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Property Tax 101

Tax Glossary

Ad Valorem Tax:  A tax based on the value of real estate or personal property. Property tax is a form of Ad Valorem Tax.

Apportionment: The share of property taxes given to each taxing district.

Categorical Aid: Funds given to a local unit of government to be used only for a specific purpose.

Circuit Breaker: A type of Property Tax Refund.

Class Rates:  The percent of market value set by state law, based on use and property type, that establishes the property’s tax capacity subject to the property tax.

County Program Aid: Funds from the state to help with county services. It provides property tax relief.

Education Aid: The total amount of state dollars paid for K–12 education. This aid is paid to the school districts.

Fiscal Disparity:  A seven-county metro area aid program in which 40 percent of the commercial/industrial tax base of communities forms a “pool” of aid to metro communities without that tax base. The program promotes better regional planning and improve equity in the distribution of fiscal resources. To learn more, read Minnesota’s Fiscal Disparities Programs Report.

General Purpose Aid:  Funds given to units of government to be used at their own discretion. Examples are Local Government Aid and County Program Aid.

Green Acres:  A property tax deferral program established for qualifying agricultural properties. Find out more about Green Acres.

Highway Aid: The money the state distributes to counties, cities and townships for highways and bridges.

Homestead: A residence occupied by the owner.

Individual Income Tax: A state tax on the income of residents and non-residents with Minnesota sources of income.

Levy: The imposition of a tax, usually by a local unit of government.

Levy Limit: The amount a local unit of government is permitted to levy for specific services.

Local Government Aid (LGA): Money from the state provided to cities for property tax relief.

Local Sales Tax: A local tax, authorized by the state, levied on the sale of goods and services to be used for specific purposes by the local government. In addition to the State of Minnesota’s 6.5-percent tax on taxable purchases within the state (sales tax) and outside the state (use tax), Dakota County applies an additional 0.25-percent tax to taxable purchases within the County (sales tax) and outside of the County (use tax).

Local Tax Rate: The rate used to determine the property tax due on a property.

Market Value: An assessor’s estimate of what property would be worth if it were sold.

Market Value Agriculture Credit: A state credit to buy down the property tax rate paid by agricultural homesteads to the local taxing jurisdiction.

Market Value Homestead Credit: A state credit to buy down the property tax rate paid by a residential homestead to the local taxing jurisdiction.

Property Classification: The use of each parcel. For instance, property may be residential homestead (owner-occupied), residential non-homestead, agricultural, or commercial. Each classification is taxed at a different percentage of market value.

Property Tax: A tax levied on any kind of property.

Property Tax Refund: A partial property tax refund program for those who have property taxes out of proportion with their income. This program is available to homeowners and renters.

Sales Ratio Study: A Minnesota Department of Revenue conducted study of open market property sales, which is then compared to local assessments to ensure that local assessments adequately reflect the market.

Sales Tax: A tax levied on the sale of goods and services.

State General Property Tax: A state-imposed property tax on commercial, industrial and seasonal recreational properties.

State Sales Tax: A state tax (6.5%) levied on the sale of goods and services that is deposited into the state general fund. In addition to the State of Minnesota’s 6.5-percent tax on taxable purchases within the state (sales tax) and outside the state (use tax), Dakota County applies an additional 0.25-percent tax to taxable purchases within the County (sales tax) and outside of the County (use tax).

Tax Capacity: The valuation of property based on market value and class rates, on which property taxes are determined.

Tax Increment Financing (TIF): A municipal development program enabling a city to use the additional property taxes that a development project generates to finance land acquisition, demolition and other costs necessary for that development to occur. Usually the issuance of a bond is necessary to finance these up-front costs. Bonds are repaid by the extra taxes that are generated by the new development and construction. The taxes captured to repay the bonds go to the TIF district instead of going to all the taxing districts that normally levy a tax on the property. Properties with the same market value, class and area will pay the same tax even if one is in a tax increment district and the other is not. To learn more about tax increment financing read the House Research Report.

Last updated: 1/21/2014 8:35 AM