NAIOP MN Public Policy Report: Minnesota’s Tax on Commercial/Industrial Properties is an Egregious Outlier for Minnesota Business

THE RESEARCH

NAIOP Minnesota contracted with the Minnesota Center for Fiscal Excellence (MCFE) to create a new public policy report  to better understand our state’s real estate tax competitiveness. This multi-phased project compared the Minnesota State General Levy (a statewide tax on commercial/industrial and cabin properties) with other states that impose property taxes at the state level. NAIOP is sharing this report to increase awareness of the competitive disadvantage the Minnesota General Levy creates for commercial-industrial properties and Minnesota businesses.

THE FINDINGS

• 16 States Impose a Statewide Real Property Tax
• Minnesota and Alaska are the Only Two State Governments that Limit State Taxation of Real Property* to Specific Property Types
• Minnesota is One of Only Four States that Tax Real Property for General Fund Appropriations.

*Real Property = fixed property, principally land and buildings. Taxation of real property in some states may or may not include some taxation of personal property associated with the parcel like inventory, machinery, and fixtures.

THE CONCLUSION

According to MCFE’s findings in NAIOP’s new report , Minnesota’s state general levy is unique in the nation, with its restricted tax base targeting commercial/industrial property, levy-driven structure, and general-purpose use of resulting revenues.

NAIOP’s view is that this is a competitive disadvantage for Minnesota business.

REAL PROPERTY TAXATION BY STATE GOVERNMENTS

OF THESE 16 STATES, MINNESOTA IS AN EGREGIOUS OUTLIER IN MULTIPLE WAYS:

1. It is the only state to tax specific real property types rather than all real property types.
2. The effective tax rate on commercial property is almost 3X greater than the next closest state.
3. The funds are not to a dedicated purpose and instead go into the State’s General Fund.
4. Even with eliminating the State General Levy, Minnesota’s effective tax rate on commercial property is above the national average.

COMPARED TO 14 OTHER STATES THAT HAVE A STATE-IMPOSED TAX ON REAL PROPERTY…

EXAMPLES OF THE REAL IMPACT TO MINNESOTA BUSINESSES FROM THE STATE GENERAL LEVY

By Removing the State General Levy:

• Minnesota commercial taxes would become $11,974 instead of $15,670, for an effective tax rate of 2.00%.
• Minnesota would still be higher than the U.S. average effective tax rate of 1.9% for this size property, but Minnesota business would become much more competitive to other states.

View and Download NAIOP’s Full Public Policy Report here