The 2015 House Tax Bill proposed to phase-out the state business property tax, ultimately eliminating the tax by 2022. A recent North Star article revealed that approximately two-thirds of the property tax relief resulting from the elimination of the state business property taxes will go to businesses in the seven-county metropolitan area, with the remaining third going to businesses in greater Minnesota. The following analysis shows the impact of the elimination of the state business property tax at a more granular level by focusing on the 134 Minnesota House districts.
Because each House district has approximately the same population, each district should be receiving approximately the same level of tax relief from the elimination of the state business property tax if that tax were distributed in proportion to population. However, the incidence of the state business property tax is not based on population; rather, the bulk of the tax is paid within districts with the highest concentration of high value business properties.* Most of these districts are in the seven-county metropolitan area; consequently, businesses in these districts will receive the bulk of the tax relief resulting from the elimination of the state business property tax.
The amount of the state business property tax payable in 2016 was estimated by multiplying the state business tax capacity by the final pay 2016 state business property tax rate. This amount is not reported by House district, so the state business tax amounts in this analysis were calculated by combining the cities and towns within each district. For cities and towns that contain multiple House districts, the state business property tax is apportioned among districts based on each district’s share of the total city/town population from the last census.†
The table below shows this information for the ten districts with the highest and the lowest state business property tax payments. In this table, districts that are primarily within the seven-county metro area are highlighted in blue, while districts that are primarily in greater Minnesota are highlighted in yellow. (Of the 134 House districts, 72 are primarily in the metro area and 62 are primarily in greater Minnesota.)
Each of the ten districts with the highest state business property tax payments are entirely within the metropolitan area; these are the districts that will receive the largest tax reduction as a result of the elimination of the state business property tax. On the other hand, among the ten districts with the lowest state business property tax payments, eight are primarily within greater Minnesota, while only two are within the metro area. These are the districts that will receive the least benefit from the repeal of the state business property tax.
An examination of information for all 134 House districts reveals that:
- No greater Minnesota districts are among the top 25 House districts in terms of the amount of state business property taxes paid.
- Among the 50 House districts with above average‡ state business property tax payments, 41 are primarily within the metro area, while only nine are in greater Minnesota.
- Among the 84 House districts with below average state business property taxes, only 31 are primarily within the metro area, while 53 are in greater Minnesota.
- While some greater Minnesota districts do have a relatively high level of state business property tax payments (and thus would receive a relatively high level of tax relief from the elimination of this tax), these tend to be districts that contain a fairly prosperous regional center, such as Rochester, Saint Cloud, or Mankato. (Even among greater Minnesota districts that contain a prosperous regional center, none rank higher than 28th among all 134 House districts in terms of total state business property taxes paid.)
It is important to note that the level of state business property taxes paid within each district as presented in this article and the accompanying printout for all House districts is based on the initial impact of the state business property tax. As noted in a March 14 North Star article, approximately 53 cents of each dollar of tax relief resulting from the repeal of the state business property tax is effectively shifted to businesses outside of Minnesota or to the federal government through a higher federal tax liability. The final level of business tax relief accruing within each House district—after taking into account shifts—is significantly less than what is presented here.
This district-specific analysis reinforces what an earlier North Star analysis has indicated: the bulk of the state business property tax is paid by districts in the seven-county metropolitan area; these same districts will receive most of the tax relief resulting from the elimination of this tax. Meanwhile, greater Minnesota districts in general will get a relatively small slice of the tax relief pie resulting from the repeal of this tax.
The table below lists the estimated 2016 state business taxes paid within each House district.
State Business Property Tax by Legislative District
*A March 4 North Star article demonstrated that most of the tax relief resulting from the elimination of the state business property tax will accrue to businesses with high values. For example, the 75 percent of Minnesota commercial/industrial properties with taxable values below approximately $500,000 will receive only 14 percent of the statewide property tax relief resulting from the repeal of the state business property tax, while 30.5 percent of the relief will go to the one percent of commercial/industrial properties with taxable values in excess of $36 million.
†For districts that consist primarily of small cities and towns, this approach is reasonably accurate. For districts that are largely or entirely within a single large city, this approach is less accurate because the distribution of business property taxes within a community is not necessarily proportional to the distribution of population. For such districts, the amount of state business property tax presented in this analysis should be considered approximate.
‡The average state business property tax payment within a House district was calculated by dividing the estimated 2016 total statewide state business property tax ($820 million) by the number of House districts (134). The average level of state business property taxes per House district calculated in this manner is $6.1 million.
