By Bob Klemenhagen
MnSF tax committee member

We continue to hear long-time legislators talk about the value of Minnesota’s three-legged-stool tax system (i.e., income tax, sales tax and property tax) and that, if one leg of this stool is changed or removed, negative implications will result for Minnesota. They indicate that the property tax is the only tax that provides stability to government. These same legislators do not explain that, while stability is provided to government, it is not provided to taxpayers. In fact, for property taxpayers, the property tax is the most unstable tax, when compared to all other taxes paid.

More important, it is useful to know why the property tax provides a stable funding source for government. Stability is not provided by assessing property tax based on the property’s market value; rather stability is afforded by the floating property tax rate. Let me explain. All other forms of taxes (i.e., income, sales, excise, estate, etc.) are assessed at fixed or established rate schedules, provided by law. They do not change unless the law is changed. For example, a taxpayer earning a certain income or making taxable purchases knows, at that time, the amount of taxes due. In such cases, the taxpayer has an element of control over taxes due (.i.e., income earned or purchase amount, as applicable).

In contrast, for property tax, the taxpayer has no control over the basis of assessment (property market value) or the tax rate. Most important, the tax rate floats (changes) each year since the aggregate market value of property in a tax jurisdiction changes. (In simplistic terms, the tax rate equals the tax jurisdiction’s tax levy (budget) divided by the aggregate property market value within the tax jurisdiction.) To illustrate further, when the property’s market value declines (as it has in recent times), given the same tax levy, the tax rate increases so that the tax jurisdiction can collect the full amount of the tax levy even though market values within the tax jurisdiction have declined.

No wonder homeowners are continuing to struggle with ever-increasing property taxes at a time when their home’s market value, not to speak of their incomes, are declining. If we are to allow the current property tax system to continue, a homeowner crisis, similar to the current mortgage crisis, will surely occur. In a period of financial crisis for our state, surely no one wants this to happen since the implications would be disastrous.

Why not reform the property tax system to avoid this eventuality? Change the property tax assessment basis from the home’s estimated market value to the homeowner’s income. This change provides not only fairness and uniformity, but also gives homeowners an element of control over their property taxes (i.e., homeowner income). At the same time, this change continues to provide the stability of funding our legislators want so much. The government funding stability results from continuation of the floating tax rate, as under the current property tax system; the difference being that the divider in the tax rate formula is homeowner income versus home market value. A further benefit of this change is a significant reduction in the cost of property tax administration by eliminating the need for market value assessment as well as current property tax aid, credit and refund programs.

Now is the time for action. Are we up to the challenge or do we continue to fear change and find comfort in the status quo or tinkering therewith? Ask your legislator where they stand! Then you will know whether or not your legislators are really working for you.