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2014 Homeowner Property Tax Relief is Widespread

April 07, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

In 2014, total statewide property taxes will decline for the first time in twelve years, with homeowners seeing the largest tax reductions. A new Minnesota 2020 analysis reveals that 2014 homestead property tax reductions are widespread, reaching into every region of the state. In all but one region, the typical homeowner will see a tax reduction between 9.3 and 19.3 percent.

The primary mechanism for providing this homeowner tax relief was the new homestead credit refund, which is a souped-up version of the homeowner property tax refund (a.k.a. “circuit breaker”). The homeowner refund has long been a preferred way of providing property tax relief, since it targets tax reductions to households with the least ability to pay as measured by household income. The 2013 tax act increased funding for the homeowner refund by $108 million beginning for property taxes paid in 2014—a 29 percent increase over the base funding level. This additional property tax relief was particularly directed to households in the middle of the income spectrum, ranging from $19,500 to $105,500 annual income.

By combining information from a recent non-partisan legislative simulation, homestead information compiled by the Minnesota Department of Revenue, and income data from the U.S. Census Bureau’s American Community Survey, Minnesota 2020 has calculated the homestead property tax reduction from 2013 to 2014 for an average homestead with the average household income in each of twelve Minnesota regions.* This analysis does not include property tax increases resulting from new construction.

Based on this analysis, the typical homestead property tax will decline from 2013 to 2014 in all twelve regions. In ten of these regions, the percentage decline will be double-digit. The largest percentage decline is in east central Minnesota, while the largest dollar decline is in the suburban metropolitan area (i.e., the seven-county metropolitan area excluding Minneapolis and Saint Paul), where the net property tax paid by the typical homeowner will fall by $481 from 2013 to 2014.

The smallest decline is found within the taconite relief area, where the tax on an average home with an average income declines by just 0.7 percent ($7). However, this outcome is not surprising, given that the homestead credit refund targets relief to homeowners that have high property taxes relative to their income. Homestead property taxes as a percent of income in the taconite area are tied for the lowest in the state based on the most recent Revenue Department “Residential Homestead Property Tax Burden” report; thus, the new homestead credit refund directs relatively little relief to the typical homeowner in this region.

The homestead credit refund amounts in this analysis were calculated based on the average household income within each region, assuming no dependents. The household income used to calculate the refund is reduced (and the amount of the refund increased) for each dependent residing in the household. If we calculate the property tax reduction from 2013 to 2014 within each region using the same approach described above—but assume two dependents per household instead of zero—the tax reduction would exceed ten percent in all twelve regions.

The new homestead credit refund is not the only reason why homeowner property taxes declined in 2014. Increases in state aid to Minnesota school districts, counties, cities, and townships helped recoup the steep real per capita aid losses that these local governments endured since 2002, allowing them to reduce or hold down increases in their 2014 levies, thereby providing tax relief to owners of all types of property, including homeowners. In addition, a statewide decline in aggregate homestead value, combined with a net value increase for other types of property, contributed to a shift of property taxes away from homesteads and on to other property categories.

However, the new homestead credit refund is probably the largest single reason for the decline in homeowner property taxes from 2013 to 2014. A non-partisan House Research Department simulation that did not include the effects of the homestead credit refund showed a statewide average homestead property tax reduction of $33. A subsequent House Research analysis—identical to the first except that it included the refund increase—revealed a statewide average homestead tax reduction of $114.‡ This over threefold increase in homestead property tax relief from 2013 to 2014 is exclusively the result of the homeowner property tax refund increase enacted in 2013, known now as the homestead credit refund.

The homestead credit refund and the other property tax relief measures in the 2013 tax act were successful in increasing funding for school districts and other local governments, allowing them to replace a portion of what was lost over the preceding decade and providing a statewide property tax reduction that is specifically targeted to Minnesota homeowners. When it comes to 2014 property tax relief, progressive state policymakers delivered.

 

*In calculating the average tax within each region for 2013 and 2014, the total residential homestead tax (from the House Research simulation) was divided by the number of homesteads (from the Revenue Department’s abstract of assessment) to determine the average tax prior to the property tax refund. The refund amount was calculated based on the average tax prior to the refund and the median household income for the region (from the American Community Survey). This refund amount is subtracted from the average tax before the refund to determine the net tax (i.e., the average tax after the refund).

‡In both cases, the average homestead property tax reduction from 2013 to 2014 ($33 before the refund and $114 after the refund) was calculated by dividing the aggregate statewide homestead property tax reduction (taken from the respective House Research simulations) by the number of homesteads statewide based on information from the Revenue Department’s abstract of assessment. In both cases, the average homestead property tax reduction cited excludes new construction.

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