What is a Tax Abatement, Part I

You may have heard developers talk about tax abatement for some of their development projects, but what is tax abatement and how can it be used? A tax abatement used for economic development purposes is a deferral of taxes and/or penalties and can be used as a rebate of property taxes to the property owner, a reallocation of taxes to pay bondholders, a reallocation of taxes to pay for public infrastructure costs, or a deferment of property taxes. A single political subdivision (city, county, town, or school district) may grant only one type of abatement per parcel. More than one political subdivision may grant an abatement to the same parcel at the same time. The benefits of the abatement must be at least equal to the cost or intend for the abatement to phase in a property tax increase and the abatement must be in the public interest. Consent of the owner is not required when a political subdivision grants an abatement on a property. A public hearing is required as well as an adoption of a resolution.

What constitutes a public interest? According toMinnesota State Statutes, 

  • Increasing or preserving the tax base
  • Providing employment opportunities in the political subdivision
  • Providing or helping the acquisition or construction of public facilities
  • Helping provide access to services for residents of the political subdivision
  • Financing or providing public infrastructure
  • Phasing in a property tax increase as a result of an increase of 50% or more of the EMV in one year not attributable to improvements on the parcel
  • Stabilizing the tax base through equalization of property tax revenues with respect to utility property valued under Minnesota Rules, Chapter 8100