04.06 CLASSIFICATION OF PROPERTY

1 CHAPTER 4: TAX BASE OVERVIEW AND VALUATION OF PROPERTY CLASSIFICATION OF PROPERTY - 1 UP TO DATE THROUGH 2017 SESSION CLASSIFICATION OF PROPERTY Overview Although the CLASSIFICATION of PROPERTY for purposes of taxation can be thought of as a broad concept where any feature that differentiates properties in any way is a form of CLASSIFICATION , this section addresses the more specific and overt application of different rates of taxation on different defined types of PROPERTY . Many states draw a distinction between market values and assessed values which reflect the application of different assessment ratios for a limited set of different PROPERTY types (such as commercial/industrial, residential, agricultural, etc.)

2 Minnesota, which has a uniformity clause in its constitution that allows for different classes of PROPERTY to be taxed at different rates, has perhaps the most detailed CLASSIFICATION system for a wide range of defined classes of PROPERTY . The class rates, as opposed to assessment ratios, are applied to taxable market values to yield a measure called net tax capacity, which is the basis for most taxes. The net tax capacity is a computed, conceptual basis for taxation, as opposed to the resultant assessed values used in most states. (The focus of this section is on the classifications of PROPERTY ; see Section for further discussion of net tax capacity.)

3 The assessor, in the process of determining values, also is responsible for determining the CLASSIFICATION (or use) of PROPERTY . P roperty is classified according to its use on the assessment date (January 2nd) of each year. If the PROPERTY is not currently being used, it is classified according to its most probable, highest and best use. PROPERTY owners do not get to choose or request what they want their PROPERTY to be classified; i t is the assessor s job to make this determination. The CLASSIFICATION system starts with the definition of classes and their class rates.

4 Comprehensive information on PROPERTY tax classifications can be found in the PROPERTY Tax Administrator s Manual. Classifications and Class Rates While the determination of class rates is perhaps the most important function served by the definition of classes, many other features of the system may relate to only certain classifications, so the determinations do have significance beyond the class rate that is applied to yield net tax capacities. The table, for example, identifies which classes are subject to the state general levy tax base (as will be discussed in later sections) and notes the alternative class rates used for the state PROPERTY tax.

5 Generally speaking, there are currently five categories of classes, each of which has numerous specific sub-classifications: Class 1 = Variations of Residential Homesteads Class 2 = Agricultural Homesteads, Agricultural Lands, and Rural Vacant Lands, Managed Forest Land, Private Airport, and Land with a Commercial Aggregate Deposit Class 3 = Commercial, Industrial, and Public Utility PROPERTY CHAPTER 4: TAX BASE OVERVIEW AND VALUATION OF PROPERTY CLASSIFICATION OF PROPERTY - 2 UP TO DATE THROUGH 2017 SESSION Class 4 = Rental Housing, Non- homestead Residential, Agricultural Dwellings, Manufactured Home Parks, and Seasonal properties Class 5 = Minerals and Other Miscellaneous PROPERTY The classifications and class rates are continually being adjusted and redefined by the legislature.

6 A class rate table can be found in Module 3 of the PROPERTY Tax Administrator s Manual. CHAPTER 4: TAX BASE OVERVIEW AND VALUATION OF PROPERTY CLASSIFICATION OF PROPERTY - 3 UP TO DATE THROUGH 2017 SESSION homestead Status One of the most important distinctions in the various definitions of classes is the distinction of homesteads from non-homesteads or other sorts of PROPERTY . homestead status is a fundamental concept that has been closely guarded by the legislature. Even though current class rates have largely eliminated the difference between homesteads and non-homesteads (which once had much different class rates), homestead status is important for many features of the tax system because it determines eligibility for programs such as PROPERTY tax refunds, senior deferrals, and the homestead exclusion.

7 homestead Determination homestead determination is a complex topic when all of the exceptions are considered. Agricultural homesteads have some special provisions. This manual does not cover all of the exceptions, rules, and details pertaining to homesteads. The Assessor s PROPERTY Tax Administrator s Manual located on the Department of Revenue s website provides greater detail on homestead determination. Some general rules, definitions, and topics for homestead determination follow. Residential real estate that is occupied and used for the purposes of a homestead by its owner is a residential homestead .

8 The owner must be a Minnesota resident. Agricultural land that is occupied and used as a homestead by its owner is an agricultural homestead . The owner must be a Minnesota resident. Full-Year homestead The PROPERTY is occupied by its owner on January 2nd of the assessment year. Mid-Year homestead The PROPERTY must be owned and occupied by its owner on December 1st of the assessment year and application must be made by December 15th to qualify for a mid-year homestead . Mid-year homesteads result in the same tax as a full-year homestead . An owner may not have the benefits of the homestead CLASSIFICATION in more than one place.

9 A person may have only one homestead and that must be their place of abode on January 2nd. (Exceptions to this rule may include a second mid-year homestead in the year of a sale or in cases of divorce.) homestead requirements are prescribed by the state. No county or other jurisdiction has the authority to impose additional requirements. Manufactured Homes In the case of manufactured homes assessed as personal PROPERTY , the homestead must be established and application made by May 29 of the assessment year. Manufactured Homes Park Cooperatives If a manufactured home park is owned by a legally organized corporation or association and each shareholder/member in the corporation or association is entitled to occupy a lot within the park, then the park may claim homestead treatment.

10 Each lot must be designated by legal description or number, and each lot is limited to not more than one-half acre of land. The homestead rate received depends on the number of occupying shareholders within the park; if over 50% of the park is owned by occupying shareholders then class rate is , otherwise the class rate is set at 1 Minn. Stat. , subd. 3a CHAPTER 4: TAX BASE OVERVIEW AND VALUATION OF PROPERTY CLASSIFICATION OF PROPERTY - 4 UP TO DATE THROUGH 2017 SESSION homestead Application and Discontinuation A person who meets the requirements for the homestead CLASSIFICATION must file a homestead application with the county assessor to initially obtain the homestead CLASSIFICATION .