This information brief describes “targeting,” an additional property tax refund program that targets property tax relief to homeowners who have a large property tax increase in one year. It also includes historical information on refund data and program details.
Targeting provides a state refund for homeowners with large property tax increases
Targeting offsets some of the increase in a homeowner’s property taxes if the increase exceeds the specified thresholds. To qualify for a refund, a homeowner’s property tax must increase over his or her last year’s tax by more than both 12 percent and $100. The refund equals 60 percent of the tax increase over the greater of these minimums. The maximum refund is $1,000. The estimated cost of the targeting program for taxes payable in 2011 (i.e., fiscal year 2012) is $2.4 million. The following example shows how the refund is calculated.
|Payable 2010 Property Tax
Payable 2011 Property Tax
|2011 tax increase (over 2010)
Taxpayer pays first 12% of increase compared to last year’s tax, which must be at least $100 (12% x $1,400)
|Remaining increase eligible for refund ($600 – $168 = $432)||$432|
|State pays 60% of the excess over 12% up to $1,000 (60% x $432 = $259)||$259|
|Amount of 2011 increase paid by taxpayer ($600 – $259)||$341|
With the targeting refund, the taxpayer’s $600 tax increase (i.e., 42.9 percent) is reduced to an “out-of-pocket” property tax increase of $341 (i.e., 24.4 percent).
The taxpayer pays the full $2,000 amount of the 2011 property tax to the county. The first half is due in May and the second half in October. The taxpayer may apply to the state for a targeting refund any time after receiving his or her property tax statement. Refunds are paid in September 2011, at the same time the regular homeowner property tax refund is paid (provided the taxpayer has applied for the refunds by August 15, 2011). Since both the targeting and the regular property tax refunds are paid to the taxpayer before the October tax payment is due, they can be used to defray some of the current year’s tax.
The refund is based upon the net tax increase from the current year over the year immediately preceding it. The tax is after any property tax credits on the property, such as the homestead credit and the regular property tax refund, that the taxpayer receives.1 The tax on improvements made to the property is excluded in determining the net property tax increase. Thus the tax increase represents a true increase on the same property and does not reflect changes made to the property, such as adding a new garage or new room. However, the targeting program is cumulative. That is, the net tax after the targeting refund in one year becomes the base for calculating the targeting refund in the next year. As a result, a taxpayer could receive targeting relief for several years on the strength of a single year’s large tax increase.
In the case of farm homesteads, the refund applies to taxes on the house, garage, and one acre of land, which is the same amount of tax that qualifies for the regular property tax refund.
Targeting is administered with the regular property tax refund program
To simplify administration for both taxpayers and the Department of Revenue (DOR), the targeting refund is administered with the regular property tax refund. All of the definitions, filing procedures, penalties, etc., that apply to the regular property tax refund apply to the targeting refund.
Refund claims are filed using the Minnesota Department of Revenue Schedule M1PR, the property tax refund form. There is a separate schedule on the back of the M1PR (Schedule 1 – Special Refund) for the targeting program. The taxpayer may file for this refund after receiving his or her property tax statement. Claims filed before August 15, 2011, will be paid beginning in late September 2011. The deadline for filing claims based on taxes payable in 2011 is August 15, 2012; taxpayers filing claims after that date will not receive a refund. Forms are available online at DOR’s website, under “Forms and Instructions” (www.taxes.state.mn.us). The DOR’s telephone number to request forms is 651-296-4444.
Targeting has no income restrictions
Unlike the regular property tax refund, the targeting refund is not tied to the taxpayer’s household income. This is a major distinction between the two programs. In the regular property tax refund, the taxpayer’s household income may not exceed a specified maximum and the amount of household income affects the amount of the refund. Generally, the lower the income, the higher the refund, given the same qualifying property tax. (See the House Research publication, Homeowner’s Property Tax Refund Program, December 2010).
The targeting refund, on the other hand, does not use income as a factor, nor is there any limitation on the taxpayer’s household income.3 Therefore, many higher income taxpayers who do not qualify for the regular property tax refund due to income restrictions are eligible for the targeting refund. The targeting refund is designed to partially protect all homeowners, regardless of income, from a large property tax increase in one year.
The targeting program spans over 25 years
The 1980 Legislature initially enacted the “targeting refund” as a one-year program for taxes payable in 1981. It was reenacted intermittently and viewed as a temporary program during the next several years. Then in the 1989 special session, the legislature made the program permanent, and it has remained operative ever since. Tables 1 and 2 on the following pages illustrate the historical data for the targeting refund program.
