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MINNESOTA COUNCIL OF NONPROFITS HOME

Senate Omnibus 2001 Tax Bill

The Senate Tax bill provides a little over $600 million in tax relief for the 2002-03 biennium, as well as a $425 million rebate.  This summary is intended to give an overview of the major components of the bill and to highlight items with an impact on low- and moderate-income families and nonprofit organizations. 

Property Taxes and Local Government Aid

The primary emphasis of the bill is $540 million of property tax relief in the 2002-03 biennium.  The bill focuses on property tax reductions for mid-value homes through class rates reductions.  Class rates describe what percentage of a property’s value is subject to property tax.  Classes are based on the property’s usage.  The table below lists the proposed changes to the major class rates, as well as the effective tax rate, which is the amount of tax as a percentage of property value. 

	Class Rates		Statewide Average Effective Tax Rate (2002)
	Current	Senate	Current	Senate
Residential Homestead			1.36%	1.15%
Value less than $76,000	1%	1%
Value $76,000 - $200,000	1.65%
Value over $200,000		1.5%
Residential Non-homestead			1.84%	1.71%
Value less than $76,000	1.2%	1%
Value $76,000 - $200,000	1.65%
Value over $200,000		1.5%
Multifamily Residential
2-3 Units: value less than $200,000	1.65%	1.3% in 2002 1% in 2003
2-3 Units: value over $200,000		1.5%
4 or more units	2.4%	1.8%[1]	2.95%	2.68%
Small City 4 or more units	2.15%
Low Income (4D) Apartments	1%	0.756%	1.38%	1.26%
Seasonal Recreational (Cabins)			1.48%	1.43%
Value less than $76,000	1.2%	1%
Value $76,000 to $100,000	1.65%
Value $100,000 to $150,000		1.5% in 2002 1% in 2003
Value $150,000 to $200,000		1.5% in 2002 1% in 2004
Value over $200,000		1.5%
Commercial/Industrial
Value less than $150,000	2.4%	2%	3.16%	3.04%
Value $150,000 to $300,000	3.4%		4.24%	4.20%
Value over $300,000		3%
Farm Land – Homestead			0.78%	0.67%
Value under $115,000	0.35%	0.35%
Value $115,000 - $600,000	0.8%	0.6%
Value over $600,000	1.2%	1%
Farm – Non-homestead	1.2%	1%	1.13%	1.07%

The bill also makes changes to the Property Tax Refund program, which provides tax relief to low- and moderate-income households whose property taxes are high in relation to their income.  The Property Tax Refund is commonly called the Circuit Breaker when it applies to homeowners and the Renter’s Credit as it applies to renters.  The Senate proposes to increase the maximum Circuit Breaker to $1,190.  Regarding the Renter’s Credit, the bill increases the percentage of rent considered to be the renter’s share of property taxes for the purpose of calculating the refund from 19% to 20%.

In conjunction with these property tax changes, the bill makes a number of changes to aid programs to local governments, including the largest programs, HACA and Local Government Aid (LGA).  The bill provides for the state takeover of 50% of the non-federal share of county out-of-home placement costs, administrative court costs in those judicial districts where this has not already occurred, and for reimbursement for counties for the non-federal share of day training and rehabilitation costs.  County HACA is reduced to offset these changes.

Sales Tax Rebate

The Senate proposes a $425 million Sales Tax Rebate, similar to the 2000 rebate.  The rebate is calculated using a schedule based on filing status and taxable income and ranges from $116 to $1,600 for married filing jointly and head-of-household filers and from $59 to $800 for other filers.

To receive a rebate based on the rebate schedule, the taxpayer must have filed a 1999 Minnesota income tax return by November 20, 2001, had at least $1 of state income tax liability, and not be a dependent.

