Limited Market Value Report 1999 Assessment Year Taxes Payable 2000 Minnesota Department of Revenue Tax Research Division February 1, 2000 Mandate Information This report on limited market value is mandated by Laws of Minnesota for 1993, Chapter 375, Article 5, Section 42. In response to Minnesota Statutes, Section 3.197, the total cost of this report is $2,500. Executive Summary This report presents information on the limited market value of farm, residential and seasonal recreational residential property for assessment year 1999, taxes payable 2000, as mandated by Laws of Minnesota for 1993, Chapter 375, Article 5, Section 42. · The total market value limitation for taxes payable 2000 is $5,621,821,611. This compares to $3,389,506,961 in taxes payable 1999, $2,529,034,086 in taxes payable 1998, $2,045,660,418 in taxes payable 1997, $1,615,639,650 in taxes payable 1996, and $1,047,762,545 in payable 1995. Note that much of the increase from 1999 is due to changes in the program enacted by the 1999 legislature. · The payable 2000 limitation is 2.3 percent of total statewide market value. Introduction In 1993, the legislature established a limitation on annual increases in the market values of farm, residential and seasonal recreational residential property, effective for taxes payable 1994. The 1993 legislation authorized the limitation to the 1998 assessment year, but in 1994 the legislature set the 1997 assessment year (taxes payable 1998) as the final year. The 1997 legislature extended the limitation to assessment year 2001. The 1997 legislature also changed the one-third factor to one- fourth in the alternative method of calculating the limitation. The 1999 legislature changed the 10% limit to 8.5%, and lowered the one-fourth factor to 15%. In response to the mandate in Laws of Minnesota for 1993, Chapter 375, Article 5, Section 42 this is the seventh annual report on the total value excluded from taxation by the limitation law for each property type in each city or township. This report provides in Appendix A the mandated table for taxes payable in 2000 of excluded value by property type for each city or township. The report also summarizes the effects of the limit at the statewide and regional levels, including the change in percentage distribution of the market values of all property types subject to the limit. Cities or townships with the largest percentage reductions under the limit are shown in rank order. The sources of information for the summary are the 1999 fall mini-abstract of assessment and the 1999 final abstract of assessment (reporting taxable market values after the limitation reduction and other property value exclusions). Each county assessor submitted these abstracts to the Department of Revenue. The limitation amounts by type of property were obtained from new data listed on the mini- abstract. No interpolation was necessary this year. How Does the Limit Actually Work? The limitation provision in Section 273.11, Subd. 1a excludes from taxation any annual increase in the market value of favored property that exceeds the larger of 8.5 percent of the prior year’s taxable market value or 15% of the difference between the current estimated market value and the prior year’s taxable market value. The term “taxable market value” for pay 2000 means the estimated full market value after reductions for the “green acres” exclusion in Section 273.111, the exclusion of value for improvements to homes under the “This Old House” legislation in Section 273.11, Subd. 16, the exclusion of value for the “open space” law in section 273.112, and the pay 2000 limited market value exclusion. The “estimated market value” for pay 2000 is the value prior to these reductions, but excludes the value of new improvements. As Figure 1 shows, the “maximum market value” is first determined by increasing the previous year’s taxable market value by 8.5 percent or by taking 15% of the increase in value. The “limited market value” then is the greater of the two maximum market values. For cases where the market value increases between 8.5 and 57 percent, the “8.5 percent” maximum is greater, as in example B. When increases exceed 57 percent, the “15% of the increase” maximum is larger, as in example C. The limit applies to farm, residential and seasonal recreational residential (non-commercial) properties for assessment years 1993 to 2001 (taxes payable 1994 to 2002). All rental housing with three or fewer units is included. This includes a small amount of low income housing which 1 Figure 1 Limited Market Value Determination Examples Examples A B C Estimated Market Value Comparison 1) 1999 Taxes Taxable Market Value $ 100,000 $ 100,000 $ 100,000 2) 2000 Taxes Estimated Market Value * $ 105,000 $ 112,000 $ 175,000 3) Market Value Increase (2-1) $ 5,000 $ 12,000 $ 75,000 Percentage Increase 5.0% 12.0% 75.0% Maximum Market Value Determination 4) 108.5% of 1999 Taxes Taxable Market Value (1 x 108.5%) $ 108,500 $ 108,500 $ 108,500 5) 1999 Taxes Taxable Market Value Plus 15% of Estimated Market Value Increase [(1 + (3 x 15%)] $ 100,750 $ 101,800 $ 111,250 6) 2000 Taxes Maximum Market Value (Greater of 4 or 5) $ 108,500 $ 108,500 $ 111,250 Limited Market Value Determination 7) 2000 Taxes Limited Market Value (Lesser of 2 or 6) $ 105,000 $ 108,500 $ 111,250 Percentage Increase 5.0% 8.5% 11.3% Example A: Limitation does not apply. Example B: 8.5 percent limitation applies. Example C: 15 percent limitation applies. * Excluding the value of new improvements for pay 2000. 