County commissioners reluctantly peered into what Bruce Martinson feared could become a “Pandora’s Box” at its Tuesday, June 16, 2009 Board of Appeal and Equalization meeting. Jim and Betty Huskey went before the board to request that their conditional use permit to operate a hair styling business out of their home “be grandfathered in” and exempted from being taxed at a commercial rate.
County Assessor Mary Black changed Huskeys’ tax rate after receiving a copy of a January letter to the Cook County News- Herald editor written by Carolyn Larsen. In that letter, Larsen, owner of a home-based hair salon, contended that the county was being unfair by taxing her property at a commercial rate when it was not taxing many other home-based businesses at a commercial rate. Her letter listed 43 other types of home businesses that are operated out of residential property in Cook County.
According to Mary Black, Larsen’s letter resulted in a re-evaluation of several properties. Black said Betty Huskey was questioning why her tax rate had gone from residential to commercial when that of others with homebased businesses had not.
Zoning and taxing designations are independent of each other, Black said, and properties are taxed according to their use, not their zone. Thisis why residents in commercial zones are taxed at the residential rate as long as business is not conducted from them, she said.
Betty Huskey told the board that when she opened her beauty shop in 1991, she was required to obtain a conditional use permit from the City of Grand Marais. Under that permit, she cannot hire employees, rent out her space or her building, or have any other businesses on the premises, and she must live there. Because one person complained, she asked, why should she all of a sudden pay commercial taxes but not receive any of the benefits of being commercial?
Commissioner Bob Fenwick pointed out that the ability to operate businesses from home is what has allowed some businesses to even be in existence. He did not want to have to make all the other properties with small businesses pay commercial tax rates.
Mary Black said that assessors are required to be fair and to treat similar properties equally. Jim Huskey asked Black if she operates a sled dog business from her home. She said yes. Are you zoned commercial? Jim asked. No. Why? Black said she didn’t know. The Minnesota Department of Revenue told her home salons are to be taxed at commercial rates, she said.
This could open a Pandora’s Box, Bruce Martinson said, to which Jim Huskey replied that Cook County could end up with more commercial properties than residential if every home business is required to convert to commercial rates.
Theissue is more about the principle than the money, Commissioner Fenwick stated. On the other hand, even if Huskeys must start paying commercial property tax rates, he said, they will have the benefit of being able to operate a business from their home even if they don’t have the same privileges they would have from a commercial zone.
The board decided to consult with County Attorney Tim Scannell to find out what their options are.
Bruce Kerfoot took issue with the portion of his Gunflint Lodge property taxes related to 10 cabins he is trying to sell as timeshares in a planned unit development (PUD). Since being granted designation as a PUD after the 2008 tax evaluation, the valuation on those cabins went up almost fourfold.
An overview of the situation written by Kerfoot states that the assessor’s office told him the increase was based on precedents set when new developments along Highway 61 were assessed. Kerfoot queried Lutsen Resort owner Scott Harrison, who built condominiums next to the resort several years ago. Harrison told him the tax values after construction were twice the amount of his building costs. While Kerfoot’s buildings are not all new—six were built as recently as 2000 and one was built as far back as 1925— his 2009 valuations are 6-15 times what the original building costs were, a very different scenario from Scott Harrison’s.
Mary Black countered by saying that the proximity of the cabins to Gunflint Resort and the services that are included in ownership make them more valuable than if they had been built elsewhere. Kerfoot contended that employee services do add value but that they are not taxable.
Commissioner Jan Hall agreed, saying they have a new store near her home in Hovland, and that’s an amenity for her. Does that mean her property should be taxed at a higher rate? “I think it’s overkill, and I think this needs to be re-evaluated. …This seems excessive to me,” she said.
Proximity to amenities, such as the ski hill or Highway 61, make properties more valuable, Black said. Lutsen Resort, Bluefin Bay, and Cobblestone Cove get valued higher because of their proximity to amenities.
Proximity to amenities is different from services included with property ownership, Commissioner Fenwick said. Kerfoot replied by saying that if Harrison’s condo tax rate is based on services rendered from Lutsen Resort, his own tax rate is still not following the same formula.
Kerfoot said two buildings to be torn down as part of the PUD plan went from being valued at $124,500 and $135,000 to being valued at $727,000 and $737,500, respectively.
By law, the board could not make decisions on appeals during this portion of the meeting. They decided to consult with the,county attorney between then and the re-convening of the meeting the evening of Monday, June 22.
A property owner on McFarland Lake is being taxed extra not because his property is in close proximity to amenities, but because it is not. James Nygard did not complain about this, but he did want to know why his property values have gone up 1356% since the 1980s when those of his neighbors have gone up 500-700% in the same time.
Nygard’s 804 feet of lake frontage was valued 15% higher on this year’s tax bill than it was on last year’s tax bill. The average increase countywide was 1.5%. Nygard said his property, with two primitive cabins built in the 1930s or -40s, is at the bottom of a cliff from which boulders fall each year. His bluff is beautiful, he said, but really adds value to the people across the lake from him.
When realtor John Detrick sold Nygard the property in 1989, he would not walk into the cabins, presumably because of their decrepit condition, Nygard said.
In response, Mary Black said only one of the cabins is counted in the assessment value. Former assessor Ted Mershon had agreed to a reduction in the tax amount, but it was unintentionally not carried forward to this year’s tax bill. Black will correct that, but she said his valuation per foot of lakeshore frontage is less than that of neighboring properties.
Commissioners Bob Fenwick, Jim Johnson, and Fritz Sobanja agreed that the amount Nygard is being assessed per foot of lakeshore is fair.
Some people would pay more for the amenities at Gunflint Lodge, Black said, and some would pay more for the remoteness of McFarland Lake.
Nygard said he is likely to appeal unless he gets a good explanation for why his property has gone up in value so much more than those around him. The assessor’s office has his land valued at $236,300, giving his lakeshore frontage a value of $293.91 per foot.
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