Tax Abatement

What is a Tax Abatement, Part II


For each property, the annual abatement granted by a political subdivision cannot be greater than the subdivision’s total net tax capacity tax on the property. Abatements may reduce all or part of the qualifying property tax amounts on a property. The total abatements granted by a political subdivision in any one year may not exceed the greater of: 10% of the net tax capacity of the subdivision for the taxes payable year which the abatement applies or $200,000. The limit on the total abatement for a political subdivision does not apply to uncollected abatements from prior years or abatements for utility property.

 Abatements cannot be longer than 15 years but they can be shorter and the duration period begins in the year which the abatement is paid of retained. A second abatement cannot be granted to a property for at least 8 years after the first abatement expires. If a political subdivision proposes abatement participation from  another political subdivision and that subdivision declines or fails to respond, the duration limit for abatements on the parcel is increased to 20 years. Property that was previously in a TIF district can qualify for an abatement after TIF expires.

The taxes on a parcel of property receiving a tax abatement must be paid by the taxpayer when due in the same manner as other property taxes, as if there were no abatement. After the taxes have been paid, the political subdivision must, in accordance with the abatement resolution, do one of the following: Pay the abatement amount back to the property owner, pay the bondholders, retain the abatement to pay public infrastructure costs, or keep a record of deferments and eventually collect them, according to the repayment schedule.

One thing for companies to remember is that since they are receiving a public subsidy, they are subject to annual reports until the established goals are met. Normally, the deadline for submission of information is early spring each year. The political subdivision then submits the information to the State of Minnesota’s Department of Employment and Economic Development.

It’s a good idea to hire a professional consultant when attempting to seek a public subsidy rather than trying to navigate the tangled government process alone. For more information please contact Brian Beeman, Senior Advisor, IAG

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