Tax hike saddles business, property owners

Concerned about tax changes
Small businesses like Chris Keenan's Cabinets of Distinction in Bemidji will see significant tax increases this year, due in part to tax changes made by the state Legislature in July. Cabinetmaker Steve Miller uses an edger on a piece of cabinetry on Oct. 11, 2011.
MPR Photo/Tom Robertson

Chris Keenan has run a small cabinet-making business here for nearly 35 years, typically employing four to six people until the recession. Orders stopped coming in and he laid off all his workers.

Now, like businesses all over Minnesota, he's facing another blow with a property tax hike next year. Tax officials say a Bemidji business worth $300,000 will see taxes go up 8 percent, almost $700.

Figures are similar elsewhere, a check with county auditors shows. A similar property in Duluth will see a 9 percent increase, in St. Paul 11 percent, in Hibbing 13 percent. Those figures are based on preliminary tax levies that school, city and county officials have approved. They could lower them when they determine their budgets in December.

Business owners are just beginning to learn how changes lawmakers and the governor made last summer are going to affect them. The July compromise that ended the state government shutdown included eliminating the market value homestead credit, which for years lowered property taxes on lower value homes.

Many property owners are likely to see tax increases, but owners of business property will be hit the hardest.

The Chamber of Commerce in Bemidji invited businesses to a forum Thursday morning to explain the tax changes. About 50 people showed up, but business owners were far outnumbered by government officials.

Keenan says with a tax increase on top of economic pressures, he'll struggle to pay his bills.

"Our economy is already taking a hit from everything. I've watched my taxes increase. I've watched the regulations change. And it's just getting harder and harder to stay in business," he said.

A big factor driving tax changes next year is the elimination of the homestead tax credit. The state program was used for years to lower property taxes. It provided a credit to the owners of homes worth less than $413,800 and required the state to pay that money to cities, schools and counties to make up for the lost revenue.

Under the new law, local governments will get none of the $260 million dollars they were scheduled to in 2012. How property owners will be affected depends on local budget decisions. For example, Bemidji and Beltrami County officials have proposed tax levies slightly higher than this year. But Department of Revenue analysts estimate the change could mean property tax increases in Minnesota ranging from 1 to 20 percent.

The loss of the homestead credit is expected to hit poor, rural communities the hardest. That includes places like Bemidji, where there are mostly low value homes. City manager John Chattin said notice is just getting out to those property owners who are likely to see big increases. But so far, he hasn't heard much grumbling.

"I think in general the public is fairly disengaged when it comes to taxes," Chattin said. "They're fairly complicated to follow, and the end result is, they get a property tax statement and they see the bottom number. It's so complicated that unless somebody really has an interest in finding out, it's going to be pretty tough to do."

Logging company owner Luke Klisch was among those who showed up for the meeting in Bemidji. He said a tax increase would be tough on him.

"As far as small businesses and that taking the brunt of the fall, it's frustrating, because where do you go?" Klisch asked. "If everything gets passed on and passed on, how can the last person absorb it when they're already out at the bottom end?"

Local officials blame the Legislature for the looming tax increases. DFL Rep. John Persell of Bemidji agrees. Persell blames Republicans for pushing to eliminate the homestead tax credit program.

"This I believe was a significant oversight," Persell said. "It just goes to show just what happens when things are not well thought out. When you do these things you're shifting money one way to the other, and somebody is going to pay."

Many Republican lawmakers see things differently. Rep. Dave Hancock, R-Park Rapids, said the law may need adjustment to ensure fairness to everyone statewide. But Hancock said the changes make taxes more transparent. And, he said, it puts pressure on local governments to cut spending.

"If the county wants to continue the same budgets that they have and continue spending and continue to operate as they're operating, it's going to result in a tax increase for most everyone," Hancock said. "That's a decision that the cities and counties have to make.

Many local government leaders say they've trimmed as much as they can from their budgets, without much notice from the public, and that more cuts may mean eliminating services that people have come to expect.

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