PIONEER VIEWPOINTS: Take off automatic inflator for business taxes
Fair and balanced.
No, this is not an editorial about a cable television network, which is itself making the news this week. Rather, we are talking about taxes. Specifically, property taxes and those paid by Minnesota businesses.
In a recent visit to the Pioneer, Jim Pumarlo, director of communications for the Minnesota Chamber of Commerce, outlined the chamber’s goals and priorities for this year’s legislative session, which is on Easter break.
One of the areas of concern for the chamber is the state property taxes levied on Minnesota businesses. These taxes are not to be confused with local property taxes -- businesses already pay local school, city and county taxes, just like homeowners. These are the extra property taxes collected by the state, an initiative that started in 2002. All businesses, big and small, pay these added state property taxes, to the tune of 30 percent of their total tax bill.
According to the Chamber and the United for Jobs Coalition in Minnesota, the state’s business property taxes are No. 2 in the nation for rural commercial properties, No. 7 for metro properties.
Here’s some other stats they provided that highlight how businesses in Minnesota are paying the double-whammy:
- Businesses have 12 percent of the total property market value but pay 30 percent of the total property tax.
- Businesses have an effective tax rate of 2.62 percent, which is the highest among property types. For example, homes are 1.08 percent and farms are 1.0 percent for $200,000 property.
- Businesses have the highest class rate of 2.0 percent.
To boot, Minnesota is the only state that singles out business properties for this extra tax and only 10 states assess a statewide tax against all properties. This puts Minnesota at a distinct disadvantage when compared to neighboring states. In fact, the Chamber says taxes here exceed some of our neighboring states by as much as 200 percent. Taxes play a critical factor, if not the tipping-point factor, to whether a business would move to Minnesota, or expand here. We’ve all heard anecdotal stories of businesses moving to a Wisconsin, Iowa or the Dakotas because of the taxes, or Minnesota-grown businesses expanding their operations in bordering states. That’s bad for all of us, as small business is the backbone of the state’s economy.
All this impacts all businesses in and around Bemidji, including to the resort community, which pays the extra property taxes on their cabins. And remember, this is not simply about businesses skating by without paying taxes. Businesses still will carry the biggest local property tax burden, and they will still pay 60 percent more than homeowners for local property taxes.
When the levy started in 2002, the state collected $585 million. In 2016, that grew to $863 million. That’s mainly due to the automatic inflator built into the levy when it was enacted -- controlled by an inflation index, it still increases by about $40 million each year.
While the state Chamber ultimately would like to see the state property tax on businesses phased out over time, dropping the automatic inflator can be achieved right away. There’s legislation on the table that would do just that. This seems like a smart move for legislators to keep Minnesota’s economy on a fair and balanced plain to sustainable growth.