Classification of property is one of the primary responsibilities of the Assessor’s Office. The classification is based on a property’s use and different classifications result in different tax amounts. There are five basic classifications in Minnesota, but there are over 50 different subclasses. The appraisers determine the classification as of January 2 of each year.
How Classifications Are Determined
Appraisers look at how each property is used when completing the assessment review. For instance, property may be residential homestead (owner-occupied), residential nonhomestead, apartment, agricultural, or commercial. The most common classification is the residential homestead, which has an application requirement as well as ownership and occupancy requirements.
If there is no use that is apparent on the assessment date, the appraisers look to a property's most probable, highest and best use. This may include looking at past use of the property in some cases, or they may look to potential uses or uses of neighboring property.
Each classification is taxed at a different percentage of market value. These tax rate percentages are referred to as “class rates” and are set by the Minnesota Legislature. These rates are uniform throughout the state. The classification rate has implications in the overall taxes associated with a property. These rates determine a property’s net tax capacity, which is the basis for most property taxes.
Calculating Tax Capacity
Tax capacity is generally calculated using the following formula: Taxable Market Value x Class Rate = Tax Capacity. The tax capacity is then multiplied by the local tax rate to calculate a portion of a property’s taxes.