COMMENT by Juris
Under the Minnesota homestead property tax law, our unrealized capital gains and debt are taxed with the apparent assumption that we have capital gains from elsewhere to pay this tax. Such a concept is so blatantly unjust that it is no wonder taxpayers are perpetually complaining about it.
However, there is hope for a just solution to our property tax problem. The Minnesota Department of Revenue (DOR) has issued a document showing that our property tax burden based on our incomes can produce the same tax revenue as that based on the market value of our homes. The document is called the "Voss Report", and it covers all of Minnesota's twenty taxing districts.
The latest summary from the DOR's twenty taxing districts shows that the lowest fair-share burden is in the Arrowhead District at 1.84-percent and the highest in Minneapolis at 3.36-percent, with the other districts ranking somewhere between these two.
From the DOR data, one can see that if our homestead property tax was adjusted based on our incomes, it would produce a relatively low tax burden for all homeowners in each of the taxing districts. In fact, it would be a much lower burden than either our state income tax or our sales tax.
It would be easy to implement a fair homestead property tax adjustment based on our incomes because the mechanism already exists to do so. All one has to do is adopt our existing Property Tax Relief Program's "circuit breaker" to include all homeowners. This program already uses our incomes as the basis for adjustment to distribute property tax refunds for individual taxpayers.
Our legislators should be cognizant of the fact that a homestead property tax adjustment at the state level, based on our incomes, will neither change how our property taxes are collected at local government levels nor compromise tax revenues. The existing "circuit breaker" is proof of that. It will, however, benefit the state budget if the state no longer has to fund the homestead property tax relief program for individual taxpayers. And, most of all, it will benefit the taxpayers by correcting the concept of taxing our debt and unrealized capital gains.
It is evident that we can have a permanent and just solution to our homestead property tax problems without a major change to our existing law. The solution is equitable to the taxpayers and to the government alike. Plus, it is simple to implement.
But ….how long will we have to wait for its implementation? And how many more years will the majority of homeowners still have to pay 5-, 10-, 20-, 30-percent, or more, of their incomes in property taxes, when the fair-share percentage is between 1.84 and 3.36?
Latest DOR’s “VOSS” report summary
TAXING FAIR SHARE
DISTRICTS BURDEN of
INCOME
_____________________________________
Arrowhead 1.84%
Central 2.60%
East Central 2.85%
Minnesota Valley 1.98%
North Central 2.08%
Northwest 1.81%
South Central 2.08%
Southeast 2.31%
Southwest 1.84%
West Central 1.99%
Anoka 2.79%
Carver/Scott 2.80%
Dakota 2.59%
Minneapolis 3.36%
North Hennepin 3.18%
Saint Paul 3.00%
Southeast Hennepin 2.43%
Southwest Hennepin 2.30%
Suburban Ramsey 2.68%
Washington 2.49%
COMMENT by Janis
* The property tax law taxes our homestead property as an unrealized capital gains tax. Even though we have not realized any income from the property, it is still taxed as though we have.
* Some taxpayers pay 10, 20, 30 percent or more or their income for property tax.
* The Voss Report shows that the Fair Share Burden of property taxes to income in the twenty taxing districts in Minnesota is from a low of 1.84 to a high of 3.36 percent
* A Fair Share property tax system would have all homestead property owners pay the Fair Share burden as determined in their taxing district. For example: Anoka=2.79%; Dakota=2.59%; Minneapolis=3.36%.
* By implementing a Fair Share burden in each taxing district everyone would be paying the same Fair Share of property tax based on their income. This tax would be less than taxpayers pay for sales tax or state income tax.
* Implementation would be easy because a mechanism already exists through the Property Tax Relief Program’s “circuit breaker”.
* Property taxes would be collected the same way they are now. The circuit breaker would adjust the property tax to the Fair Share Burden in each taxing district. Those paying more than their fair share would get a rebate and those paying less would have to pay up to their fair share.
* The taxes collected under this Fair Share system would be exactly the same as they are under the present system.
* The state would save the billion dollars they pay now in property tax refunds. This would no longer be necessary.
* In summary: All taxpayers would pay the same fair share.
The state saves about a billion dollars.
The tax revenues would be the same as they are now.
Implementation is done using an existing system.
Taxpayers no longer taxed on unrealized capital gains.
Saturday, September 7, 2013
Friday, August 9, 2013
FAIR PROPERTY TAXES by Janis Curiskis (guest blogger)
I have read the sections on this blog, and this is what I have gleaned from the information. Is this a fair condensation?
The property taxes in Minnesota are inequitable as they are currently applied to taxpayers. Ability to pay is totally disregarded. If you look at the amount of property taxes paid as a percent of income, there is a large disparity between taxpayers. For example, there are some homestead property owners that pay as low as 1% and others pay in the 25% range. This is inequitable and particularly for those on fixed incomes. When your income becomes fixed, your property taxes continue to rise. For some homeowners, the taxes become so high they are in danger of losing their homes.
