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LEAGUE OF MINNESOTA CITIES CONNECfING & INNOVATING SINCE 1913 Property Taxation 101 This guide is intended to describe the basics of Minnesota's property tax system. This system collected more than $6.8 billion in 2008 to help fund the services of schools, counties, cities, townships, and special districts and the state general fund. One of the challenges of trying to understand this system is the complex array of terms involved. As new terms are introduced in this guide, they are shown in italics. A glossary at the end of the guide has short definitions of these terms. Assessment and classification The property tax system is a continuous cycle, but it effectively begins with the estimation of property market values by local assessors. Assessors attempt to determine the approximate selling price of each parcel of property based on the current market conditions. Along with the market value determination, a property class is ascribed to each parcel of property based on the use of the property. For example, property that is owner-occupied as a personal residence is Glassified as a residential homestead. The "use class" is important because the Minnesota system, in effect, assigns a weight to each class of property. Generally, properties that are associated with income production (e.g. commercial and industrial properties) have a higher classification weight than other properties. The property classification system defines the tax capacity of each parcel as a percentage of each parcel's market value. For example, a $75,000 home which is classified as a residential homestead has a class rate of 1.0 percent and therefore has a tax capacity of$75,000 x .01 or $750. (A sample of the class rates are included in table A.) 145 UNIVBllSITY AVE. WEST ST. PAUL. MN 55103-2044 [parcel market value] * [class rate] == [parcel tax capacity] The next step in calculating the tax burden for a parcel involves the determination of each local unit of government's property tax levy. The city, county, school district and any special property taxing authorities must establish their levy by December 28 of the year preceding the year in which the levy will be paid by taxpayers. The property tax levy is set after the consideration of all other revenues including state aids such as LGA. [city budget] - [all non-property tax revenues] == [ city levy] For cities within the seven-county Twin Cities metropolitan and on the iron range, the levies are reduced by an amount of property tax revenue derived from the metropolitan and range areafiscal disparities programs (see Fiscal Disparities 101 for more information). PHONE; (651) 281-1200 PAX: (651) 281-1299 TOU. PI.U: (BOO) 925-1122 WEB: WWW,IMC.ORG