2 is usually listed in the abstracts as apartment property. New ownership of a previously limited parcel does not change the market value limitation. New improvements, whether to land or structures, are excluded from the limit calculation in the year in which the new improvements become taxable, but thereafter become part of the estimated market value used in determining the market value limitation in subsequent years. Limitation does not continue to apply when a property class changes from a favored class to a non-favored class. 1 Also note that the exclusions in law for platted vacant land, green acres and “This Old House” take precedence over the limited market value law and are calculated without taking into account the limitation reduction.2 Statewide and Regional Limitation Amounts by Property Class for Payable 2000 The total limitation reduction statewide for taxes payable 2000 is $5,621,821,611. As Table 1 shows, the percentage reduction in the value of favored classes at statewide and regional levels is increasingly significant. In percentage terms, the limit reduced the value of seasonal recreational residential property most (10.81 percent statewide) and residential homestead property least (1.96 percent statewide). Regionally, the limit reduced the market value of favored classes more in Greater Minnesota (4.01 percent) than in the metro area (1.73 percent). Most of the limitation in dollar terms occurs in the Greater Minnesota region, and the limit affects residential homestead property more than other property classes. Market values in the Greater Minnesota region were cut by over $3.7 billion (66 percent of the statewide reduction). The reduction to residential homestead property statewide was almost $2.8 billion, and approximately $1.4 billion of this reduction is in the Greater Minnesota region. Table 2 provides a percentage distribution of the total limitation by region and property type. Looking at shares of the total limitation reduction in each major region, residential homestead reductions predominate. Residential homestead reductions account for 74.3 percent of the total reductions in the metro area and 36.4 percent in the Greater Minnesota region. Statewide Changes in Distribution of Market Values Among Property Classes As Table 3 shows, the statewide distribution of taxable market value changed for taxes payable in 2000 to favor most limited classes of property, but in percentage terms the changes are relatively small. The limit reduced the shares of total market value most for seasonal recreational residential property, from 3.11 percent to 2.84 percent of total market value. The shares for farm and residential non-homestead property also declined, while shares for apartment, commercial, industrial and public utility property increased. 1 Memo from Michael P. Wandmacher to all county assessors, June 23, 1993, pp. 3-4. 2 Minnesota Department of Revenue, “Supplement to the Instructions for Limits on Increases to Estimated Market Value,” 1994. 3 Changes from Pay 1999 to 2000 As noted above, the total limitation reduction increased statewide from $3.389 billion for taxes payable 1999 to $5.622 billion for payable 2000, an annual growth of $2.23 billion or 66 percent. As Table 4 shows, the percentage increase in the exclusion was more rapid in the metro area. The metro area exclusion increased by 116.8 percent, compared to a 48.0 percent increase in Greater Minnesota. In dollar terms, the exclusion increased by $1.206 billion in Greater Minnesota, and by $1.027 billion in the metro area. Much of this year’s increase is not due to local market conditions, but rather the lowering of the thresholds by the 1999 legislature. Pay 2000 Limitation Reductions at the City and Township Level The greatest degree of market value limitation at the city and township level occurred in sparsely populated areas of the state. Table 5 ranks cities and townships by the percentage of market value limitation for favored classes. As the table shows, the greatest degree of limitation occurred in northern and north central Minnesota, although a few southern cities and towns also rank highly.