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Wisconsin Wit

Wednesday, July 14, 2010

Questions for Mr. Connors:

(Ed.note: I recently posed these questions to Mr. Bill Connors, former Evansville City Administrator)

Bill: In a generalized decline of valuation of a community real estate, is it so that because within the group all is still relative no further change is needed since relatively the tax remains the same?

Why is Minnesota property tax so low? An Edina, Mn. property worth $325,000 pays a real estate tax of $3200 or what a home in Evansville would pay valued at #125,000. How can this be so?

Bill answered:

You are correct that if all the property in a city increases in value by the same percentage or decreases in value by the same percentage, it has no impact on the property taxes paid by any property. A change in value affects property taxes only if the change causes the property to make up a greater or lesser share of the total tax base. If a successful TIF district ends and a huge amount property value formerly captured by the TIF district becomes part of the general tax base, that would lower the property taxes on all property in the city (including the property that was in the TIF district), all things being equal, because all the properties in the city would make up smaller shares of the general tax base. However, the primary factor that produces increases (or decreases) in property taxes is the decisions by the taxing authorities regarding how much property tax revenue (i.e., property tax levy) they feel they need to collect.

The reason homestead property taxes are so much less in Minnesota than in Wisconsin is the property taxes are so much more on other kinds of property in Minnesota than in Wisconsin, and that is because of differences in the states’ constitutions. Wisconsin’s constitution prohibits governments from taxing different kinds of property at different rates, whereas Minnesota’s constitution contains no such prohibition. So non-homestead property in Minnesota pays property taxes at a rate two, three, or four times the rate applied to homestead property. This allows Minnesota local governments to collect the property tax revenue they feel they need without collecting much from homeowners—they obtain most of their property tax revenue from the owners of other kinds of property.

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