The post-pandemic plight of the office sector is shifting the property tax burden to other commercial real estate properties and even residential homes in Hennepin County, Minnesota, where most of the state's large office buildings are located, according to a Colliers case study.

Minnesota's property tax system is based on Net Tax Capacity (NTC), which determines how much of any building's value can be taxed by the state and local governments. These jurisdictions determine how much money they need, also known as a levy, and calculate a tax rate by dividing the levy by the total NTC of the jurisdiction.

Minnesota classifies properties as residential, apartment, commercial or specialty and assigns a different share of the tax burden based on their class. Commercial class buildings, including office, industrial and retail, are classed at 2% of their value. Thus a $1 million commercial building would have an NTC of $20,000. Single-family residential properties are classed at 1% and apartment buildings at 1.25%, meaning a $1 million apartment building would have an NTC of $12,500. or 37.5% less than a commercial building of the same market value.

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