1.1 	A bill for an act
1.2 	relating to taxation; property; establishing a
1.3 	low-income apartment property class; restricting
1.4 	market value based on actual rent; amending Minnesota
1.5 	Statutes 2004, section 273.13, subdivision 25;
1.6 	proposing coding for new law in Minnesota Statutes,
1.7 	chapter 273.
1.8 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.9 	Section 1. [273.126] CERTIFICATION OF LOW-INCOME RENTAL
1.10 	PROPERTY.
1.11 		Subdivision 1.Requirement. Low-income rental property
1.12 	is entitled to classification as class 4d under section 273.13,
1.13 	subdivision 25, paragraph (e), if the unit in the rental housing
1.14 	property meets any of the following qualifications:
1.15 	(1) the unit is subject to a housing assistance payments
1.16 	contract under Section 8 of the United States Housing Act of
1.17 	1937, as amended;
1.18 	(2) the unit is a rent-restricted and income-restricted
1.19 	unit of a qualified low-income housing project receiving tax
1.20 	credits under section 42(g) of the Internal Revenue Code of
1.21 	1986, as amended;
1.22 	(3) the unit is financed by the Rural Housing Service of
1.23 	the United States Department of Agriculture and receives
1.24 	payments under the rental assistance program pursuant to Section
1.25 	521(a) of the Housing Act of 1949, as amended; or 
1.26 	(4) the unit is subject to rent and income restrictions
2.1 	under the terms of financial assistance provided to the rental
2.2 	housing property by a federal, state, or local unit of
2.3 	government as evidenced by a document recorded against the
2.4 	property.
2.5 	The restrictions must require assisted units to be occupied
2.6 	by residents whose household income, at the time of initial
2.7 	occupancy, does not exceed 60 percent of the greater of area or
2.8 	state median income, adjusted for family size, as determined by
2.9 	the United States Department of Housing and Urban Development.
2.10 	If the resident's income met the requirement when the resident
2.11 	first occupied the unit, the income of the resident continues to
2.12 	qualify.  The restriction must also require the rents for
2.13 	assisted units to not exceed 30 percent of 60 percent of the
2.14 	greater of area or state median income, adjusted for family
2.15 	size, as determined by the United States Department of Housing
2.16 	and Urban Development.
2.17 		Subd. 2.Determination of market value. (a) The
2.18 	assessor, in determining the market value of any rental housing
2.19 	property meeting the qualifications of subdivision 1, shall use
2.20 	the productive and earning capacity from the actual rents
2.21 	received as the method of appraisal using a vacancy rate of not
2.22 	more than five percent capitalized at normal market rate for
2.23 	multifamily housing.  The assessor shall take into account the
2.24 	extent to which the use and limitation of the qualifying units
2.25 	reduces the market value of the property.  The assessor shall
2.26 	not consider any tax credit equity or other subsidized financing
2.27 	as income provided to the property in determining the market
2.28 	value.
2.29 	(b) The net operating income must be calculated based upon
2.30 	a financial statement prepared by an independent certified
2.31 	public accountant or firm, utilizing standard real estate
2.32 	appraisal methodology.  The financial statement must show the
2.33 	revenues, expenses, cash flows, assets, liabilities, and net
2.34 	assets for the property for which an application is made under
2.35 	this section.
2.36 	(c) The capitalization rate applied to net operating income
3.1 	shall be established jointly by the commissioner and the Housing
3.2 	Finance Agency based on local market data and industry
3.3 	standards.  The commissioner and the Housing Finance Agency
3.4 	shall jointly establish separate rates based on types of rental
3.5 	housing properties and their locations.
3.6 		Subd. 3.Application. (a) Application for certification
3.7 	under this section must be filed by March 31 of the levy year,
3.8 	or at a later date if the Housing Finance Agency deems
3.9 	practicable.  The application must be filed with the Housing
3.10 	Finance Agency, on a form prescribed by the agency, and must
3.11 	contain the information required by the agency.
3.12 	(b) Each application must include:
3.13 	(1) the property tax identification number; and 
3.14 	(2) evidence that the property meets the requirements of
3.15 	subdivision 1.
3.16 	(c) The Housing Finance Agency may charge an application
3.17 	fee approximately equal to the costs of processing and reviewing
3.18 	the applications, but not to exceed $10 per unit.  If imposed,
3.19 	the applicant must pay the application fee to the agency.  The
3.20 	fee must be deposited in the housing development fund.
