a business property is excluded from taxation.

Under HF1435, sponsored by Rep. Dave Lislegard (DFL-Aurora), that number would increase to $150,000, and, as amended, the total levy amount would be reduced from $784.6 million to $761.6 million.

The Department of Revenue says that, if enacted, the amended bill would lower state revenues by $12.7 million in Fiscal Year 2020 and $22.3 million in each of the subsequent three fiscal years. 

But the bill that turned up the temperature on the levy debate was HF1410, sponsored by Rep. Aisha Gomez (DFL-Mpls).

Rep. Aisha Gomez

Instead of a fixed total levy amount (again, currently $784.6 million), it would instead freeze the tax rate for the levy at its current level of 42.4 percent, with the amount of tax collected at this rate changing in relation to the amount of commercial-industrial tax base. The rate has dropped 10 percent since 2013.

The consensus among members was that this would effectively raise business property taxes, and the Department of Revenue estimates that the changes would increase the General Fund $13.4 million in Fiscal Year 2020, with revenues rising to as much as $100.3 million in Fiscal Year 2023.

Neither bill has a Senate companion.

Frequently invoked in discussion of the two levy-related bills was the specter of North Dakota as a more business-friendly state with lower taxes. Beth Kadoun, vice president of tax and fiscal policy for the Minnesota Chamber of Commerce, cited a study that said a $1 million property in Minnesota pays about $34,000 in property taxes, while a comparable North Dakota property pays $10,000.

The committee chair, Rep. Paul Marquart (DFL-Dilworth), encouraged the discussion to move toward tax fairness.

“I went back and looked at the data. From 2002 to 2017 … commercial-industrial property tax rates increased by 68 percent. But residential homestead taxes increased by 111 percent in that same 15 years. And (taxes on) farmland were up 315 percent. So it does become a little harder to justify freezing a part of a rate for commercial-industrial when you have farmers, seniors and working families seeing much greater increases in property taxes.”