BOARD LETTER NO. 08 - 104
FINANCE AND BUDGET COMMITTEE NO. 1
BOARD AGENDA NO.
DATE: March 11, 2008 RE: Recreational Lease Assessment
FROM: Alan L. Mitchell
County Administrator
Mel Hintz
County Assessor
RELATED DEPARTMENT GOAL(S):
The County Assessor’s Office is required to meet all state mandates for classifying and valuing taxable parcels as outlined in Minnesota Statutes 270-273.
ACTION REQUESTED:
The County Board is requested to respond to the February 25, 2008 Minnesota Department of Revenue (DOR) directive on Taxation of federal, state, county and city leases (copy attached). This directive has a substantial effect in the following two areas:
1. Assessors must value recreational leased land as if it were owned by the lessee in fee simple, with no restrictions or covenants.
2. For State lands leased by the Department of Natural Resources (DNR) under Minnesota Statutes §92.46, the land is exempt but the improvements are subject to tax based on the value of the improvements only. For State tax forfeited lands leased by St. Louis County under Minnesota Statutes §282.04, both the land and the improvements are subject to tax based on the value of the property as if it were owned by the lessee in fee simple.
BACKGROUND:
St. Louis County has nearly 1300 recreational leases issued by federal, state, county, and city governments to private individuals authorizing them to construct seasonally used structures on public land. Leases contain use and development restrictions that are far more limiting than existing zoning for fee owned property. Among the nearly 1300 recreational leases, there are 660 county hunting leases and 278 county lakeshore leases administered by the St. Louis County Land Department. Also included are 43 State hunting leases issued by the DNR under section 92.46. Sales of leased properties indicate, after deducting the value of the improvements, the leased premises sell on average at 50 percent of comparable fee owned parcels.
Based on a review by the DOR, the valuation and taxation of the land on these leased properties is inconsistent. Some assessors value the land at its estimated market value, others discount the value of the land because of the restrictions on use contained in the leases, and still others value the improvements only and place no value on the land. St Louis County and several of the neighboring counties are in the group that values the improvements only, with no value assigned to the land.
To address this inconsistency, the Department of Revenue concluded in their February 25, 2008 directive:
“Assessors should review the property records for the federal, state, county and city leases currently subject to personal property taxes. For state lands leased by the DNR under section 92.46, the land is exempt but the improvements are subject to tax based on the value of the improvements only. For federal, state owned tax forfeited land, county, and city lands, the land and improvements must be valued as if the lessee actually owns the property and must be taxed accordingly. Assessors must value the land as if it were owned by the lessee in fee simple, with no restrictions or covenants. Improvements must be valued at their fair market value. The Department is directing assessors to correct all records on these leases in accordance with applicable Minnesota laws for the 2008 assessment.”
RECOMMENDATION:
It is recommended that the Board adopt the attached resolution requesting that the Department of Revenue Directive on Taxation of federal, state, county and city leases be delayed to allow the Legislature to review this issue in the following two areas:
1. The section directing Assessors to value the land as if it were owned by the lessee in fee simple, with no restrictions or covenants. This directive will subject the lessee to a tax that is far greater than their ownership interest in the property.
2. The unfairness of granting tax exempt status to state land leased under section 92.46 while all other government leased land is subject to tax as if the lessee owned it in fee simple.
It is further recommended that the resolution be sent to the Minnesota Department of Revenue and all area State legislators.
BY COMMISSIONER ______
WHEREAS, the Minnesota Department of Revenue (DOR) issued a directive on February 25, 2008 on Taxation of federal, state, county and city lease; and
WHEREAS, this directive requires Assessors to value recreational leased land as if it were owned by the lessee in fee simple, with no restrictions or covenants; and
WHEREAS, sales prices of these lease properties are substantially lower than sales of similar fee owned properties; and
WHEREAS, following this DOR directive will subject the lessee to a tax based on a value that is far greater than their ownership interest in the property; and
WHEREAS, we know of no other instances where taxpayers are subject to a tax based on a value that is far greater than their ownership interest in the property; and
WHEREAS, for state lands leased by the Department of Natural Resources (DNR) under Minn. Statutes §92.46, the land is exempt and the improvements are subject to tax based on the value of the improvements only; and
WHEREAS, there are 660 county hunting leases on state-owned tax forfeited land in St. Louis County administered by the County Land Department under Minn. Statutes §282.04; and
WHEREAS, the rights conferred under state and county recreational leases are very similar; and
WHEREAS, for state tax forfeited lands leased by St. Louis County under Minn. Statutes §282.04, both the land and the improvements would be subject to tax based on the value of the property as if it were owned by the lessee in fee simple; and
WHEREAS, the St Louis County Board of Commissioners is committed to fair treatment of all taxpayers under the Minnesota Property Tax System.
NOW, THEREFORE, BE IT RESOLVED, the St. Louis County Board of Commissioners hereby requests that the Department of Revenue Directive on Taxation of federal, state, county and city leases be delayed to allow the Legislature to review this issue in the following two areas:
1. The section directing Assessors to value the land as if it were owned by the lessee in fee simple, with no restrictions or covenants. This directive will subject the lessee to a tax that is far greater than their ownership interest in the property.
2. The unfairness of granting tax exempt status to state land leased under section 92.46 while all other government leased land is subject to tax as if the lessee owned it in fee simple.
RESOLVED FURTHER, that this resolution shall be sent to the Minnesota Department of Revenue and all area State legislators.