3.21 		Subd. 4.Certification. By June 1 of each levy year, the
3.22 	Housing Finance Agency must certify to local assessors the
3.23 	properties that are qualified under this section and the number
3.24 	of units in the building that qualify.  In making the
3.25 	certification, the agency may rely on the application and any
3.26 	other supporting information that the agency deems necessary
3.27 	from the property owner.
3.28 	
EFFECTIVE DATE. This section is effective for the 2005
3.29 	assessment, taxes payable in 2006, and subsequent years.  For
3.30 	the 2005 assessment only, the application date in subdivision 3
3.31 	is extended to August 1, 2005, and the certification date in
3.32 	subdivision 4 is extended to September 1, 2005.

3.33 	Sec. 2. Minnesota Statutes 2004, section 273.13,
3.34 	subdivision 25, is amended to read:
3.35 		Subd. 25.Class 4.  (a) Class 4a is residential real
3.36 	estate containing four or more units and used or held for use by
4.1 	the owner or by the tenants or lessees of the owner as a
4.2 	residence for rental periods of 30 days or more, excluding
4.3 	property qualifying for class 4d.  Class 4a also includes
4.4 	hospitals licensed under sections 144.50 to 144.56, other than
4.5 	hospitals exempt under section 272.02, and contiguous property
4.6 	used for hospital purposes, without regard to whether the
4.7 	property has been platted or subdivided.  The market value of
4.8 	class 4a property has a class rate of ~~1.8 percent for taxes~~
4.9 	~~payable in 2002, 1.5 percent for taxes payable in 2003, and~~ 1.25
4.10 	percent ~~for taxes payable in 2004 and thereafter, except that~~
4.11 	~~class 4a property consisting of a structure for which~~
4.12 	~~construction commenced after June 30, 2001, has a class rate of~~
4.13 	~~1.25 percent of market value for taxes payable in 2003 and~~
4.14 	~~subsequent years~~.
4.15 	(b) Class 4b includes:
4.16 	(1) residential real estate containing less than four units
4.17 	that does not qualify as class 4bb, other than seasonal
4.18 	residential recreational property;
4.19 	(2) manufactured homes not classified under any other
4.20 	provision;
4.21 	(3) a dwelling, garage, and surrounding one acre of
4.22 	property on a nonhomestead farm classified under subdivision 23,
4.23 	paragraph (b) containing two or three units; and
4.24 	(4) unimproved property that is classified residential as
4.25 	determined under subdivision 33.
4.26 	The market value of class 4b property has a class rate of
4.27 	~~1.5 percent for taxes payable in 2002, and~~ 1.25 percent ~~for~~
4.28 	~~taxes payable in 2003 and thereafter~~.
4.29 	(c) Class 4bb includes:
4.30 	(1) nonhomestead residential real estate containing one
4.31 	unit, other than seasonal residential recreational property; and
4.32 	(2) a single family dwelling, garage, and surrounding one
4.33 	acre of property on a nonhomestead farm classified under
4.34 	subdivision 23, paragraph (b).
4.35 	Class 4bb property has the same class rates as class 1a
4.36 	property under subdivision 22.
5.1 	Property that has been classified as seasonal residential
5.2 	recreational property at any time during which it has been owned
5.3 	by the current owner or spouse of the current owner does not
5.4 	qualify for class 4bb.
