Tax Abatement

Tax Abatement

Overview:
Tax abatement is the ability for an individual taxing entity (such as the city, county, or school district) to capture and use all or a portion of the local property tax revenues within a defined geographic area to finance a specified project or improvement. It allows each major taxing jurisdiction to choose to contribute its share of the taxes and limit abatement in any manner it determines appropriate. The taxing entity can grant an abatement without other jurisdictions agreeing to participate. Tax abatement is governed by Minnesota Statutes 469.1812–469.1815

Purposes:
The law allows abatement’s to be used for a broad range of projects and purposes, if the Granite Falls EDA finds that public benefits exceed the costs. Permitted uses of abatement’s include the following:

  • General economic development, such as increasing the tax base or the number of jobs in the area
  • Construction of public facilities or infrastructure (i.e. streets and roads)
  • Redevelopment of blighted areas
  • Providing access to services for residents (i.e., housing or retail would be common examples)
  • Deferring or phasing in a large (over 50%) property tax increase
  • Stabilizing the tax base resulting from the updated utility valuation administrative rules
  • Providing relief for businesses with estimated market value of $250,000 or less who have disrupted access due to public transportation projects

How does Abatement Work?
In practice, tax abatement is a reallocation of taxes rather than an exemption from paying taxes. The abatement resolution, approved by the political subdivision, specifies the duration and the amount of property taxes that will be abated (in any one year, taxes abated may not exceed the larger of 10 percent of the net tax capacity of the political subdivision; or $200,000). The political subdivision has considerable flexibility in setting the terms of the abatement; for example, it may set the abatement as a percentage of tax payable, a dollar amount, tax attributable to a portion of the parcel’s market value, or something else. The local government adds the abatement to its property tax levy for the year. The owner pays property tax on a parcel and the political subdivision uses the payments as provided by the abatement resolution. For example, the abatement may be used to pay bonds or be given back to the property owner.

Process:
After identifying the details of the abatement, including the amount, term and the parcels for abatement, a public hearing with at least a 10 day published notice must be held by each entity granting the abatement. The entity granting the abatement is then required to adopt a resolution approving the abatement. The adopting resolution must include the following:

  • Term of the abatement
  • Statement of public benefit expected to result from the abatement
  • Required findings
  • Schedule of repayment of deferred taxes (if applicable)

This process must be completed by each entity granting the abatement.