New database demonstrates importance of state property tax refunds and credits


The Minnesota Department of Revenue and state policymakers are getting new insights into the relationship between homeowners’ income and their property taxes. They are getting them through a new research tool called the Voss database.

The database helps state leaders better understand and model proposed property tax changes and how they affect people at different income levels. It also shows how the state’s system of property tax refunds and credits — which benefit people from a wide range of incomes — help lower-income homeowners in particular.

The database is named for former state Rep. Gordon Voss (1973-1988) who served on the tax committee and pushed for the information.

The 2008 Legislature appropriated $200,000 to create the database. It was a massive undertaking. It includes 1.3 million homestead records, linking personal income, home values and property taxes paid. The Department of Revenue can use it to calculate such things as effective tax rates (property taxes as a percent of market value), housing consumption (the ratio of estimated market value to income), and property taxes paid as a percent of income. The database used 2006 income data and 2007 property tax data.

Prior to the Voss database, policymakers primarily received information about how changes in the property tax system would impact properties with different types or values, but had very limited information about how policy changes would impact Minnesotans of different income levels. While there is some correlation between household income and the value of one’s home, it’s not a perfect relationship.

The database gives hard numbers that demonstrate the success that state-paid property tax credits and refunds have in both lowering the amount of property taxes that homeowners pay and reducing the regressivity of property taxes.

A Department of Revenue analysis of the Voss data shows that, without state-paid property tax credits and refunds, low-income homeowners (those with incomes between $10,000 and $30,000) would pay an average of 7.4 percent of their incomes in property taxes. When credits and refunds are taken into account, that drops to 3.7 percent. That is still twice the rate paid by homeowners with incomes of $125,000 or more, who paid 1.8 percent of their incomes in property taxes, after taking credits into account. But without these credits, the share of income that low-income homeowners pay in property taxes would be nearly four times as much as the higher-income homeowners.

What are these credits and refunds? The example above includes the impact of two of them:

  • The Market Value Homestead Credit, which is based on the property’s taxable market value and is available to properties with values up to $414,000. The credit shows up on a homeowner’s property tax bill and lowers the amount of property taxes they pay, with the state paying the difference to local governments. (That’s the idea anyway, but in recent years these reimbursements have been cut, so that homeowners still have received the benefit of the credit, but local governments have lost revenues.)

  • The Property Tax Refund, commonly called the Circuit Breaker, for homeowners with household incomes roughly up to $100,000 whose property taxes exceed a certain share of their income. This is a refund that homeowners must apply for in order to receive.