5.5 	(d) Class 4c property includes:
5.6 	(1) except as provided in subdivision 22, paragraph (c),
5.7 	real property devoted to temporary and seasonal residential
5.8 	occupancy for recreation purposes, including real property
5.9 	devoted to temporary and seasonal residential occupancy for
5.10 	recreation purposes and not devoted to commercial purposes for
5.11 	more than 250 days in the year preceding the year of
5.12 	assessment.  For purposes of this clause, property is devoted to
5.13 	a commercial purpose on a specific day if any portion of the
5.14 	property is used for residential occupancy, and a fee is charged
5.15 	for residential occupancy.  In order for a property to be
5.16 	classified as class 4c, seasonal residential recreational for
5.17 	commercial purposes, at least 40 percent of the annual gross
5.18 	lodging receipts related to the property must be from business
5.19 	conducted during 90 consecutive days and either (i) at least 60
5.20 	percent of all paid bookings by lodging guests during the year
5.21 	must be for periods of at least two consecutive nights; or (ii)
5.22 	at least 20 percent of the annual gross receipts must be from
5.23 	charges for rental of fish houses, boats and motors,
5.24 	snowmobiles, downhill or cross-country ski equipment, or charges
5.25 	for marina services, launch services, and guide services, or the
5.26 	sale of bait and fishing tackle.  For purposes of this
5.27 	determination, a paid booking of five or more nights shall be
5.28 	counted as two bookings.  Class 4c also includes commercial use
5.29 	real property used exclusively for recreational purposes in
5.30 	conjunction with class 4c property devoted to temporary and
5.31 	seasonal residential occupancy for recreational purposes, up to
5.32 	a total of two acres, provided the property is not devoted to
5.33 	commercial recreational use for more than 250 days in the year
5.34 	preceding the year of assessment and is located within two miles
5.35 	of the class 4c property with which it is used.  Class 4c
5.36 	property classified in this clause also includes the remainder
6.1 	of class 1c resorts provided that the entire property including
6.2 	that portion of the property classified as class 1c also meets
6.3 	the requirements for class 4c under this clause; otherwise the
6.4 	entire property is classified as class 3.  Owners of real
6.5 	property devoted to temporary and seasonal residential occupancy
6.6 	for recreation purposes and all or a portion of which was
6.7 	devoted to commercial purposes for not more than 250 days in the
6.8 	year preceding the year of assessment desiring classification as
6.9 	class 1c or 4c, must submit a declaration to the assessor
6.10 	designating the cabins or units occupied for 250 days or less in
6.11 	the year preceding the year of assessment by January 15 of the
6.12 	assessment year.  Those cabins or units and a proportionate
6.13 	share of the land on which they are located will be designated
6.14 	class 1c or 4c as otherwise provided.  The remainder of the
6.15 	cabins or units and a proportionate share of the land on which
6.16 	they are located will be designated as class 3a.  The owner of
6.17 	property desiring designation as class 1c or 4c property must
6.18 	provide guest registers or other records demonstrating that the
6.19 	units for which class 1c or 4c designation is sought were not
6.20 	occupied for more than 250 days in the year preceding the
6.21 	assessment if so requested.  The portion of a property operated
6.22 	as a (1) restaurant, (2) bar, (3) gift shop, and (4) other
6.23 	nonresidential facility operated on a commercial basis not
6.24 	directly related to temporary and seasonal residential occupancy
6.25 	for recreation purposes shall not qualify for class 1c or 4c;
6.26 	(2) qualified property used as a golf course if:
6.27 	(i) it is open to the public on a daily fee basis.  It may
6.28 	charge membership fees or dues, but a membership fee may not be
6.29 	required in order to use the property for golfing, and its green
6.30 	fees for golfing must be comparable to green fees typically
6.31 	charged by municipal courses; and
6.32 	(ii) it meets the requirements of section 273.112,
6.33 	subdivision 3, paragraph (d).
6.34 	A structure used as a clubhouse, restaurant, or place of
6.35 	refreshment in conjunction with the golf course is classified as
6.36 	class 3a property;
7.1 	(3) real property up to a maximum of one acre of land owned
7.2 	by a nonprofit community service oriented organization; provided
7.3 	that the property is not used for a revenue-producing activity
7.4 	for more than six days in the calendar year preceding the year
7.5 	of assessment and the property is not used for residential
7.6 	purposes on either a temporary or permanent basis.  For purposes
7.7 	of this clause, a "nonprofit community service oriented
7.8 	organization" means any corporation, society, association,
7.9 	foundation, or institution organized and operated exclusively
7.10 	for charitable, religious, fraternal, civic, or educational
7.11 	purposes, and which is exempt from federal income taxation
7.12 	pursuant to section 501(c)(3), (10), or (19) of the Internal
7.13 	Revenue Code of 1986, as amended through December 31, 1990.  For
7.14 	purposes of this clause, "revenue-producing activities" shall
