Examining small business property tax relief plan

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What if we could provide significant property tax relief to small businesses with only a minimal increase for large businesses. Would you take that tradeoff?

A Minnesota House proposal will provide property tax relief to small businesses by exempting the first $150,000 of taxable business value from the state property tax. This relief would be achieved not by reducing state revenue, but by shifting a portion of the state business property tax from low value businesses to high value businesses. This proposal is now part of the House omnibus tax bill and is currently being considered by House and Senate tax negotiators.

In testimony on this provision, business lobbyists complained that this proposal would result in significant tax increases on high value business properties. It is true that businesses with a taxable value in excess of $1.172 million would see a tax increase under this proposal; however, the increase in total property taxes (combined state and local) for most of these businesses would generally be quite small. Only for a handful of very high value businesses ($10 million or more) would see average tax increases that exceed three percent.*

Small businesses, on the other hand, would see extremely significant property tax relief. For example, a business with a value of $500,000 would see a tax reduction of 11 percent based on statewide average local and state tax rates. Lower value businesses would see even greater property tax reductions—peaking at approximately 30 percent reductions for businesses with values of $150,000 or less.

There are thousands of small retailers in Minnesota that not only provide employment, but are heavily vested in the long-term health of their host communities in ways that big box retailers—Walmart, Home Depot, et cetera—are not. A valuable local asset is lost when small local businesses are squeezed out by competition from these national chains. Many of the “low, low” prices that big box retailers offer are accompanied by “low, low” wages that taxpayers must subsidize through public assistance programs.

Minnesota may not be able to buck the trend that sees retail sales shifting away from small local businesses to nationally based chains. However, we can at least help level the playing field by providing significant property tax relief for Minnesota small businesses by exempting the first $150,000 of business value from the state property tax. State policymakers should act favorably on this proposal during the 2014 legislative session.

*The analysis in this article is based upon tax year 2014 data. Total property tax changes shown in the graph are based on average 2014 statewide, metro, and greater Minnesota tax rates from House Research simulation #14A2.