Legal Alerts

Reclassification of High-Value Seasonal Properties Portends a Catch-22 and Likely Tax Increases for Minnesota Non-Residents

Lindquist Gets Real: Real Estate Tips from Lindquist & Vennum

Many readers are likely familiar with the audit process that estate planners and high net worth individuals have been using to establish that they are not Minnesota residents for income and estate tax purposes. One element of these audits requires the individual to demonstrate that he or she is present in the state of Minnesota fewer than 183 days per year.

Some of these individuals continue to own a residence or cabin within Minnesota. In some cases the residence can be worth well in excess of $1,000,000. We have become aware that some counties may now be attempting to reclassify such property for real estate tax purposes from “non-homestead residential” to “noncommercial seasonal residential recreational”. View the exemplar notice here.

The significance of this change in classification is that the rates for “noncommercial seasonal residential recreational” (sometimes called the “ma and pa resort”) will likely be going up, a lot, for properties worth more than $1 million.

Minn Stat. 273.13 is the statute that governs our system of classifying real estate for tax purposes. Minnesota has a comparatively extensive system (some may call it Byzantine) for classifying property. Classification depends on actual use of the property, not its physical character. It is a factual issue. The procedure for disputing a change in classification is the same as that for disputing an increase in assessed value -- that is, file an appeal prior to April 30 of the year following the receipt of the notice.

To retain a “non-homestead residential” classification, it appears that the property needs to be occupied at least 250 days per year. This places many non-resident owners in a Catch-22, because they must in fact be present in the state fewer than 183 days.

It appears this change in classification may be the first step in increasing the tax rates on these properties. Minnesota Revenue publishes a table of tax rates for the various classifications of property. The current table can be found here. The relevant classifications are 4c(12), 4bb, and 1a. As can be seen from the note at the bottom of that page, under current rates seasonal properties are taxed at the same rate as residential non-homestead.

However, tax rates for each classification can be changed on a year-to-year basis, and as indicated in the notice sent by Hennepin County, taxes payable in 2015 will change for properties categorized as seasonal. We have not been able to unearth a rate table that will apply in 2015. However, given the fact that there is already an indication that the rates for high value 4c properties will increase in 2015, we feel it is prudent to resist the change in classification if possible.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.


AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.