State Board of Equalization (SBE) and Sales Ratio Study Process of Commercial Property Valuations

Timeframe: Why a 12-Month Study?
The SBE utilizes a 12-month sales ratio study in reviewing the level of assessment of properties in each county. This means sales that occurred between October 1 and September 30 are considered as one study period. For the 2009 SBEs that are coming up, the Minnesota Department of Revenue will review sales that occurred between October 1, 2007 and September 30, 2008. This study period is required by law (MS 270.12, subdivision 2).

The value of utilizing a 12-month study is that it allows for a reasonable sample size without including sales that happened so long ago that they no longer reflect the market for the jurisdiction. It is also a consistent standard that can be applied throughout the state. It should be noted that not all sales are included; they are to be verified by the county to be sure they are valid sales and were representative of open-market, arm’s-length transactions. The department also reviews and verifies sales before they are included.

Sample Size: Six Property Sales
The Department of Revenue’s policy requires six sales per property type per jurisdiction to constitute a valid sample. This determination is provided by state law (MS 270.12, subdivision 2) and is consistent with the standards established by the International Association of Assessing Officers (IAAO). In fact, the IAAO has recently stated as few as five sales can constitute a valid sample.

The six sale minimum provides a sound statistical base that the SBE has deemed to provide reliable information, but it is also cognizant of the fact that many parts of the state struggle to reach the six sale minimum. If this minimum was increased, even fewer counties/jurisdictions would be able meet the minimum requirements. It should also be noted that the six sale minimum is a factor, but it is not a bright line test. The SBE does take into account previous year actions by the county, results of previous assessments, and looks at the larger picture before ordering any changes. The SBE’s goal is equalization, so it considers any and all information to ensure this; the six sale minimum is just a starting point.

Formula for Taxes: Four Components
There is a common misunderstanding that increases in value cause increases in tax. Valuation is only one of the four main components that affect the taxes a property pays. The other three components:

• The classification of the property affects the tax liability. Commercial property, for example, has a higher classification rate, so it pays more of the tax liability.
  
• The percentage of value of each property compared to all other properties determines part of its tax liability as well. If one property type is going up in value while all others are going down, the increased properties are going to shoulder more of the total tax liability.
  
• The fourth component is the local tax levy rate. If the school, city, or county (for example) requires more revenue to provide services, each property’s tax liability will likely increase to provide this revenue.

The State Board of Equalization works diligently to treat all property types and jurisdictions fairly, using all information available to it to make sound decisions that are statistically-supported and representative of market. It works to equalize values so all properties are valued as close to their market values as possible so they all pay their fair share of taxes.

If you have any additional questions, please contact the County Assessor’s Office at 507-444-7435. The Assessor’s staff should be able to answer your questions or direct you to someone who can.

April 2009-Talk of the Town

Chamber President Brad Meier discusses current legislative issues, as well as announces grant dollars available for business.

Chamber member guest is Radzoo.

Appx. 16 min.
MP3 File

Tax Bill Vote Today-Contact Legislators

The Minnesota House and Senate have unveiled their plans for solving the budget deficit. The House Omnibus Tax Bill includes a net tax increase of $1.5 billion and the Senate Omnibus Tax Bill proposes a net tax increase of $2.2 billion. It is anticipated that the Senate bill will be on the floor tomorrow and the House bill on Saturday. We urge you to contact your legislators today to let them know how the tax increases in HF 2323 and SF 2074 will negatively impact your business (see below).

Rep. Kory Kath
Email: rep.kory.kath@house.mn
Phone: 651-296-5368

Sen. Dick Day
Email: sen.dick.day@senate.mn
Phone: 651-296-9457

Here is a short list of the tax proposals that will affect Minnesota employers:
House Ombnibus Tax Bill – $1.5 Billion Tax Increases
Lodging Tax
We oppose giving cities the authority to use local lodging tax revenue for general purposes. This money is intended to promote the local community and diverting this revenue to other purposes risks losing tourism to locations in other states.

Creation of a 4th Tier Income Tax Rate at 9%
Most small-business owners report business income on their personal income tax return, so a personal income tax increase would hurt small employers – and their employees. The substantial increase would also make it more difficult and more expensive for employers to recruit top talent to work in Minnesota, creating an incentive to locate those positions elsewhere.

Street Improvement Fee
The street improvement “fee” gives cities the authority to impose an additional tax to fund a laundry list of transportation-related projects. These districts could be drawn arbitrarily, taxes apportioned inequitably – without any requirement to establish a benefit to the property owners being taxed.

Senate Omnibus Tax Bill – $2.2 Billion Tax Increases
Income Tax Increases and the Creation of a 4th Tier at 9.25%
Minnesota already has the sixth highest per capita income tax burden in the nation. The Senate legislation will increase income taxes across all brackets AND create a 4th tier at 9.25% for joint filers with income above $250,000. As a result, Minnesota would have the fourth highest tax rate in the nation.

Statewide Property Tax Increase
Minnesota employers continue to pay high property taxes. In some areas of the state, the business property tax burden is among the heaviest in the nation.

Halting the Sales-Only Apportionment
In 2005, state lawmakers recognized that allocating corporate income taxes based on Minnesota sales, property and employment actually penalizes companies for investing and creating jobs in Minnesota. Lawmakers committed to moving Minnesota’s corporate income tax apportionment to a sales only factor by 2014. Rather than freeze the phase-in of sales-only apportionment, the Senate should follow the House’s lead and move immediately to a 100 percent sales factor in 2009.
____________________________
TEXT OF LETTER

Dear [Representative/Senator],

I oppose the tax increases in HF 2323 and SF 2074 and I urge you to not support any tax increase on job providers to solve the budget deficit. The state government is not the only one facing financial difficulties.

