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Property Tax Principles and Indicators

Property Tax Principles and Indicators . Eric Willette Minnesota Department of Revenue Presentation to House Property Tax Division February 9, 2011. Introduction to the Property Tax System. Property is taxed according to value Predictable for government May not reflect ability to pay.

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Property Tax Principles and Indicators

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  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 • 1968-1972: ‘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 Tax Rates are impacted by: Disparity Reduction Aid Special service areas 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 Parcel Tax Bills are impacted by: Credits Senior Deferral Program Refunds For Taxpayers: • Parcel Tax Base x Tax Rate = Parcel Tax Bill

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

  7. Tax Principles • Simplicity • Efficiency • Equity • Stability • Competitiveness • Responsiveness

  8. 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?

  9. 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?

  10. 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?

  11. 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?

  12. 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.

  13. 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?

  14. Major Indicators

  15. Price of Government Report

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

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

  18. Property Tax Levies Source: Minnesota Department of Revenue

  19. Market Value Trends

  20. Effective Tax Rates

  21. State Tax Rankings

  22. Homestead Property Tax Burden Report Regional Median Tax Burdens

  23. 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

  24. Homestead Property Tax Burden Report

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

  26. Source: Minnesota Taxpayers Association

  27. Questions?

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