John Olsrud: Why Send So Much Tax Relief Out Of State?

If a large corporation were to relocate from North Dakota to another state, we would justifiably be concerned about the loss of millions of dollars from our economy. Economists would be applying the multiplier effect and telling us the total loss to the state’s economy would be several times the money generated by that corporation. Yet, when the Legislature takes action that results in a similar transfer of money from North Dakota to other states, it seems no one even notices.

I am talking about property tax cuts and income tax cuts. Out-of-state interests own vast amounts of real property in North Dakota, especially commercial property. Just think of our shopping malls, big box stores, and other commercial developments owned by major corporations. Granted, property tax relief for these interests may improve the business climate in our state making it more attractive for further investments, but we should at least recognize the outflow of dollars when that relief is provided. You can bet there is cheering in Bentonville, Arkansas, every time our Legislature cuts property taxes.

Agricultural land is another area in which much of the property is owned by out-of-state people, especially heirs who have moved away, and the percentage of land owned by these folks grows with each generation. The tax collection people do not always keep track of who actually owns the property, so the percentage they report as out-of-state is quite small, as their information is based on where the property tax bills are sent, and many agents or representative family members pay the bills for out-of-state owners. Even with a statutory formula that favors agricultural land over other types of property, farmers pay plenty in property tax. The point here is just that so much agricultural land is owned by people outside of North Dakota.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]When tax relief is provided to North Dakotans, that money stays in our state, but when tax relief is extended to out-of-state interests, that money is gone forever from our economy.[/mks_pullquote]

Just as with property tax relief, much of the income tax relief provided in recent sessions, both for individuals and corporations, also has taken millions of dollars out of our economy.

There are ways the Legislature could provide tax relief that would primarily benefit North Dakotans. One idea is to expand the homestead credit to all homeowners and renters of residential property. That credit is now available only to low income senior citizens and people with disabilities. A number of other states have homestead credit laws (sometimes called homestead exemptions) that either apply to all homeowners or to selected constituencies such as all senior citizens.

Farm homes and buildings in North Dakota are exempt from property taxes, so farmers now have the equivalent of a 100% homestead credit on their farm homes and buildings. Thus, agricultural groups and lobbyists have no incentive to advocate for expanding the homestead credit, and probably oppose any efforts to do so in favor of property tax relief for agricultural land.

Another area tax relief would help primarily North Dakotans would be selective sales tax cuts. Some sales taxes, such as on hotels and restaurants, would probably not fit this description, but sales tax exemptions for clothing, furniture and appliances, and certain home improvement products would primarily benefit residents of this state. I am not advocating for these exemptions over the homestead credit, but this is another alternative to keep more money in North Dakota.

When there are alternatives available, why do you suppose our Legislature consistently provides so much tax relief to out-of-state interests? All you have to do is review the list of lobbyists registered in this state, and you will find most lobbyists represent corporate or agricultural interests and few lobbyists represent consumers. When tax relief is provided to North Dakotans, that money stays in our state, but when tax relief is extended to out-of-state interests, that money is gone forever from our economy.

When legislators are elected, they undoubtedly believe they are going to serve the people in their districts, both those who voted for them and those who didn’t. Then, once a legislative session begins, legislators are inundated with pressure from registered lobbyists, very few of whom represent the people in those legislators’ districts. The argument these lobbyists use is that, to be fair, property tax relief and income tax relief should include all categories of taxpayers, which results in much of that relief going out of state instead of benefiting the constituents who sent those legislators to Bismarck.

At the end of each session, legislators seem mystified why, after they have granted so much tax relief, their constituents do not express much gratitude. The tax relief provided has been real, and everyone paying property taxes or income taxes has benefited. It is just that the relief has been spread so widely, especially to out-of-state interests, that the people back home do not see that much benefit.