The following groups of persons will also receive rebates, but not calculated on the rebate schedule:

• Dependents age 18 or older with wage income will receive 35% of the rebate amount for non-dependents of the same income level.
• Recipients of social security, railroad retirement benefits, or a public pension will receive a rebate of $59 (does not include dependents).
• Persons who filed a 1999 Minnesota income tax return to receive a refund of withholding or to claim a refundable credit but did not have tax liability, or filed for a 1999 Minnesota property tax refund, will receive the minimum rebate amount for their filing status (does not include dependents).
• Non-residents who paid at least $10 in Minnesota sales tax on non-business purchases can apply for a rebate of 20.24% of the sales tax paid.  This rebate cannot exceed the amount a Minnesota resident of the same income level would receive.

This rebate provision uses half of the 2000-01 surplus amount estimated by the February forecast.

The bill also provides for an expansion of the 2000 rebate to cover persons who had federal tax liability of at least $1 in 1998 but was not otherwise eligible for the rebate.  Such persons must apply for the rebate.  Persons in this situation may also apply for the 2001 rebate.

Income Taxes

The bill contains relatively small amounts of income tax changes, with a $59 million reduction in corporate taxes, and a $10 million net increase in individual income tax changes in the 2002-03 biennium.  In addition, the bill would appropriate $200,000 for the biennium for grants to nonprofits providing volunteer tax assistance to low-income and disadvantaged taxpayers.

The changes in the individual income tax relate to credits and subtractions.  Subtractions reduce the amount of income subject to Minnesota tax, while credits reduce the amount of tax paid.  These changes include: 

• Allowable expenses for the K-12 credit and subtraction are expanded to include pre-kindergarten educational expenses, and for the credit, purchase or lease of musical instruments for students up through grade 8.  The credit is reduced from 100% of allowable expenses to 80% of allowable expenses.
• Active duty, Reserves, and National Guard personnel would be able to subtract the first $1,500 of pay from their taxable income.
• A new, non-refundable credit would be created for donation of land for conservation.  The credit would equal 50% of the fair market value of the land donated.
• A new credit for historic structure rehabilitation is created equal to 25% of the costs for rehabilitation.  This is a refundable credit, so if the credit amount exceeds tax liability, the excess is refunded to the taxpayer.
• A new credit for adoption expenses is created, equal to 80% of expenses incurred in the adoption of a child, with a maximum credit amount of $8,000 for the adoption of a special needs child, $5,000 for the adoption of a child without special needs.  The credit is not refundable, but if the amount of credit exceeds the amount of the taxpayer’s tax liability, the excess can be claimed in following years.

Sales Tax

The Senate tax bill does not include the Governor’s suggestions to expand the sales tax to services and lower the rate.  This section of the bill does, however, raise an additional $61.7 million in sales taxes in 2002-03, primarily due to telecommunication tax reform.  The bill does include sales tax exemptions for various items, such as energy-efficient products.

The bill makes a number of definitional and process changes so that the state is in compliance with the Streamlined Sales Tax, a national effort that may enable the states to eventually begin collecting the sales tax that is due on internet and catalog sales.

Taxes on Nonprofit Organizations

The Governor proposed a number of proposals that would have directly affected the tax-exempt status of nonprofits in his tax reform proposal.  There are no significant changes to nonprofits’ tax status in the Senate omnibus bill.  Some provisions relating to nonprofits include:

• The bill tightens up the current sales tax exemption for tickets to arts events to limit the exemption to events truly put on by nonprofit arts organizations. 
• The bill also clarifies that fundraising sales for combined campaigns are not taxable (i.e., a company that sells cookbooks to their employees to raise money for United Way would not have to collect sales tax on the cookbooks.)
• Sales tax exemption for nonprofits (and local government entities) on construction materials to produce qualified low-income housing.

Click footnote number to return to text.

[1] Apartment owners can receive an additional 0.3 reduction in class rate (down to 1.5%) if half of the savings from the 0.3 reduction is used to reduce rents.

Updated May 17, 2001

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