Taxes & Incentives
City and county government leaders work to keep local tax rates competitive—understanding that healthy businesses within the community are vital for a strong economy. Government leaders balance the need for community services that make a community attractive with the tax rate to support them.
Each government unit can use incentives for qualifying projects to encourage companies to invest and create jobs in the county.
KCED staff can provide valuable leadership in analyzing projects to determine whether they meet incentive program qualifications and can develop finance models that benefit the business and the community.
Tax Increment Financing
Tax Increment Financing (TIF) uses the increased land property taxes that a new real estate development in a defined geographic area generates to offset eligible costs of the development. TIF is one of the most powerful tools in the economic development “toolbox.”
In Minnesota, TIF is used for two primary purposes:
- To induce or cause a development or redevelopment that otherwise would not occur.
- To finance public infrastructure (streets, sewer, water, or parking facilities) related to the development.
Different types of TIF districts include redevelopment, housing, economic development, and environmental remediation.
Tax Abatement
Abatements may be a temporary forgiveness or deferral of local property tax. They can serve similar purposes as TIF as economic development tools, provided the local government finds that public benefits exceed the costs. Unlike TIF, under Tax Abatement, all government jurisdictions can opt in or opt out of projects.
Two ways to look at Tax Abatement:
- With new construction and valuation:
- New construction and value added to the tax base will generate new taxes.
- As long as the annual abatement doesn’t exceed the amount of new taxes generated, there is no cost to the taxpayer.
- The city recognizes tax increases and abatement amounts and budgets accordingly.
- Taxes on the original value are collected.
- Without any new construction or valuation:
- No added/tax generated; total levy amount decreases.
- If expenditures remain constant, the other taxpayers foot the bill due to the elevated costs.
Find the KCED’s Tax Abatement Application here.