In a previous post to our commercial property tax appeal blog, we wrote about a Streets.MN article that argues that commercial property taxes imposed by Hennepin County and Minneapolis should be replaced by a land value tax that would ease the tax burden on commercial property owners and spur development.
Author Saumik Narayanan argues that commercial property taxes that include both the value of the land and the value of the improvements (buildings) on the land discourage development.
Narayanan – a self-described “avid transportation and urban planning enthusiast” – says a better way to tax commercial properties is via a land value tax.
To explain the LVT in simple terms, he uses the IDS Center as an example. The Center’s land value is $25,233,700, while the building value is $278,971,300, for a total value of 304,205,000. With an LVT, only the land is taxed, with the improvement (building) left untaxed.
Avoiding a big tax bill
He says that leaving buildings untaxed “makes it much easier and more profitable to actually build new developments.” So while the owner of that undeveloped parking lot might miss the opportunity for increasing profit from his land by $5 million for a hypothetical office building, he also misses out on a potential commercial property tax bill of $6 million – “the amount that the office building across the street currently pays,” Narayanan writes.
He argues that a land value tax for residential properties could also increase affordable housing by making the construction of a duplex or triplex more economically sound than the construction of a single-family house.
‘Ridiculous . . . current tax policy’
While Narayanan acknowledges that there are a multitude of powerful groups that would potentially oppose a LVT, including property owners making inefficient use of their land, he nevertheless concludes that “it’s ridiculous that our current tax policy actually discourages new development and instead incentivizes wasteful land usage.”