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In the 1997 legislative session, Representative Ron Abrams from Minnetonka <br />authored legislation to allow individual political subdivisions (county, city, <br />town, or school district) to return their proportional share of all or a portion of a <br />building's property taxes (see H.F. 2163, Laws of Minnesota, Article 2, Sections 45 to 48, or Minnesota <br />Statutes, Sections 469.1812 to 469.1815). Abatements were designed to give each jurisdiction a voice in <br />economic and redevelopment efforts, limit the state's financial liability through the school finance system, <br />and enable new business retention efforts. <br />Complications arose in the mechanics of abatements and, more importantly, from the reintroduction of levy <br />limits for taxes payable in 1998 and 1999. The 1998 Legislature passed legislation to exempt these <br />abatements from the levy limits and also allow bonds to be issued as a means to finance the development. <br />The 1999 through 2003 Legislatures, in an effort to make abatement a more viable economic development <br />tool, has further expanded the scope of abatement authority. <br />The nuts and bolts of the abatement program are as follows: <br />❑ The abatement is a tax rebate rather than an exemption from paying taxes. <br />❑ The taxpayer pays taxes on the abated property in the same manner it would if the taxes were not being <br />abated. The county pays the abatement to the general fund of the political subdivision without <br />identifying the amount of the abatement. <br />❑ The 1999 Legislature expanded the meaning of the term abatement to encompass agreements to defer <br />property taxes without interest or penalties. The city, town, county or school district can levy taxes <br />as usual, defer payments for up to ten years, impose a set repayment schedule, and abate the penalties <br />and interest. <br />❑ Towns may take action on tax abatement at any meeting, not only at their annual meeting. The 1999 <br />Legislature gave the town board the power to approve the abatement resolution at other times, but <br />unfortunately, the new legislation did not change the definition of "governing body ". The 2001 <br />Legislature corrects the definition of governing body to authorize town boards (rather than the annual <br />meeting) to approve abatement, and is retroactive to the date of the 1999 change (May 26, 1999). <br />❑ As of May 26, 1999, a school district may abate its entire tax capacity based levy (previously could <br />only abate 60% to 75 %). A school district may not abate market value based levies. School boards, <br />also as of May 26, 1999, may now grant abatements for the entire term of the abatement (previously <br />they could only approve the abatement one year at a time). School districts may levy an additional <br />property tax to pay for their abatements. The school district will not lose net revenue by using the <br />program. <br />❑ The maximum term of the abatement is ten years if the city (or town), county, and school all <br />participate. If one or more entities decline, the maximum term is 15 for all participating entities, not <br />just the requesting unit of government, under legislation passed in 2001. The 2002 Legislature <br />extended the duration limit for a period of up to 20 years if the abatement is for a "qualified business ". <br />❑ The 2003 Legislature doubled the maximum that an entity can abate to the greater of $200,000 per year <br />or 10% of the entity's levy. <br />❑ Taxes payable from the market value of a new or existing building, and, as of May 26, 1999, the value <br />of land and any fiscal disparities contributions (for metro and taconite credit areas only) may be <br />abated. The maximum annual abatement equals the political subdivision's local tax rate multiplied <br />by the net tax capacity of the parcel. <br />EHLERS & ASSOCIATES, INC. 3060 Centre Pointe Drive, Roseville, Minnesota 55113 651.697.8500 <br />