Fairgrounds renters get high tax bills
When Charlie Kellner got his tax bill for 2008, his blood pressure skyrocketed.
Included was an additional $5,200 for his winter storage.
The operator of Charlie's Boats & Marine has been storing his clients' boats at the Shell Prairie Fairgrounds for the past several years. He got a tax bill for the past two years of use.
Several Minnesota laws state that when tax-exempt entities such as the fairgrounds lease, loan or make their property available for use by a private individual, association or corporation in connection with a business conducted for profit, a tax must be imposed.
"We don't have a choice," said county assessor Bob Hansen. "It's the law."
Essentially the law was passed to even the playing field. If tax-exempt entities conduct business that could compete with private taxable entities, the tax for use of those facilities is passed on to the renter or lessee.
"I've been renting six, seven years. They said they could go back that far but they said they'll only go back two years," Kellner said. "The $2,600 is per year. That's out of my own pocket."
City assessor Loren Tolkkinen said he routinely surveys 20 percent of the city's tax base and found the rentals last year. The surveys are conducted to add new property to the tax rolls and include overlooked property.
"As part of that work we noticed that there were entities using the fairgrounds that were private organizations leasing fairground property that weren't part of the fairgrounds," he said. "I guess it's our job at that point to recognize it, pick it up and put it on the tax rolls."
Because the fairgrounds are tax-exempt property, the statute mandates collecting the tax as a "personal property assessment."
"We can't pick and choose" who to tax, Hansen said.
Fair Board Member Cal Johannsen recently brought the issue to the county board's attention.
"I guess they feel it's an unfair advantage to those who have to pay taxes," board chair Lyle Robinson said. "If I use something commercially it becomes commercially taxed. The taxes are based on use."
The board pointed out the fairgrounds may be competing with local business owners who own rental storage units which are taxable.
"We can abate our share if we think it's unfair," commissioner Greg Larson said.
"You can't be doing taxable things on tax-exempt property," Robinson said. "They're bringing in revenue; it brings into question whether they would lose their tax-exempt status."
But Johannsen and other fair board members contend it's the only way the fairgrounds can raise enough operating capital. They're not making a profit, they say. They may not even be breaking even.
And they point out that Park Rapids schools rent out their facilities for craft shows and other events; the Nevis school sells memberships to its health club and the airport rents hangar space.
Municipal-owned airports are exempt from the statutes. So is "incidental use" of tax-exempt facilities.
"At this point the (Park Rapids) school, is not subject to taxation," Tolkkinen said. "If we were aware of a business that was leasing space from a school, more than just incidental use...
"In the case of the fairgrounds they're renting space eight months out of the year or more," he said. "That's definitely more than incidental use."
"The biggest thing with it is if you were knowing it coming into it you would say, 'No I won't rent it' or I have to charge my clients accordingly because I also pay rent on top of that to the fair," Kellner said.
"So this is after the fact. In other words it would be me saying, 'We did repair on your boat two years ago and I dug through my files and here's a bill. We didn't charge you enough money; here you have to pay it,'" he said.
Several attorneys have entered the fray and Kellner appealed to the city's equalization board. He said the city was "surprised" there was such a law on the books. He will go before the county's tax equalization board Monday.
The county commission noted that Sen. Amy Klobuchar's office has been contacted about the law, but it was unclear what influence a federal senator might have over a state law.
Tolkkinen said he didn't single out the fairgrounds or the renters, which also include American Family Insurance.
American Family agent Mike Berneck was presented with a $1,900 bill from the assessors. "It was kind of a shock," he said. "I did pay it because I have no choice but this is for a building I don't own. It may make the difference in my staying here.
"In a sense I understand it but I don't appreciate the way they handled it," he said. "They were kind of nasty about it."
"I have heard from people," Tolkkinen said of the tax imposed on the renters. "I have a job to do. I take an oath to uphold the law and that's what I have to do regardless of the popularity. I'm not in a popular job."
Berneck said he would likely join Kellner at Monday's tax equalization meeting