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City of Mounds View Staff Report <br /> September 26, 1997 <br /> Page 2 <br /> Large Business users • <br /> In the past, it was suggested that the franchise fee adversely impacted large energy users. <br /> Based upon an analysis of the three largest energy users in Mounds View, this did not <br /> appear to be the situation. For the three largest users, if property taxes were raised to <br /> offset the loss of the franchise fee, the increase in property taxes would be greater than <br /> what they presently pay in the franchise fee. Overall, shifting the franchise fee to <br /> property taxes'would increase their overall cost by 1%. <br /> Other users <br /> Churches, schools, municipal properties, etc. Currently, these properties do not pay <br /> any property taxes, however, they do pay the franchise fee. The school district pays <br /> approximately $2,300 per year in franchise fees. The City approximately$5,000 per year • <br /> of which$1,500 is from the general fund with the balance from utility and other funds. <br /> Apartment dwellers. They do not pay property taxes directly, however, in theory, the <br /> rent that they pay is adjusted for property taxes. They may also be eligible for renters <br /> property tax refund. Average annual franchise fee payment is approximately$6.40. <br /> Other issues <br /> Deductibility of payment. <br /> Businesses. Both property taxes and utility bills with franchise fees are <br /> deductible business expenses. <br /> Individuals. If an individual uses the standard deductions,there is no tax <br /> advantage to either the property tax or franchise fee. For individuals who itemize <br /> their deductions,the franchise fee is not an eligible deduction whereas property <br /> taxes are; the tax implication is approximately $15.00 ($41.68 franchise fee times <br /> 28% federal tax and 8% state tax). <br /> Fairness. There is no direct correlation between estimated market value of property and <br /> energy usage. Individuals and businesses have different needs and preferences which can <br /> impact energy usages. Therefore,there could be two very similar properties (similar <br /> construction, age, size, etc.) with similar occupants that have very different energy <br /> usages. Both properties could make arguments as to which was a fairer tax, property tax <br /> or franchise fees. Within property tax classes or utility classes, there will be winners and <br /> losers with the franchise fee, but overall, the amount of revenue generated by each class <br /> will be approximately the same amount with either the franchise fee or increased property <br /> taxes. <br /> • <br />