Lake cabin owners take hard hit with increased property taxes

Thousands of Minnesota property owners will face big property tax increases next year, and a change in state law is causing sticker shock for many. Among the hardest hit are lake cabin owners and farmers.

Mary Farrell and her husband own a summer cabin on Burntside lake near Ely. It belonged to her father before her and she hopes to pass it on to her children.

She was shocked when her statement of proposed property taxes for next year arrived in the mail.

"It went up $2,700," Farrell said.

Farrell is one of thousands of Minnesota lake property owners who benefited from something called limited market value.

Limited market value has been part of Minnesota's property tax system since the 1970s. It was in place from 1973 to 1979 when a tax court ruled it unconstitutional.

After other court rulings validated the use of LMV, the Minnesota Legislature reinstated it in 1993. The 2000 Legislature voted to phase out LMV, ending the program in 2009.

At the program's peak in 2004, nearly $32 billion was excluded from the property tax rolls under LMV.

The idea was to limit property tax increases when property values increased rapidly. There was a cap on how much of that increase could be taxed, so in many cases the gap between market value and taxable value grew wider over the years. In many areas, lake cabins will be hit hard because their value increased more rapidly than other real estate.

The state has been phasing out limited market value since 2000, but the end of the program this year still caught many people by surprise. For Mary Ferrell, it meant the taxes on her cabin for next year increased by 44 percent.

"We're retired, in our mid-70s, on a fixed income unless one of our stocks does well, and you know how that's been lately," Ferrell said. "I'm hoping that between my children and myself we can hold on to it for awhile, but it makes you angry. A 44 percent increase doesn't seem fair."

Lake property owners across the state are feeling the pinch. The end of LMV also affects farmers and those under the homestead residential classification.

Jeff Forester, executive director of the Minnesota Seasonal Recreational Property Owners Association, said the big tax increases are especially worrisome for retired lakeshore residents who are on a fixed income.

"There's no connection between ability to pay a property tax and the property tax," Forester said. "Because my property is worth more doesn't mean I have more income."

But on the other side of the coin is the argument that those seasonal property owners have been getting a break at the expense of other homeowners.

Otter Tail County has hundreds of lakes and thousands of seasonal residents. County Assessor Robert Moe said some lake residents may see property tax increases of 30 percent or more.

Since cabin owners will be paying more, many residents who live in town will see their taxes stay the same or go down. Moe said most of those homeowners didn't see their property values spike in recent years, so they did not benefit from the limited market value cap. Moe said they paid taxes on the full value of their property.

"You could basically say they were subsidizing the people who were getting limited market value," Moe said. "They were paying more taxes because someone else was not paying on their full amount of value. It's shifted back now to where there's probably a little more even playing field."

Moe said lake homeowners should have known the change was coming. It's been phased in for several years, and each year there's been a note on property tax statements. But he said the complexity of the property tax system is often confusing for residents, so he's not surprised many were shocked by the big tax increase for next year.

Otter Tail County farmer Dale Menze has 1,300 acres, some around a lake, so it's taxed at a higher rate. He said his property taxes went up anywhere from 21 percent to 130 percent.

Menze said he just wants a clear explanation. He's angry that the property tax system is so complicated he can't even understand all of the classifications and formulas.

"The bureaucrats have made it that way, and us people have allowed it to happen," Menze said. "It's time to put the brakes on. We can back this thing off and make it reasonable. I'm just a simple farmer, but I can understand a budget. Make it so everybody can understand it because right now it's just overwhelming."

Menze said he's not happy about the extra taxes, but he's most worried about retired neighbors who fear they might be forced to sell their property because they can't afford the taxes.

Property taxes for next year must be finalized by December 28.