In an effort to outmaneuver rising property taxes, DFL lawmakers introduced a plan to overhaul the property tax refund system. The proposal would eliminate three property tax refund programs and pool the funds to form a new Homestead Credit State Refund based on ability to pay.
House Property Tax Relief and Local Sales Tax Division Chairman Rep. Paul Marquart (DFL-Dilworth) sponsors the proposal, HF1222. The division referred the bill to the House Taxes Committee, April 23, where it is expected to be incorporated into the upcoming omnibus tax bill. There is no direct Senate companion.
The bill doesn’t bring new money into the refund system. Instead the proposal would phase out the homestead market value credit and repeal the property tax refund for homeowners and the property tax deduction for state income taxes.
The proposal would:
• direct a $30 million increase in local government aid to cities, $20 million to counties and $3 million to townships, with the funds coming from a tax on foreign operating corporations passed this year;
• create a new homestead credit refund for homeowners that make up to $200,000 per year and pay more than 2 percent of their income in property taxes;
• provide a tax credit for those who purchase a vacant home and fix it up;
• grant up to $250,000 in aid to communities with a high number of foreclosures;
• allow assessors to consider the effect of nearby vacant houses on the value of a house;
• change how local government aid is distributed to communities, based on suggestions from a “unity plan” developed by local government officials across the state;
• change the Green Acres Program, which allows farm land near developing areas to get a property tax break;
• increase the eligibility for a property tax deferral program for senior citizens;
• create a deferral program for seasonal recreational property;
• allow new ways for homeowners to challenge assessments and involve the Department of Revenue;
• create a way to phase-in higher property taxes when a home is rebuilt due to a disaster;
• create tax credits on agricultural land and cattle herds in bovine tuberculosis management zones;
• increase the class rates on machinery owned by public utilities;
• prohibit local option sales taxes for three years, except for Clearwater, North Mankato and Winona, cities where voters have already approved a potential tax increase and are waiting on legislative approval for implementation; and
• commission a study on how nonprofit organizations are classified as a charity and issue a moratorium on assessors to act upon a recent court ruling, (Under the Rainbow Child Care Center v. Goodhue County.)
Supporters say the new homestead credit would provide refunds to homeowners with the highest property tax burden relative to their income, giving relief to those who are hurting the most.
“We have to make choices. We have to set priorities,” Marquart said. “We’re redirecting, restructuring those dollars to do the most good.”
The governor didn’t support a similar plan last year, partly because it called for bringing in new money. Marquart deemed this year’s proposal “governor-friendly,” because it provides direct relief to property taxpayers without increasing taxes or using new revenue.
Some Republicans were skeptical of the proposal. Rep. Morrie Lanning (R-Moorhead) said he agrees with the concept that property taxes should be based more upon the ability to pay, but that such an overhaul could be confusing to taxpayers. He successfully introduced an amendment to extend the phase-out of the market value credit.
Rep. Ron Erhardt (R-Edina) pointed out that high-income homeowners would lose their state property tax refunds.
“You’re hitting up the high-income, the high-valued homeowners, to satisfy and equalize here. Before, at least you were transparent. You came at it and said you were going to raise the fourth bracket and buy down everybody at their expense. I think you’re doing the same thing now, but you’re not being as open about it.”
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