Nicollet Island: Sweetheart Tax Deal, or Not?

by Alex Stenback on January 3, 2006

Nicollet_islandEarlier today we linked a piece from Joe Soucheray (the estimable Pioneer Press columnist and AM 1500 radio personality) on State Rep. Phyllis Khan, a central figure in the ongoing battle between the residents of Nicollet Island (Khan lives on the island) and DeLaSalle High School.  If you haven’t been following, DeLaSalle wants a to build an athletic field, some residents of Nicollet Island oppose this (for more background: Go here, and also read this.)

Without wading into the political battle, we did find interesting the apparent "sweetheart" deal that Nicollet Island property owners have, in that they pay taxes on the homes, but not on the land under them.  After some digging, here’s what we found, after the jump (click below):

Based on the agreement that established Nicollet Island as parkland in 1983, those that purchased the homes there would have 99 year leases on the land, after which it would revert to the park board.  If owners sell the home before the lease is up, they split any gain above the average annual Minneapolis appreciation with the park board. [Source: Downtown Journal]

What’s less clear is the tax situation for these homeowners – a lot of what we’ve read states as fact that these homeowners pay little or no property tax, yet the Downtown Journal article contains references to a tax bill of some $4,500 for one island homeowner, and reader ‘Bridget’ comments in the last post that the homeowners DO pay taxes, but for some reason they are just not listed on the Hennepin County tax info page.  Sure enough, a search of all property tax records for Nicollet Island turns up not a single tax bill, not even for Rep. Khan.

Since our research department is still nursing a new-years hangover, let’s turn this over to the readers.  Anyone know the scoop on property taxes on Nicollet Island?  Is there some sort of Parallel tax system in place? What gives? Why is this info not published on the county website? Comment below.

{ 6 comments… read them below or add one }

Chris Viken January 3, 2006 at 7:12 pm

Those Island residents whose homes are on Park Board-owned-land pay tax on the structures, which form the major portion of property tax, not on the land itself. As described in your original post, they must split proceeds upon sale. Plus they are strictly regulated down to exterior paint colors for their homes.

How the market will react to resale of property on land leases which may expire is part of the gamble those homeowners took when they poured huge amounts of money to improve the “dumps” that they “won” the right to restore through a lottery process.

However, approximately 1/3 of the Island’s residents live on privately-owned land and pay taxes on land and structure in the normal manner, although valuations are definitely on the high side. These properties are located on Grove Street and also W. Island Avenue.

When housing was established on the Island, a healthy portion was dedicated (and is maintained) for low-income housing.

However, I believe the private businesses operating in the Nicollet Island Inn and in the Island Pavillion may be escape from paying property taxes, since they, unlike Kahn and other Island residents on Park land, do not own their buildings — the Park Board does.

Editor January 3, 2006 at 8:15 pm

That all makes sense, but the number I’d like to get to is the actual taxes for a given Structure – Hennepin County lists none, and unless I missed something, I could not find even a single Nicollet Island Addition (could be under a different legal desc. I suppose) property that had its taxes and value listed in the normal manner. Without that, there’s really no way to call this one way or the other.

A reduced tax burden on leasehold property is common practice, but most of the chatter on this suggests something more than just a leasehold concession…

Editor January 3, 2006 at 8:26 pm

Great info by the way Chris, thanks for sharing.

John Chaffee January 10, 2006 at 6:58 am

The land under the Island houses is fully taxed, under State law.

Minn. Stats. 273.19 says that tax-exempt property leased for more than one year “…shall be considered, for all purposes of taxation, as the property of the person holding it.” Minn. Stats. 273.11 says that such leasehold interests “…shall be valued at the market value of such property and not at the value of a leasehold estate in such property, or at some lesser value than its market value.” Minn. Stats. 272.01 contains language calling for such leaseholds to be assessed and taxed as personal property.

The Property Tax Administrator’s Manual published by the Minnesota Department of Revenue (available on their website, a rather large download) refers to the above statutes, and gives clear direction to local assessors.

Hennepin County has treated the Island leaseholds as personal property and taxes them on that basis. These taxes don’t appear on their website. The reason for that may have something to do with the County’s computer system. Despite being characterized as personal-property tax, these taxes qualify for state property-tax rebates, depending on the taxpayer’s income. The tax bills include a “State copy” to be sent in with the rebate form.

Rep. Kahn has provided a copy of her tax bill for use as an example. In 2005, she and her husband paid $5099, homestead, on an assessed value of $344,400. The leasehold tax bills do not break down the assessed values as to land and improvements. That information would no doubt be available from the County.

The property values of the leaseholds, which make up about half the dwelling units on the Island, appear to have lagged somewhat behind those of newer condo and townhome units on the opposite banks of the river. This may have something to do with the equity-sharing arrangement mentioned in your post. It may also be related to the legal restrictions on these properties. The ground leases run to about 100 pages, and contain numerous conditions and restrictions aimed at keeping the houses historic for the benefit of the public and the Regional Park, which was the reason for the ground leases in the first place. Also, many of the homes and lots are small, and the homes can’t be enlarged or altered without going through a complicated approval process.

John Chaffee
Island resident

mike wissbaum January 16, 2006 at 12:05 pm

I wonder what John Chaffee pays in property taxes on his $415,000 home on the Island and what portion of the proceeds of the money that he payed for the house was split between the former owner and the Park Board.

mike wissbaum January 16, 2006 at 12:12 pm

Mistake, it is Thomas Case who not John Chaffe who purchased a home on the island in 2003, sorry.

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