Ag land to bear brunt of property tax hike, tax-shift hits farmers
Regardless of how well their crops did this season, farmers in Becker County can expect a bumper crop of one thing -- higher property taxes next year.
A combination of rising values for tillable land and a state Legislature-engineered tax shift will hit farmers hard, according to Becker County Assessor Steve Skoog.
"In general, we raised a lot of value in tillable land last year," Skoog said. "When those ag values go up that much ... that shift offsets a lot of increase in other areas."
The market value of land increased noticeably in townships with lots of farmland, particularly in western Becker County, where tillable land is selling for $2,500-$3,500 per acre, depending on a variety of factors, Skoog said.
Farmland in eastern Becker County generally is going for $1,500 to $2,000 per acre.
To help solve the state's budget problem without raising taxes, the Legislature this year eliminated the homestead tax credit -- saving the state about $265 million a year that had been going directly to property tax relief.
To protect homeowners from a big tax hit, the legislation included a homestead exclusion, leaving residential homestead taxes at roughly the same amount.
"So essentially the tax base shrunk," Skoog said.
But that $265 million is gone and has to be made up somewhere. Since homeowners are protected, it will fall on other categories of property, like farmland, commercial and season recreational.
"All things being equal, (taxes) will shift onto all the non-homesteaded ones," Skoog said.
That's especially bad news for farmers because they are being hit with the double-whammy of rising land values and a shrinking tax base because of the homestead exclusion.
"The net effect is that ag picked up a big percentage of the burden," Skoog said.
The impact on farmers is compounded because of the way the ag homestead credit is calculated.
In Minnesota, farmland is taxed by value -- ag homestead is assessed a class rate of 1 percent on the first $500,000 for a house, garage and one acre, and 1.25 percent on the remainder of the value over $500,000.
The rest of a farmers productive farmland is taxed at .5 percent for the first $1.21 million in value, and 1 percent for the rest of the land over $1.21 million in value.
Rising ag values means more of a farmer's land will be taxed at the higher rates.
The loss of the homestead credit will hurt outstate Minnesota much more than it hurts the Twin Cities metro area, according to State Rep. Paul Marquart, a DFLer from Dilworth who sits on the Property Tax Relief & Local Sales Tax Division of the House Taxes Committee.
"In rural Minnesota, we will see three times the property tax increase of someone in a wealthy metro area," he said. "Businesses will see a six times higher increase in outstate Minnesota."
Property tax payers in rural Minnesota will have to make up for 57 percent of the lost homestead funding -- which means paying $158 million more next year.
"That's why it hits us so hard," Marquart said. "The total market value of homes (in outstate Minnesota) is only 35 percent of the state total, but we're taking 57 percent (of the cut). So it's very unfair to rural Minnesota."