Targeting Refund Data 1980-2010
(Taxes Payable 1981-2011)
|Year of Return||Property Tax Payable Year||Number of Returns||Total Amount||Average Refund Per Return|
|1982||1983||No Targeting Refund|
|1985-1987||1986-1988||No Targeting Refund|
83 – Season Recreation Residential Targeting
History of Targeting 1980-2008 (Taxes Payable 1981-2009)
|Year of Return||Property Tax Payable Year||Calculation||Minimum Qualifying Increase||Maximum Refund||Household Income Limitation||Total Appropriation||Law|
|Targeting Refund||Targeting Refund||Targeting Refund||Targeting Refund||Targeting Refund||Targeting Refund|
|1980||1981||State pays 50% of tax increase of 10%||None||$300||No limit||No Limit||1980, ch. 607, art. 3, § 2
—————————–1981, 1st spec. sess., ch. 1, art. 2, § 19
|1981||1982||State pays 75% of tax increase over 20%||None||$200||No limit||$14.2 million||1981, 1st spec. sess., ch. 1, art. 2, § 20|
|1983||1984||State pays 50% of tax increase over 20%
50% changed to 100%
$200 changed to no limit
|Phase-out: no refund at $40,000
$40,000 increased to $50,000; phase-out modified
|1983, ch. 342, art. 4, § 10
1984, ch. 502, art. 3, § 21
|1984||1985||State pays 50% of tax increase over 10% if property’s effective rate exceeds 2.25%||None||$200||No limit||No limit||1983, ch. 342, art. 4, § 11|
|1988||1989||State pays 75% of tax increase over 10% (Increase must be $40 or greater)||$40||$250||No limit||No limit||1988, ch. 719, art. 4, § 7|
|1989||1990||State pays 75% of first $250 increase over 10%; plus 90% of amount of increase over 10% and over the $250||$40||No limit||No limit||No limit||1989, 1st spec. sess., ch. 1, art. 7, § 3|
|1990||1991||Same as 1989||$40||No limit||No limit||No limit*||See footnote (8)|
|1991||1992||State pays 75% of first $275 increase over 10%; plus 90% of amount of increase over 10% and over the $275||$60||No limit||No limit||No limit*||See footnote (9)|
|1992||1993||State pays 75% of increase over 12%||$80||$1,500||No limit||No limit*||See footnote (10)|
|1993||1994||Same as 1992||$100||$1,500||No limit||No limit*||1994, ch. 383|
|1994||1995||State pays 60% of increase over 12%||$100||$1,000||No limit||$5.5 million||1993, ch. 375, art. 6, § 4|
|1995||1996||Same as 1994||$100||$1,000||No limit||$5.5 million||1994, ch. 587, art. 4, § 3|
|Same as 1994||$100||$1,000||No limit||$5.5 million||1996, ch. 471, art. 3, § 33|
|1997-2008||1998-2009||Same as 1994||$100||$1,000||No limit||No limit||1997, ch. 84, art. 1, § 4|
This and any related posts have been adopted from the Minnesota House of Representatives Research Department’s Information Brief, Targeting – A Property Tax Relief Program for Qualifying Homeowners, written by legislative analysts Karen Baker and Nina Manzi.
1 Laws 2001, first special session, chapter 5, article 4, section 2, provided that beginning with refunds based on taxes payable in 2002, the targeting refund is calculated before the regular refund. Before this change, the regular property tax refund was calculated first.
2 Laws 2001, 1st sp. sess., ch. 5, art. 4, sec. 1.
3 See Table 2; there was an exception to this in 1983 (payable 1984).
4 Includes both targeting programs. See Table 2 for a description of the two programs.
5 A total of 49,275 returns was filed in 1989. These two total to more than 49,275 because some taxpayers qualified for both targeting refunds; both refunds were filed on the same return.
6 Department of Revenue estimate from the November 2010 forecast is for $4.211 million for 2009 returns and $2.4 million for 2010 returns. However, the statutory appropriation is unlimited.
7 For years in which a specific appropriation amount is listed, if estimated total refund claims exceeded the amount appropriated, the Commissioner of Revenue was required to adjust the qualifying amount of tax increase or the percentage factor so that the total refund claims did not exceed the appropriation.
8 The original appropriation from the 1989 law was $7 million. Appropriation was increased to $13 million by Laws 1990, chapter 604, article 5, section 4.
9 Appropriation was unlimited by Laws 1991, chapter 291, article 1, section 34. (The original appropriation from the 1989 law was $6.5 million.)
10 Original appropriation from Laws 1991, chapter 291, article 1, section 34, was $5.5 million. Appropriation was unlimited by Laws 1992, chapter 511, article 2, section 30.
11 Laws 1994, chapter 383, restores the $100 minimum qualifying increase and removed the appropriation cap. The Commissioner of Revenue had increased the minimum qualifying increase to $300 because the original appropriation of $5.5 million from the 1992 law was insufficient to pay the expected refunds.