MnCRE property tax relief approved but still in limbo

May 31, 2017 at 1:21 pm

Just three years ago, tax relief for commercial property owners in Minnesota was unthinkable. The consensus among state legislators, the news media, and the general public was that tax relief for commercial property taxpayers would only benefit the wealthy. Any legislation introduced, which sought to ease tax burdens, was therefore doomed.

Since 2014, NAIOP has worked very hard to shift the paradigm concerning commercial property taxes. We have communicated with audiences at all levels, explaining who actually pays commercial real estate property taxes in Minnesota. Most of the people we have talked with were surprised to learn that property taxes are paid by the small business owners who rent space in commercial or industrial buildings and not the building owners. And with some of the highest commercial property taxes in the nation, tenants must raise prices to cover their overhead costs. In short, we all pay.

At the end of the 2016 legislative session, our communications efforts began to bear fruit. We argued strongly for the elimination of the mechanism that automatically increased taxes on the state’s commercial properties, based on the rate of inflation. Because of its complexities, however, removal of the automatic inflator was dropped. Lawmakers ultimately passed a tax bill that, among other things, exempted the first $100,000 of assessed property value from the state’s commercial property tax. The measure clearly benefitted owners of smaller, often rural properties but it was a solid stride forward for our cause. Unfortunately, Governor Dayton vetoed the bill for unrelated reasons.

Following the 2016 elections, we knew that opportunities for tax relief would be better. Throughout the 2017 legislative session, NAIOP worked very hard to communicate the need for tax relief. Through special events, newsletters, blog posts, tweets, and face-to-face meetings, we called for property tax relief. NAIOP’s lobbyists met personally with business leaders, property managers, reporters, legislators and more, and orchestrated speakers at key legislative hearings to clearly communicate the need for relief and the economic benefits that will come to Minnesota as a result.

Now that the legislature’s special session is done, I am very pleased to report that our efforts paid off – sort of. Within the tax bill finally approved by the House and Senate is the relief we fought so hard to convince legislators on both sides of the aisle to include – the elimination of the automatic property tax inflator, effectively freezing the levy at 2018 levels. The bill also contained language to exempt the first $100,000 from a property’s taxable value – a provision that was lost at the end of last year’s session. The Governor signed the tax bill late Tuesday evening, after signing other budget bills, but used his line-item veto authority to de-fund House and Senate operations. He said he would call another special session to restore the Legislatures funding if lawmakers agreed to revisit several issues that he opposed in the signed bills, including the removal of the automatic inflator. As of May 31, it is not clear what steps legislative leaders will take next. Many speculate the courts may have the final say in the matter.

If the removal of the auto-inflator and a small exemption are retained, they will become significant steps in the right direction. This issue illustrates how we need to continue to educate public officials and community leaders about the importance of commercial property tax relief, the burden of which falls on small business tenants. If we can accomplish this goal, greater economic prosperity will follow for everyone.

Entry filed under: Featured Articles, Public Policy | Government Affairs.

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