A cap on property tax levies, more aid to local governments and steps toward real reform of the state’s property tax system highlight the new tax law that its House sponsor said personifies “compromise.”
After weeks of negotiations and on-again, off-again conference committee meetings, an integral piece to the budget package came together in the late hours before the session concluded.
“Minnesotans will see serious property tax relief. There is something for everyone to love and something for everyone to hate in this law. That is what compromise is all about,” said Rep. Ann Lenczewski (DFL-Bloomington), who sponsors the law with Sen. Tom Bakk (DFL-Cook).
At the core of the law is property tax relief: the governor got his three-year 3.9 percent cap on local property tax levies; the House and Senate achieved $130 million in property tax relief; and cities and counties will see targeted increases in local government aid.
The law moves the state toward a property tax system based on an ability to pay, said Rep. Paul Marquart (DFL-Dilworth), chairman of the House Property Tax Relief and Local Sales Tax Division. “This is the fifth property tax relief bill to come before the body, and this provides $130 million in property tax relief.”
He said it also strengthens the “state and local fiscal relationship” by providing an additional $42 million in targeted local government aid to cities and $22 million in county program aid payable in 2009. He said additional aid in 2010 and 2011 “will help cities and counties and help lower property taxes.”
The law has varying effective dates.
The property tax refund program is expanded to help more homeowners. In addition, the maximum property tax refund is increased by more than 27.5 percent. The program provides refunds to homeowners who pay high property taxes relative to their incomes.
Aid to cities is based on a formula that takes into consideration the city’s population, job base and unmet need. The law also restricts cities’ over 2,500 in population and counties’ property tax levies to a 3.9 percent annual growth plus a partial increase for new household and commercial development for three years, with some exceptions. For instance, county sheriff and city police and fire salaries are not subject to the limits, and a city may request authorization to levy for costs associated with foreclosed or abandoned residential property.
The new law also addresses the tax code as it relates to foreign operating corporations. It limits these to corporations that derive at least 80 percent of their income from foreign sources, as defined under the federal tax law.
The bill adds and expands existing tax credits or exemptions for military service or pay, including:
• military pay for training and drills will no longer be counted as taxable income;
• active military members will be eligible for a tax credit equal to $120 for each month served beginning Jan. 1, 2009, up from the current $59; and
• a credit of up to $750 is available for disabled veterans or military service members with at least 20 years of service. This credit is limited to individuals based on income and is not available at or above $37,500 of income.
Mall of America
Lawmakers found it hard to reach agreement on whether the Mall of America should receive a public subsidy for its proposed expansion.
While there is no direct state aid for the project, by reconfiguring and expanding the tax increment financing district in which the mall is located, the net effect is a three-year extension offering a $21 million local subsidy. In addition, the law allows for the state to issue revenue bonds for a proposed parking facility, upon meeting certain criteria. These conditions do not apply if the City of Bloomington issues the bonds. The new law authorizes Bloomington the ability to levy several taxes to help support the new parking ramp and other pubic facilities as part of the expansion.
Also included in the law
• Several communities are allowed to establish tax increment financing districts, lodging and admissions taxes;
• the Job Opportunity Building Zone program, which is designed to help bring businesses to Greater Minnesota, is retained;
• a study group shall convene to consider existing disparities in allocating local government aid and report to the Legislature by Dec. 15, 2010; and
• a tax credit is allowed to urge eligible employers to provide Section 125 plans to allow employees to pay for health insurance premiums with pre-tax dollars.
At Issue: It’s all about compromise
Weeks of negotiations result in levy caps, tax reform and new credits
(view full story) Published 5/30/2008
First Reading: Different paths to the same outcome
Lenczewski, Simpson offer conflicting visions to attain best tax policy
(view full story) Published 5/9/2008
First Reading: A mega opportunity at what cost?
Public money sought for Mall of America expansion, jobs
(view full story) Published 4/25/2008
At Issue: Refurbishing the system
Property tax plan proffered to base payment on income
(view full story) Published 4/25/2008
Figures and statistics on taxes in Minnesota
(view full story) Published 4/4/2008
At Issue: Federal conformity and tax increases
Parties differ on future of tax bill approved by the House
(view full story) Published 3/7/2008