Lawmakers over the weekend greenlighted a one-time tax reduction for Minnesota’s commercial and industrial properties, but the measure doesn’t carry a longer-term fix pushed by business advocates for years.
The House and Senate each approved a plan to exempt the first $100,000 in business complexes’ market value from state property taxes. That threshold was scaled down from $500,000 in an earlier House proposal, and is part of a comprehensive tax bill still needs approval from Gov. Mark Dayton.
Passed as the clock ran down on this year’s legislative session, the move would particularly benefit the owners of lower-value properties, including small business operators, though all businesses will see a reduction.
Supporters hailed the measure as a key first step in lightening the tax load on Minnesota businesses, but made clear they want more.
“We see this as being a good first step,” said Beth Strinden Kadoun, vice president for tax and fiscal policy at the Minnesota Chamber of Commerce, one of the most vocal proponents of the cuts. “But there’s more work to be done.”
The campaign for more sweeping business tax cuts deepened last year, when Republicans tried to leverage a $1.9 billion surplus to drive more sweeping changes to the property tax framework. That effort fizzled when legislators, at odds over a variety of issues, left that tax bill on the table.
Heading into this session, with a $900 million surplus, tax-cut proponents said they expected to pick up the talks where they left off in 2015. Rep. Greg Davids, R-Preston, who chairs the House Tax Committee, called the legislation his “don’t stop believin’” tax bill.
The plan hinged heavily on eliminating an automatic inflator — in effect since 2002 — that guarantees annual tax target increases.
Revenues from commercial and industrial property taxes cover about 95 percent of the state general tax target each year. That figure has jumped from about $580 million when the inflator was imposed to more than $800 million in recent years.
An initial House tax pitch unveiled over the weekend would have phased out the business property tax, and the inflator, over six years. But talks between chambers unwound that plan, stripping it back to a property tax cut plus a pared-down tax target for next year.
As part of the tax bill, lawmakers reduced the target for 2017, requiring commercial and industrial properties to pay $762.7 million next year. The legislation does not tackle the inflator, but Davids said Monday he would target that piece in the future.
“I didn’t have the numbers to do it [this session],” he said, comparing his ambitious $2.2 billion tax proposal from 2015 to this session’s $550 million framework. “It’s kind of an expensive item.”
Sen. Rod Skoe, DFL-Clearbrook, who chairs the Senate Tax Committee, did not immediately respond to a request for comment on Monday.
Critics of steep tax reductions say the state relies on cash flow from the business property taxes to keep up necessary programming. Further complicating the discussion, lawmakers this session opted to focus more heavily on curbing individual property taxes – a popular move in an election year.
But even as Minnesota picks up national accolades for its strong economy, business advocates say comparatively hefty taxes sting the state. Property taxes in particular are generally passed at least in part from landlords to commercial tenants, adding to the cost of setting up shop in Minnesota.
“It behooves policymakers to make sure that they’re looking toward the future and seeing how we can best position Minnesota for strong economic growth,” Kadoun said. “We think a competitive business climate is an important piece of that. We know more work needs to be done.”
The nonpartisan Tax Foundation, a Washington, D.C.-based research group, placed Minnesota near the bottom of its annual list of states with competitive business tax climates. For the second year in a row, the state clocked in at No. 47 overall — matching its ranking specifically for property taxes.
Quinn Cheney, director of public policy for commercial real estate trade group NAIOP Minnesota, said tax relief for businesses will help prop up the state’s economy.
“What we want to do is make it so when developers or new businesses are looking at Minnesota, that they don’t dismiss us out of hand because they see we’re on this list for [states with] high property taxes,” she said.
Dayton is expected to decide in coming days whether he’ll sign the legislation, set to take effect for taxes payable in 2017.