7.15 	include but not be limited to property or that portion of the
7.16 	property that is used as an on-sale intoxicating liquor or 3.2
7.17 	percent malt liquor establishment licensed under chapter 340A, a
7.18 	restaurant open to the public, bowling alley, a retail store,
7.19 	gambling conducted by organizations licensed under chapter 349,
7.20 	an insurance business, or office or other space leased or rented
7.21 	to a lessee who conducts a for-profit enterprise on the
7.22 	premises.  Any portion of the property which is used for
7.23 	revenue-producing activities for more than six days in the
7.24 	calendar year preceding the year of assessment shall be assessed
7.25 	as class 3a.  The use of the property for social events open
7.26 	exclusively to members and their guests for periods of less than
7.27 	24 hours, when an admission is not charged nor any revenues are
7.28 	received by the organization shall not be considered a
7.29 	revenue-producing activity;
7.30 	(4) postsecondary student housing of not more than one acre
7.31 	of land that is owned by a nonprofit corporation organized under
7.32 	chapter 317A and is used exclusively by a student cooperative,
7.33 	sorority, or fraternity for on-campus housing or housing located
7.34 	within two miles of the border of a college campus;
7.35 	(5) manufactured home parks as defined in section 327.14,
7.36 	subdivision 3;
8.1 	(6) real property that is actively and exclusively devoted
8.2 	to indoor fitness, health, social, recreational, and related
8.3 	uses, is owned and operated by a not-for-profit corporation, and
8.4 	is located within the metropolitan area as defined in section
8.5 	473.121, subdivision 2;
8.6 	(7) a leased or privately owned noncommercial aircraft
8.7 	storage hangar not exempt under section 272.01, subdivision 2,
8.8 	and the land on which it is located, provided that:
8.9 	(i) the land is on an airport owned or operated by a city,
8.10 	town, county, Metropolitan Airports Commission, or group
8.11 	thereof; and
8.12 	(ii) the land lease, or any ordinance or signed agreement
8.13 	restricting the use of the leased premise, prohibits commercial
8.14 	activity performed at the hangar.
8.15 	If a hangar classified under this clause is sold after June
8.16 	30, 2000, a bill of sale must be filed by the new owner with the
8.17 	assessor of the county where the property is located within 60
8.18 	days of the sale; and
8.19 	(8) residential real estate, a portion of which is used by
8.20 	the owner for homestead purposes, and that is also a place of
8.21 	lodging, if all of the following criteria are met:
8.22 	(i) rooms are provided for rent to transient guests that
8.23 	generally stay for periods of 14 or fewer days;
8.24 	(ii) meals are provided to persons who rent rooms, the cost
8.25 	of which is incorporated in the basic room rate;
8.26 	(iii) meals are not provided to the general public except
8.27 	for special events on fewer than seven days in the calendar year
8.28 	preceding the year of the assessment; and
8.29 	(iv) the owner is the operator of the property.
8.30 	The market value subject to the 4c classification under this
8.31 	clause is limited to five rental units.  Any rental units on the
8.32 	property in excess of five, must be valued and assessed as class
8.33 	3a.  The portion of the property used for purposes of a
8.34 	homestead by the owner must be classified as class 1a property
8.35 	under subdivision 22.
8.36 	Class 4c property has a class rate of 1.5 percent of market
9.1 	value, except that (i) each parcel of seasonal residential
9.2 	recreational property not used for commercial purposes has the
9.3 	same class rates as class 4bb property, (ii) manufactured home
9.4 	parks assessed under clause (5) have the same class rate as
9.5 	class 4b property, (iii) commercial-use seasonal residential
9.6 	recreational property has a class rate of one percent for the
9.7 	first $500,000 of market value, which includes any market value
9.8 	receiving the one percent rate under subdivision 22, and 1.25
9.9 	percent for the remaining market value, (iv) the market value of
9.10 	property described in clause (4) has a class rate of one
9.11 	percent, (v) the market value of property described in clauses
9.12 	(2) and (6) has a class rate of 1.25 percent, and (vi) that
9.13 	portion of the market value of property in clause (8) qualifying
9.14 	for class 4c property has a class rate of 1.25 percent.
9.15 	(e) Class 4d property is qualifying low-income rental
9.16 	housing certified to the assessor by the Housing Finance Agency
9.17 	under section 273.126, subdivision 4.  If only a portion of the
9.18 	units in the building qualify as low-income rental housing units
9.19 	as certified under section 273.126, subdivision 4, only those
9.20 	qualifying units in the building qualify for class 4d.  The
9.21 	remaining portion of the building shall be classified by the
9.22 	assessor based upon its use.  Class 4d also includes land in
9.23 	proportion to the total market value of the building that is
9.24 	qualifying low-income rental housing.
9.25 	Class 4d property has a class rate of 1.0 percent.
9.26 	
EFFECTIVE DATE. This section is effective for the 2005
9.27 	assessment, taxes payable in 2006, and subsequent years.