PROPERTY TAX; CORPORATIONS; BUSINESS (GENERAL);

TAXES - PROPERTY;

You wanted to know how many states levy property taxes on commercial and industrial properties and whether any redistribute the revenue to commercial and industrial businesses in jurisdictions with higher than average tax rates.

SUMMARY

At least 10 states levy property taxes on commercial, industrial, and other types of properties, but none redistribute the revenue to commercial and industrial businesses in towns, cities, or counties with higher than average mill rates. A state might do this to even out the mill rate differences between political subdivisions and thus neutralize the role property taxes play when businesses to decide whether to expand an existing facility or build a new one somewhere else.

Jurisdictions with higher than average mill rates often claim that they have a harder time attracting new businesses or keeping the ones they have, and states have addressed this and other related problems by offering tax benefits to businesses that expand or relocate in these jurisdictions. Recently, Michigan and Pennsylvania have gone a step further and waived all taxes in these areas. Attachment 1 is a OLR memo that describes states’ geographically targeted economic development incentives (99-R-1055).

While no state levies a statewide property tax to neutralize mill rate differences, Minnesota tackled this same problem in a different way. It authorized municipalities within the Twin Cities Metropolitan region to share the property tax revenue generated by new industrial and commercial developments. The statutory procedure under which they do so serves three goals:

1. Support regional approaches to economic development (revenue sharing spreads the fiscal benefits of shopping centers and similar facilities and makes municipalities more willing to accept parks and other facilities that yield little or no taxes),

2. Equalize the distribution of fiscal resources (municipalities with low tax bases wind up imposing higher tax rates to deliver the same services as those with higher tax bases, which undermines their ability to attract or retain businesses), and

3. Reduce the competition for commercial and industrial development (municipalities will have less reason to offer tax incentives to attract this type of development, which they believe requires relatively fewer municipal services) (The Fiscal Disparities Program: Commercial and Industrial Tax Base Sharing, Minnesota House Research, October 2002 http: //www. house. leg. state. mn. us/hrd/issinfo/ssfisdis. pdf).

STATES LEVYING PROPERTY TAXES

At least 10 states levy statewide property taxes on commercial, industrial, and other types of properties and use the revenue to fund general government (Alabama, Indiana, Kentucky, and Nevada) or dedicate it toward education (Kansas, Michigan, Vermont, Washington, and Wyoming). In 2001, Minnesota began levying a statewide property tax only on commercial, industrial, and seasonal recreational properties as part of broader restructuring of the property tax system. All of these states set a single statewide mill rate.

MINNESOTA’S FISCAL DISPARITIES PROGRAM

Municipalities in Minnesota’s Twin Cities region have been sharing the growth in property tax revenue generated by commercial and industrial property since 1971. They have been doing this under a statutory formula that requires them to contribute 40% of the growth in their commercial and industrial tax base since that year to an areawide pool. The annual growth is then apportioned to each municipality based on its population and relative fiscal capacity, which is the ratio between it’s equalized net grand list and the average equalized net grand list for all towns (Minn § 473F. 001 et seq. ).

Under the formula, a municipality’s share equals its population multiplied by its relative fiscal capacity. As a result, municipalities whose fiscal capacity is below the average receive a greater share than those whose capacity is above the average.

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