Part II: NAIOP says Minnesota is an “egregious outlier” on commercial property taxes

| May 5, 2021 | Commercial Property Tax Appeals

Regular readers of our commercial property tax appeal blog will likely recall a previous post about the recent report by the Commercial Real Estate Development Association of Minnesota (aka NAIOP). The report says Minnesota’s “effective tax rate on commercial property is more than double the next highest tax. It is five or more times higher than most states that also impose a general levy or tax on real property.”

The NAIOP casts Minnesota’s taxation of commercial and industrial properties as an “egregious outlier” that limits business growth.

Nebraska and Florida

Shawn Smith is NAIOP’s public policy chair and the vice president of Edina-based real estate developer Wildamere Capital Management. He says taxes on Wildamere’s Minnesota properties can be significantly higher than they would be elsewhere.

“If you have a tenant in a property and they vacate, now your holding costs are twice as much as they would be, say, in the state of Nebraska or Florida or all of the other states that really don’t have that double taxation,” Smith said.

Reevaluations might not favor us

Kevin Howat, public policy director for NAIOP, said companies performing pandemic-related reevaluations of their business model and costs will factor Minnesota’s above-average property taxes into decisions to relocate outside of the state or to move within the Land of 10,000 Lakes.

Said Howat, “When you’re trying to figure out how to run your business more lean and how many people you need in a business location, they’re looking at fixed costs — and taxes are a significant portion of that.”

Howat said the tax rate for commercial properties (office buildings, stores, malls, restaurants, hotels, banks, etc.) and industrial (manufacturing, warehouses and distribution facilities) is based on the levy amount set by the state, which is this year set at $737.09 million.

A real-world example: the owner of a Minnesota commercial property worth $500,000 will pay $3,969 into the state’s general levy. In Michigan, the very same property would pay $1,628.

Piling on

It should be noted that the $3,969 general levy is in addition to the $11,974 owed in commercial property taxes.

“It’s pretty compelling that Minnesota has exceptionally high taxes – and not by a little bit,” Howat said.

Phil Cattanach, president of NAIOP, says it’s time for public leaders to reexamine the state’s spending and revenue streams.

“To be clear, I’m not saying we can’t tax commercial properties.  I’m just saying the way that we’re applying the tax and the amount of the tax on the commercial properties is burdensome,” Cattanach said.

Hopeful signs

The first signs of a reexamination were evident in House and Senate bills to raise the exemption from the general levy from $100,000 to $150,000.

“We’re encouraged . . . that (there) seems to be bipartisan support,” Howat said.