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Property Tax Principles and Indicators . Eric Willette Minnesota Department of Revenue Presentation to House Property Tax Division February 9, 2011. Introduction to the Property Tax System. Property is taxed according to value Predictable for government May not reflect ability to pay.

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Property tax principles and indicators

Property Tax Principles and Indicators

Eric Willette

Minnesota Department of Revenue

Presentation to House Property Tax Division

February 9, 2011


Introduction to the Property Tax System

  • Property is taxed according to value

  • Predictable for government

  • May not reflect ability to pay


A brief history of the property tax

  • 1849: 1st Territorial Legislature enacts property tax

  • 1913: Classification of property

  • 1968-1972: ‘Minnesota Miracle’

  • 2001: ‘Big Plan’


Administering and monitoring the system

  • Administered by 87 counties

    • 3,300 individual taxing jurisdictions

    • 2.5 million property parcels

    • Total market value of taxable property is $580 billion

    • Over $8 billion in tax revenue

  • Department of Revenue Oversight

    • Equalization of local assessments

    • Monitoring compliance

    • Licensing, education and training

    • Research


Property Tax Inventory Map

For Governments:

Property Tax Levy ÷ Tax Base = Tax Rate

Tax Rates are impacted by:

Disparity Reduction Aid

Special service areas

Levies are impacted by:

Number and scope of taxing authorities

Service demands/mandates

Property Tax Aids and other Revenues

State-imposed levy limitations

Tax Bases are impacted by:

Exemptions

Exclusions

Special valuations/deferments

Tax base definitions/ classification

Parcel Tax Bills are impacted by:

Credits

Senior Deferral Program

Refunds

For Taxpayers:

  • Parcel Tax Base x Tax Rate = Parcel Tax Bill


Property Tax Preferences:

Estimated Market Value to Net Tax


Tax principles
Tax Principles

  • Simplicity

  • Efficiency

  • Equity

  • Stability

  • Competitiveness

  • Responsiveness


Transparency, Understandability,

Simplicity & Accountability

Taxpayers should understand how their tax is determined, which governmental unit is responsible for the tax and what services are funded by the tax.

  • Is the system clear for taxpayers?

  • for public officials?

  • for administrators?

  • Are decision makers identified?


Efficiency & Compliance

The tax should maximize voluntary compliance, minimize economic distortions caused by tax-motivated behavior, minimize compliance and administrative costs.

  • What are state and/or local administrative costs?

  • What are taxpayer compliance costs?

  • Can administrators easily make determinations?


Equity

The tax should minimize regressivity (vertical equity). The system should treat similar properties similarly (horizontal equity).

  • Do tax burdens decrease or increase as income rises?

  • Are similar properties or taxpayers taxed similarly?


Stability & Predictability

The tax should provide stable revenues over the economic cycle. Significant unexpected changes in tax laws, tax bills to taxpayers and revenues to governments should be minimized.

  • Is system stable / predictable for taxpayers?

  • For public officials?

  • For administrators?


Competitiveness for Businesses

The system should minimize any competitive disadvantage of the state relative to other states and nations.

  • Does tax harm ability of Minnesota businesses to compete?

  • Consider services funded by the tax as well.


Responsiveness to Economic Conditions

Tax should change with changes in value. Lags in system between a market change and a corresponding tax change should be minimized.

  • Does tax change with value in a timely way?

  • Are data for aid, credit and refund formulas current?




Price of Government Report

Source: Minnesota Department of Revenue and

Price of Government, End of Session 2010


Price of government report
Price of Government Report

Minnesota Price of Government

____________

State and Local Revenues as a % of Personal Income


Property Tax Levies

Source: Minnesota Department of Revenue





Homestead Property Tax Burden Report

Regional Median Tax Burdens


Determinants of property taxes
Determinants of Property Taxes

Parcel share of tax base and total local levies

These are affected by:

  • Level of public services

  • Intergovernmental aid and other non-property tax resources

  • Tax base composition and property tax classification system

  • Property tax refunds, credits, exclusions



Other Indicators

  • Tax Incidence Study

  • Tax Expenditure Budget

  • Assessment sales ratio study

  • Local impact notes




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