Minnesota House Tax Bill Includes Inflator 2.0, Adding to Business Property Tax Bills Statewide

April 9, 2019

House Democrats recently released their tax bill, which includes a provision that will burden thousands of businesses across Minnesota. The House tax bill will not reinstate the automatic inflator on the statewide business property tax, but instead “freeze” the rate at which businesses will be taxed. This is effectively Inflator 2.0.

Fixing the rate has the same impact as the automatic inflator. Anytime business property values increase, taxes will go up. In fact, some years they may increase even more than the rate of inflation, depending on valuations from local assessors. The provision is expected to increase property taxes by $55 million in the next year and $100 million in the following year.

This proposal doubles down on efforts to tax business property differently than other types of property in Minnesota. Here is how it works:

  • First, business property is already assessed at a higher rate than other types of property in Minnesota.
  • On top of a higher rate, commercial and industrial properties pay an additional statewide business property tax that is not placed on homes or agricultural property.
  • Finally, by using a fixed rate, the House is proposing that state property tax payments would increase for business any time local assessors increase the value of business property. Local property taxes do not automatically increase if the market value of property increases, but the state property tax would.

The commercial property tax in Minnesota is already 29 percent higher than the regional average, according to the Minnesota Center for Fiscal Excellence. Fixing the tax rate on business property would worsen the tax burden of commercial properties and make Minnesota less competitive.

In Minnesota, the business owners that lease space in commercial and industrial buildings pay the property tax, not the building owners. Paying this tax makes it hard to reinvest back into small business, hire additional employees, and keep cost of goods/services low. Often, the consumer sees a price increase due to business owners facing a high tax burden.

NAIOP Minnesota and other business organizations were successful at eliminating the automatic inflator for the statewide business tax in 2017. Ensuring that the automatic inflator doesn’t return and that the Legislature is not successful at fixing the tax rate are high priorities for us and our members. Senate leadership and many Tax Committee members have been strongly committed to ensuring the business tax inflator does not come back under their watch. We are continuing to work with the governor and both bodies of the legislature to educate them on the impact of any automatic inflator.

After all, commercial development shapes where we work, live and play. Our industry is a critical economic driver that already produces high levels of tax support for the state. If we continue to increase commercial property taxes, we will see a negative impact on development, employment and overall economic growth.

Your voice will make a difference at the State Capitol. Please share your concerns about the placing business taxes on auto-pilot with your elected officials, including your legislators. You can find your legislators using the legislature’s “Who Represents Me?” tool.