[optional personalized paragraph]

Minnesota businesses are doing everything we can to cut costs and keep our workers employed. We don't have the option of simply increasing our revenue. If you try to solve the deficit by adding to our already high tax burden, you will only be adding to our financial difficulties.

Please do not raise taxes. As one of your constituents, I will look forward to your leadership and voting support on this issue.

Sincerely,


Constituent Name
Address

CO2 Carbon Legislation Impacts Business

By: Steve Shurts, General Manager Owatonna Public Utilities
(Permission given to post this email)

Dear OPU Customer:
This blind copy email is being sent to several of OPU’s customers to advise you of a recent report issued by a group of Midwestern utilities, including the Southern Minnesota Municipal Power Agency (our supplier). It analyzed the economic impacts of a federal cap-and-trade program. The study is reported in a story which I have copied below. The salient point is that we do not want to see a carbon tax or true auction. While I personally am opposed to any CO2 program, the only one that makes a modicum of sense is the one mentioned by Raj Rao of the Indiana Municipal Power Agency. The type of program he mentions allocates credits to current producers of CO2 and then they are capped at that rate. If a utility (or any producer) wants to produce more CO2, for example, by building a coal-fired plant, they must buy credits from others or find means to reduce the production of the CO2 in their system. This is a way to spur technological improvements without immediately penalizing those utilities that use a lot of coal to generate electricity.

Please understand that SMMPA’s electric generation is heavily weighted with coal, so a CO2 tax or auction will hit us very hard. SMMPA and OPU have been and will continue to do what we can to lobby our congressional delegation and to take proactive measures to keep your costs down. However, I urge you to also contact our senator(s) and representatives in Washington DC. Your voices are important.

I must take a minute to tell you about another point I have been telling our politicians in St. Paul and DC. I’ve heard from some of them that the rising tide will lift all boats; i.e. every utility will get hit with higher costs under a tax or auction. Here are the two points I make:

§ First, if an Owatonna business competes with a company in the Pacific Northwest where a huge portion of the generation is from hydro plants, your competitor’s electric rates will not be affected nearly as much. There are pockets of low-carbon generation and high-carbon generation. So Owatonna loses.
§ Second, if an Owatonna business competes with a company in a foreign country, particularly China, your competitor will likely not even get hit with a carbon tax. Owatonna loses again.

My point is that the tide will lift boats to various levels; some much higher than others. Sorry for the long email, but thank you for your time.

Sincerely,
Steve Shurts General Manager
Owatonna Public Utilities 208 S Walnut Ave Owatonna MN 55060 507.446.5402 http://www.owatonnautilities.com/

Federal cap-and-trade program for CO2 could 'devastate' Midwestern economy, study findsMidwestern consumers can expect significantly higher energy costs under a federal greenhouse gas (GHG) cap-and-trade regime, and "could face alarming economic impacts" under some program designs, a group of utilities said yesterday. A study conducted by the group, called the Midwest Consumer Utilities, said a cap-and-trade program that auctions all allowances would have the most severe impacts. The utilities include Indiana Municipal Power Agency, Madison Gas and Electric Co., Missouri Joint Municipal Electric Utility Commission, Missouri River Energy Services, Southern Minnesota Municipal Power Agency and WPPI Energy. The study projects the potential rate impact of various legislative approaches on the utilities' customers, including businesses and industry, and on the economies in their respective states. It shows that, depending on the auction price of allowances, the average rate increases for consumers in the seven Midwestern states studied could be up to 79% from 2012 to 2030 under a cap-and-trade program that uses a 100% auction method that does not refund auction revenues back to those customers. Some states would experience even larger annual average increases, the study said. Even if the cap-and-trade program were designed using a method that allocates 100% of allowances at no cost for rate mitigation purposes, rates could still rise an average of up to 37% for this same period, the analysis found. "Under any new carbon legislation, a no-cost allocation process with a cap on total emissions is the best way to keep electricity cost increases to a minimum and to limit greenhouse gas emissions" said Raj Rao, CEO of the Indiana Municipal Power Agency. "An auction or carbon tax will cause electricity prices to go up significantly and hurt all customers in the Midwest region," he said. "Congress is about to embark on an important national debate," said Roy Thilly, CEO of WPPI Energy. "We hope the sober results we present today help guide the outcome." The method chosen to distribute allowances and recycle auction revenues will dramatically affect the cost of compliance borne by consumers and the general economy, particularly in coal-intensive states in the Midwest, the utilities said. "The results may be much more extreme if cost-effective new technologies do not materialize or are delayed," they said. "Unless new electric technologies can be deployed first, the Midwest is where cap-and-trade will really turn out the lights on the job market," said Duncan Kinchloe, general manager and CEO of the Missouri Joint Municipal Electric Utility Commission. Cap-and-trade programs limit the amount of pollutant emissions produced by some sectors of the national economy, while offering flexibility in how those targets are met. In theory, they are intended to achieve emissions targets in the least cost manner and mitigate substantial wealth transfers, between and among customers and regions, that can accompany the introduction of GHG reduction strategies. "The no-cost allocation of allowances is essential to help those states that face the greatest challenges in moving to a low carbon economy," the Midwestern utilities said.