“In this world nothing can be said to be certain, except death and taxes.” That’s what Benjamin Franklin wrote in 1789. Taxes are still as certain today, and they are about to get a little more painful in Minnesota.
In the process of the legislature’s special session in July, when it hashed out budget arguments while non-essential state operations were shut down, Minnesota’s property owners lost the homestead credit reduction on their property taxes.
According to Cook County Auditor-Treasurer Braidy Powers, the current homestead credit formula has been in effect since 2001. One that had worked differently existed before then, and the one in effect now will be replaced in 2012 by something called a Market Value Exclusion.
“They like to tinker with it every few years,” Powers said. “They try to make it better.”
Previously, a state-generated formula calculated by special computer programs in each county gave homesteaders a discount on their primary residences. Theoretically, the state would reimburse counties, cities, townships, and school, hospital, and sewer districts what these property owners didn’t pay in taxes. The amount homesteaders paid in property tax was whatever each governmental entity levied minus the amount that entity received from the state for the homestead credits. This amounted to a reduction of $304 in the tax a homesteader would have paid for a $76,000 home.
Over the last two years, however, the state has not sent these entities the amounts they were counting on in the form of general program aid and market value credit aid, but this would happen mid-year after levies had already been decided, Powers said. The state was sending half of what it would have sent if it weren’t in such a fiscal pickle. In order to make their budgets, many of the smaller governmental units were pulling from their fund balances—if they had them.
With the new system, the state will no longer be reimbursing the smaller governmental units for homestead credits. The new Market Value Exclusion will reduce homestead taxes using a formula similar to the homestead credit formula, but other factors will be figured in that will result in less of a reduction.
The formula shaves off 40 percent of the value of homes assessed at $76,000 or less and a smaller percentage for each dollar of value up to $414,000. No reductions are made for homes assessed at $414,000 or over.
Under the new system, the tax burden will become greater than it has been for non-homesteaded properties because homesteaded properties under $414,000 will be taxed at a rate less than their assessed value. The average increase to Cook County property owners—both homesteaded and non-homesteaded—will be 3 percent, Powers said, although individual amounts will vary.
Not only will property owners be charged a larger amount with the new system, governmental units from counties on down will not be receiving anything from the state to reduce whatever levy amounts they decide on. Essentially, while homesteaders will still get tax reductions for their primary residences (as long as they are assessed under $414,000), their counties, cities, townships, and school, hospital, and sewer districts will no longer have subsidies from the state to cover those reductions, and unless budgets are reduced, the costs are likely to be handed down to the taxpayers.
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