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The State of Minnesota has one of the most complicated property tax systems <br />in the nation. There are three factors that affect a property owner's property <br />tax: the estimated market value of the property, the classification of the property (how <br />the property is used), and the total local tax rate. <br /> <br />Market Value <br /> <br />The assessor's estimated market value is established by the county assessor on an annual basis with a <br />valuation as of January 2nd. The market value reflects only real property (land and buildings), with a <br />few exceptions including electrical utility personal property. Equipment value would not be taxed; <br />other states do levy a property tax on equipment. <br /> <br />Each year, the Minnesota Department of Revenue reviews the actual sales of various types of property <br />in the city or county and compares the sales to the assessor's estimated market value. This process is <br />known as a sales ratio study. If the assessor's market value is found to be higher than 105 percent of <br />the actual sales price or lower than 90 percent the actual sales price, the current year's assessment of <br />property may be unilaterally adjusted. <br /> <br />Individual property owners also retain the ability to contest their level of valuation through a Board of <br />Equalization process or other appeal processes. <br /> <br />Working with the local assessor to determine his/her opinion on the market value is always <br />recommended before proceeding with any type of financing for a tax increment project. <br /> <br />Class Rates to Taxes - The Minnesota Two-Step <br /> <br />Each property type (rental property, homestead, commercial, etc.) is subject to a conversion from <br />market value to tax capacity according to state statute. The conversion from market value to tax <br />capacity is based on the classification, or use of the property. Each type of property is assigned a class <br />rate, or percentage, as determined by the Legislature. Commercial, industrial and other business <br />property tend to have higher class rates than residential and agricultural property. See the attachment <br />showing the class rates for taxes payable 2001. <br /> <br />Tax Rates and Jurisdictions <br /> <br />The tax capacity is actually the taxable value of the property. This value is multiplied by the local tax <br />rate to determine the amount of property tax a piece of property pays. The local tax rate is a <br />combination of the city, county, school district and special taxing jurisdictions tax rates. This is the final <br />step to the calculation of taxes. The local tax rate is applied against the combined tax capacities of all <br />classes of property within their taxing jurisdictions to generate property taxes. <br /> <br />Local tax rates vary in Minnesota from 110% to 200%. Therefore, properties with the same market <br />values in neighboring cities could have property tax bills which vary by as much as to two times. The <br />local tax rates are often shown as decimals (1.3000) rather than percentages. <br /> <br />EHLERS & ASSOCIATES, INC. 3060 Centre Pointe Drive, Roseville, Minnesota 55113 651.697.8500 <br /> <br /> <br />