By Marlowe Hamerston, chair
MnSF tax committee

Economist, author and tax expert, Edwin Seligman characterized the property tax as: “The worst tax in the civilized world” an opinion published in 1895. The shortcomings of this tax have been known for too long and bringing fairness to property taxation must be at the top of the agenda for the 2008 legislation session.

If further proof is needed to show that Minnesota’s property tax system is broken, the Minnesota Department of Revenue provided it with their study of 70,013 residential property sales in 2006. The study looked at the “sales ratio” of each of these transactions. The “sales ratio” is obtained by dividing the assessor’s market value estimate by what the property actually sold for. For example, if the assessor’s market value on a home was $70,000 and it sold for $100,000 the sales ratio would be 0.70. If the assessor placed the market value at $150,000 and it sold for $100,000 the sales ratio would be 1.50.

The study allowed any sales ratio between 0.90 and 1.05 - a 15-point range - to be considered accurate. Yet the study found that statewide 51 percent of the sales ratios were outside the acceptable range of accuracy. The assessor’s estimate was in error over half the time.

Minnesota’s property tax law is based on the principle that the assessor will produce a true and accurate estimate of a property’s market value, which would translate to a fair and equitable property tax. If the assessor’s market value estimate is not accurate, the premise upon which our whole property tax system is based collapses.

The DOR’s research shows that assessors are no more accurate than pure chance. Minnesota deserves a better system of funding schools and local government than one whose accuracy is no better than the flip of a coin.

No Minnesota statute sets a 15-point range of acceptable error. MN Statute 273.17, subdivision 1, states: “... all property shall be valued at its market value.” The DOR and any thinking person know that carrying out this statement is an impossibility. (We have a property tax system that is impossible to implement.) The 15 percent window of error comes from the International Association of Assessing Officers (IAAO) - an organization of assessors. The acceptance by the DOR of this sized window of error makes the assessor’s inability to determine a Minnesotan’s market value no greater than chance. Using the IAAO’s criteria for acceptable error is a little bit like the fox setting the rules for guarding the hen house.

Even if an acceptable range is reduced to between 0.95 and 1.05 - a 10-point window of acceptable error - accuracy in estimating market value becomes only 27 percent. When faced with an acceptable window of error of 10 percent, Minnesota assessors then have a record of missing an accurate market value 73 percent of the time. How many of us would choose a surgeon whose record in performing an operation was 27 percent successful and their professional competence failed 73 percent of the time? Why continue a taxation system that exhibits such a horrendous failure rate in determining how much of a person’s income is to be taken by the property tax?

The taxes resulting from the inaccurate estimate of market value rests more heavily on lower income Minnesotans. The solution is to establish a limit to the percentage of a property owner’s income that can be taken by the property tax. This would bring the property tax in line with the income tax, the sales tax, the gas tax and the cigarette tax - all of which have limits. A limit to the property tax must be established in the 2008 legislative session in order to make the property tax fair, equitable and the funding of local government and schools related to a Minnesotan’s ability to pay.