Tax abatement is the ability for an individual taxing entity (such as the city, county, or school district) to capture and use all or a portion of the local property tax revenues within a defined geographic area to finance a specified project or improvement. It allows each major taxing jurisdiction to choose to contribute its share of the taxes and limit abatement in any manner it determines appropriate. The taxing entity can grant an abatement without other jurisdictions agreeing to participate. Tax abatement is governed by Minnesota Statutes 469.1812–469.1815
The law allows abatement’s to be used for a broad range of projects and purposes, if the Granite Falls EDA finds that public benefits exceed the costs. Permitted uses of abatement’s include the following:
How does Abatement Work?
In practice, tax abatement is a reallocation of taxes rather than an exemption from paying taxes. The abatement resolution, approved by the political subdivision, specifies the duration and the amount of property taxes that will be abated (in any one year, taxes abated may not exceed the larger of 10 percent of the net tax capacity of the political subdivision; or $200,000). The political subdivision has considerable flexibility in setting the terms of the abatement; for example, it may set the abatement as a percentage of tax payable, a dollar amount, tax attributable to a portion of the parcel’s market value, or something else. The local government adds the abatement to its property tax levy for the year. The owner pays property tax on a parcel and the political subdivision uses the payments as provided by the abatement resolution. For example, the abatement may be used to pay bonds or be given back to the property owner.
After identifying the details of the abatement, including the amount, term and the parcels for abatement, a public hearing with at least a 10 day published notice must be held by each entity granting the abatement. The entity granting the abatement is then required to adopt a resolution approving the abatement. The adopting resolution must include the following:
This process must be completed by each entity granting the abatement.