There is a solution to this inequity. If each homeowner paid a “fair share” of property taxes based on their income, the problem of people being taxed out of their homes would be corrected.
There are twenty taxing districts in the state. You can see this by clicking on the Department of Revenue link at the top of this page. Let’s take a look at one of the taxing districts and examine how things are now and how they could be made “fair”. The Arrowhead Region has total revenue of $118,596,419 from property taxes. The “average burden” column shows taxpayer’s burden as 1.84%. This means that if you take the average burden (1.84%) times the total income for the taxing district (6,435,380,140), you get the total revenue of $118,596,419. You can use this same calculation for each taxing district.
If each homeowner in the Arrowhead Region paid their “fair share” of 1.84% of their income for property taxes, the total revenue would still be $118,596,419. Therefore, instead of some paying only 1 or 2% and others paying 20 or 25%, the taxes would be a fair burden for everyone based on their income. People on fixed incomes would not be in danger of losing their homes..
Do your own exercise at home to see where you stand on the property tax fairness ladder. First take your taxable income for MN and multiply it by the average percent property tax burden for your district. That will give you your FAIR share of the property tax amount. Then take out your property tax statement and compare it to your fair share. If your property taxes are higher than your fair share, you will get a refund and if your property taxes are lower than your fair share, you will have to pay more.
The property taxes in Minnesota are inequitable as they are currently applied to taxpayers. Ability to pay is totally disregarded. If you look at the amount of property taxes paid as a percent of income, there is a large disparity between taxpayers. For example, there are some homestead property owners that pay as low as 1% and others pay in the 25% range. This is inequitable and particularly for those on fixed incomes. When your income becomes fixed, your property taxes continue to rise. For some homeowners, the taxes become so high they are in danger of losing their homes.
There is a solution to this inequity. If each homeowner paid a “fair share” of property taxes based on their income, the problem of people being taxed out of their homes would be corrected.
There are twenty taxing districts in the state. You can see this by clicking on the Department of Revenue link at the top of this page. Let’s take a look at one of the taxing districts and examine how things are now and how they could be made “fair”. The Arrowhead Region has total revenue of $118,596,419 from property taxes. The “average burden” column shows taxpayer’s burden as 1.84%. This means that if you take the average burden (1.84%) times the total income for the taxing district (6,435,380,140), you get the total revenue of $118,596,419. You can use this same calculation for each taxing district.
If each homeowner in the Arrowhead Region paid their “fair share” of 1.84% of their income for property taxes, the total revenue would still be $118,596,419. Therefore, instead of some paying only 1 or 2% and others paying 20 or 25%, the taxes would be a fair burden for everyone based on their income. People on fixed incomes would not be in danger of losing their homes..
Do your own exercise at home to see where you stand on the property tax fairness ladder. First take your taxable income for MN and multiply it by the average percent property tax burden for your district. That will give you your FAIR share of the property tax amount. Then take out your property tax statement and compare it to your fair share. If your property taxes are higher than your fair share, you will get a refund and if your property taxes are lower than your fair share, you will have to pay more.
Monday, July 29, 2013
The Solution
The homestead property tax is not working if a majority of us are over burdened and a minority under burdened. That kind of inequity is a hallmark of an unjust and unconstitutional tax system.
In my previous blog post ( Article X ), I describe why it is impossible to levy an assessor driven tax that is constitutional and as fair as an income driven tax. Therefore, the logic tells us that we need a change. But unfortunately the options to change the assessor driven tax have failed, leaving us with the status quo homestead property tax that remains unjust.
We measure our tax burdens in percentages of our incomes. We know that our individual homestead property tax burdens can be very high, but we don’t know if it is our fair share or not. However, now we have information at the Minnesota Department of Revenue (DOR) that tells us what our individual fair shares are. Just click the MN DOR button above to see the chart.
The DOR has taken our total assessor driven homestead property tax revenue and equated it as a percent burden of our total homestead incomes. It means that the average percent burden, in each of the taxing districts, is also our individual fair share that will produce the same tax revenue as the assessor driven tax.
The reason I am presenting the DOR data is to illustrate that we don’t need to change how our homestead property taxes are collected to make them fair. All we need to do is to adjust our individual taxes by applying the DOR’s fair percentage of our incomes.
The idea of adjusting our homestead property taxes based on our incomes, after they have been collected, is not a new concept. It is being used today for property tax relief that is commonly referred to as the “circuit breaker.”
Since our legislators are vetted in the “circuit breaker” of today, they should not have any objections to a “circuit breaker” of tomorrow that is applied to all homeowners, rather than to the low and middle income home owners only.
The new “circuit breaker” will become an equalizer rather than a relief program.
