Awaiting assessment, seeking property tax relief

If you own a commercial building in Minnesota, a decline in property value is good news only once a year: Assessment time.

Over the next several weeks, assessors will be setting the value of commercial properties across the state. The number they tabulate is a big deal: It determines how much landlords will pay in state, county, city, school and other kinds of property taxes (for things like mosquito control or transit projects). But slumping property values won’t soon provide tax relief to property owners. Taxes are set on valuations from almost two years ago, meaning decline in commercial property values won’t show up in taxes until late 2010 or 2011. (Here’s a good primer on property taxes).

Shawn Fagan would welcome the relief. He and his wife run a photography business from a historic building in downtown Rochester. From his building he sees numerous vacant storefronts. But you wouldn’t guess it from his property tax bill. In late 2008, the county informed Fagan that they were going to hike his property taxes by 71 percent–from roughly $6,000 a year to more than $10,000 a year. The increase has been phased in, and Fagan has taken it stride, but it’s a burden at a time when business is slow.

Fagan’s hefty property tax hike is an outlier. Experiences from business to business and location to location can vary widely according to the building’s value, whether improvements have been made, etc. The state Department of Revenue estimates that property taxes statewide will be rising a modest 4 percent this year on average–despite sagging property values. One explanation is the continued shift in property tax burdens–residential property values have fallen faster than commercial property values.

And when you factor in increasing vacancy rates, declining property values and a moribund business climate, even a small increase in commercial property taxes will create marginally more stress for business owners.

A property tax hike, small or large, can be a shock to a small business working on thin margins. Public Insight Network source David Daubert runs Papa’s Shoe Repair in Waconia. He recently found out his commercial property taxes would be going up by more than 20 percent next year. “I had two emotions when seeing the bottom line,” he wrote in an editorial for the Waconia Patriot newspaper. “The first was shock at the over 21 percent increase in the property tax. The second emotion was panic. As a small business owner, my concern now is: How in the world am I going to afford to pay the increase?”

The only solution Daubert could think of was posting a note on his door saying all prices will go up 20 percent. He hasn’t done it, but he’s left with a nagging question: “Is the small business owner the entity which is going to shoulder the burden of the county and city finances because we are too small to speak out?”

Daubert and other commercial property owners can contest property valuation with a local board of review, the county board of equalization or by going to tax court. It seems that more property owners are choosing to contest their valuation. Minnesota Department of Revenue Property Tax Analyst Eric Willette says he’s receiving anecdotal reports from around the state that valuation challenges are rising fast–in some places, even doubling.

  • John O.

    Bureaucrats and politicians alike know full well that brick and mortar do not vote.

    Reduced local government aids in Minnesota from the state, coupled with stressed out local budgets has created a minefield for many local governments. Property values of homesteads have also declined, thereby reducing local revenues even further.

    Recognizing this, one way of shoring up tax revenues is to increase the valuation on commercial properties and, therefore, the amount of property taxes collected.

    The current local government finance structure and the methods used for funding public schools in Minnesota is–at best–damaged or is outright broken. Local governments and school districts need to begin to realize that they are going to have to get used to the idea of leaner budgets for the foreseeable future.

  • Darrell S.

    Taxes are based on the assessor’s professional opinion of your building and land, and includes recent sales of like kind property. That sale may be vastly distorted. You should challenge everything the assessor has on his worksheet, and be sure to get on the agenda for the next local “Board of Review”. Don’t whine, just present the facts to the board. They are elected officials, and their job is to review what the assessor does. They can adjust the valuation on your property if you convince them it is incorrect.

    One other little tidbit…… in all of MN’s 87 counties, take a look at your county “Social Services” budget. That is a big part of the problem. Too many people riding in the wagon ? Our government is spending too much and does not stay in a budget. Look at the Governor’s suggestion of “not spending more than was taken in the previous session”.

    Taxes are killing MN’s business climate, and the business starts to look for another state or foreign country to re-locate to. There go the jobs along with it. Don’t our elected leaders see that ?