How Richfield, Hennepin County Property Taxes Are Determined

Minnesota has one of the most complicated tax systems in the country according to Carol Becker, vice President of the Minneapolis Board of Estimates and Taxation and professor of public finance and public policy. For property taxes, the basic mathematical formula is simple, she said: multiply the value of the property, times (insert some percentage here), equal taxes to be paid. After that, it gets complicated.

The Minnesota State Legislature determines how the property taxes will be divided among different types of property, including residential homestead, residential non-homestead (such as apartments), agricultural and commercial/industrial, which are all taxed at different rates.

How Property Taxes Are Calculated

With homestead houses, while the percentage is determined by the legislature, the value is determined by what a home could theoretically sell for on a set date (Jan. 2) based on similar neighborhood home sale during the previous year. For example, a home’s value of $200,000 for 2011 would be based on home sales between October 2009 and September 2010.

In Richfield as well as in other cities, homes are appraised every five years, a period set by state law. So, that means, every five years, the Hennepin County Tax Assessor hits the streets, estimating how much each home in a scheduled neighborhood is worth.

“We use a methodology called a computer assisted mass appraisal,” said Jim Atchison, Hennepin County appraiser. "We have the characteristics of every property—the number of bedrooms and baths, whether the basement is finished, the square footage —and we analyze what’s sold and for how much. Then we apply that to all similar properties.”

In recent years, values have fluctuated because of the sharp rise of home prices followed by the downturn in the housing market.

“If the value of your category stays the same, but all around you, home values go down, you’ll pay more, assuming that all the government budgets stay flat. It’s called a shift of taxes,” Atchison said.

The time during which the tax value is determined and when it’s due can mean that house values are not in line with what any one home would sell for in the current market. In addition, the actual condition of a home is not taken into account, so a tax value should not be used to determine a list price when selling a home.

Short-sales are included in the general formula because whether a home was sold as a short-sale does not show up on county records and, as Atchison pointed out, for towns like Richfield, short sales make up a significant part of the market.

“Foreclosures are not used in ratio studies," Atchison said. "It’s not allowed by state statue, but they are holding values down."

Influencing Factors and the Legislature

There are a lot of other factors that can influence the actual dollar amount of taxes paid. One is the local tax base which can vary from year to year. Another is the state legislature.

Becker said the legislature does a lot of tweaking, changing the percentage paid by property categories and changing how property taxes are divvied as part of all taxes collected in Minnesota. Starting in 1996, and especially in 2001, the property tax burden shifted from business properties to homeowners, said Becker. 

The 2011 Minnesota Tax Incidence Study, a 160-page analysis of Minnesota’s house and business taxes released last March, agreed:

“The results show that the individual income tax was very progressive while the three remaining taxes [including property taxes] were generally regressive ...

“Another way of looking at Minnesota’s tax system is to consider how tax revenues are split between state and local takes. Between 2006 and 2008, the state’s share fell. Although local sales tax increases is expected to grow by 87 percent between 2006 and 2013, local property tax increases account for 92 percent of this local government revenue growth.”

Property taxes have and will go up to cover the deficit left by the declining contributions from the State of Minnesota and the percentage in the formula has shifted leaving the tax burden to fall most heavily on middle and lower class homeowners.

Property Assessments

Homeowners living in neighborhood scheduled for a five-year assessment will get post cards from Hennepin County before assessor’s visits. Pulling permits for repairs or remodels can alert the assessor that an adjustment to the estimated market value (EMV) might be necessary. Assessors may also review any property at the owner’s request or if the assessor believes that the information about the home is not correct.

Assessors always carry an ID and no homeowner should answer questions or let someone claiming to be an assessor inside their home if that person does not have a proper county ID.

Homeowners who feel that their property tax amount is not correct can make an appeal to the county, Becker said: “It’s a good idea to do that,” she said, “Since 85 percent of people who appeal, win.”

Richfield homeowners' next property tax pay-in is scheduled for Monday, Oct. 17. If it is post-marked by that day, no late fee will be instituted.