For example, St. Paul’s fair share is 3% (DOR chart). Therefore, if you own a home in St. Paul and your taxable income is $100,000, your fair share of property taxes is $3,000. But if you paid $3,500 in taxes, you will get a refund of $500. And if you paid $2,500, you will have to pay another $500.
In my previous blog post ( Article X ), I describe why it is impossible to levy an assessor driven tax that is constitutional and as fair as an income driven tax. Therefore, the logic tells us that we need a change. But unfortunately the options to change the assessor driven tax have failed, leaving us with the status quo homestead property tax that remains unjust.
We measure our tax burdens in percentages of our incomes. We know that our individual homestead property tax burdens can be very high, but we don’t know if it is our fair share or not. However, now we have information at the Minnesota Department of Revenue (DOR) that tells us what our individual fair shares are. Just click the MN DOR button above to see the chart.
The DOR has taken our total assessor driven homestead property tax revenue and equated it as a percent burden of our total homestead incomes. It means that the average percent burden, in each of the taxing districts, is also our individual fair share that will produce the same tax revenue as the assessor driven tax.
The reason I am presenting the DOR data is to illustrate that we don’t need to change how our homestead property taxes are collected to make them fair. All we need to do is to adjust our individual taxes by applying the DOR’s fair percentage of our incomes.
The idea of adjusting our homestead property taxes based on our incomes, after they have been collected, is not a new concept. It is being used today for property tax relief that is commonly referred to as the “circuit breaker.”
Since our legislators are vetted in the “circuit breaker” of today, they should not have any objections to a “circuit breaker” of tomorrow that is applied to all homeowners, rather than to the low and middle income home owners only.
The new “circuit breaker” will become an equalizer rather than a relief program.
For example, St. Paul’s fair share is 3% (DOR chart). Therefore, if you own a home in St. Paul and your taxable income is $100,000, your fair share of property taxes is $3,000. But if you paid $3,500 in taxes, you will get a refund of $500. And if you paid $2,500, you will have to pay another $500.
Sunday, July 21, 2013
Article X
Our State Constitution implies, and sometime states, that all of our state laws/statutes shall protect us and treat us justly. When it comes to taxes, the constitution is very specific. In Section 1 of Article X it states that “Taxes shall be uniform upon the same class of subjects and shall be levied and collected for public purposes”
As individual subjects we fit in one or more of the three major tax classifications, the income tax, the sales tax and the homestead property tax. The income tax and the sales tax are straight forward in their concept and easily comply with the uniformity clause. However, our homestead property tax concept is not straight forward and does not comply with the uniformity clause.
Unlike the income tax and sales tax that is based on one variable for tax levies, the homestead property tax is based on variables and assumptions. With such a mix it is impossible to achieve any kind of uniformity for the homestead property tax burden.
One of the variables is the unrealized capital gains (our home value) which is different for all of us and may be different from what the assessor has set it at if the home’s capital gains were realized. Aside from the inability to establish a correct capital gains, it is an extremely convoluted process to assess a tax on something that we have not realized as a financial gain.
However, our government has a very cavalier attitude about taxing our unrealized capital gains. It simply assumes that all of us have some additional funds to pay for their assessed tax burden. And if we don’t have the funds, we must face the consequences of losing our homes.
This and the two previous posts illustrates that the status quo homestead property tax in Minnesota goes against our concept of home ownership in a free society that is protected by a constitution. However, there is a simple solution to adjust the status quo homestead property taxes via the legislature or the courts to have it comply with the intent of our State Constitution.
In my future blog posts, I will comment on the options that are open for us. But mean time, I would like to know if there is anybody that is against a fair homestead property taxes.
As individual subjects we fit in one or more of the three major tax classifications, the income tax, the sales tax and the homestead property tax. The income tax and the sales tax are straight forward in their concept and easily comply with the uniformity clause. However, our homestead property tax concept is not straight forward and does not comply with the uniformity clause.
Unlike the income tax and sales tax that is based on one variable for tax levies, the homestead property tax is based on variables and assumptions. With such a mix it is impossible to achieve any kind of uniformity for the homestead property tax burden.
One of the variables is the unrealized capital gains (our home value) which is different for all of us and may be different from what the assessor has set it at if the home’s capital gains were realized. Aside from the inability to establish a correct capital gains, it is an extremely convoluted process to assess a tax on something that we have not realized as a financial gain.
However, our government has a very cavalier attitude about taxing our unrealized capital gains. It simply assumes that all of us have some additional funds to pay for their assessed tax burden. And if we don’t have the funds, we must face the consequences of losing our homes.
This and the two previous posts illustrates that the status quo homestead property tax in Minnesota goes against our concept of home ownership in a free society that is protected by a constitution. However, there is a simple solution to adjust the status quo homestead property taxes via the legislature or the courts to have it comply with the intent of our State Constitution.
In my future blog posts, I will comment on the options that are open for us. But mean time, I would like to know if there is anybody that is against a fair homestead property taxes.
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