Sales Tax Exemption Resolution Available

The League has developed a model resolution in support of the recent sales tax exemption bills.
(Published Feb 22, 2013)

Last week, the House Tax Committee considered several bills that would exempt purchases of cities and counties from the state sales tax. The bills before the legislature include HF 295, a bill introduced by freshman Representative and former Elk River councilmember Nick Zerwas, (R-Elk River), HF 469, introduced by Representative Peter Fischer (DFL-Maplewood) and HF 466 introduced by Representative Paul Anderson (R-Starbuck).

Several cities have contacted the League asking if there is a model resolution in support of these exemption bills. The League has now drafted a model resolution that cities can access below.

Impact on Cities
The Department of Revenue estimates that the savings to cities and counties would be $115.9 million in state Fiscal Year 2014. The first year figure only reflects 11 months of exemption. In Fiscal Year 2015, the first full year of the exemption, the savings to cities and counties is estimated to be $129.2 million.

The sales tax has been applied to city and county purchases since the state budget crisis of 1992. That year, the legislature was confronted with a $569 million state budget deficit and during the session, the legislature debated a recommendation by then-governor Arne Carlson that would have cut city LGA by $66 million. During the debate, the House and Senate developed an alternative proposal address the state deficit by extending the sales tax to local government purchases. In the end, the sales tax was extended to city, county and township purchases, which at that time was estimated to yield roughly $67 million in state revenues. School districts remained exempt under the 1992 law change.

These bills does not exempt purchases by local governments of goods and services used as inputs to goods and services generally provided by a private business. Examples are liquor stores, gas and electric utilities, golf courses, marinas, health and fitness centers, campgrounds, cafes, and laundromats. These exclusions from the exemption mirror the provisions included in the 2011 township sales tax exemption and are intended to maintain a level tax structure for private businesses that compete with government-owned enterprises.

MODEL RESOLUTION
If your city adopts a resolution on the sales tax exemption, please send a copy to liaison@lmc.org.

  • WHEREAS, cities, townships, counties and school districts are partners with the state in providing services to residents and businesses across the state of Minnesota; and
  • WHEREAS, prior to 1992, cities, counties, townships and school districts were exempt from paying the sales tax on purchases; and
  • WHEREAS, the state legislature extended the state sales tax to city, township and county purchases during the 1992 legislative session to address an estimated $569 million deficit; and
  • WHEREAS, the extension of the state sales tax to cities, townships and counties was estimated in 1992 to raise approximately $67 million per year in state revenues; and
  • WHEREAS, the application of the state sales tax on city purchases puts pressure on local property taxes and local user fees; and
  • WHEREAS, since the state sales tax was extended to city purchases, funding for Local Government Aid has also been repeatedly cut to balance state budget deficits; and
  • WHEREAS, the homestead and agriculture aid program was repealed in 2001; and
  • WHEREAS, the 2008 constitutional amendment increased the state sales tax rate from 6.5 percent to 6.875 percent, increasing the cost of the state sales tax for cities and counties; and
  • WHEREAS, the 2011 legislature exempted townships from the state sales tax; and
  • WHEREAS, the cost to cities and counties is now estimated to have increased to $129.2 million per year for state fiscal year 2015; and
  • WHEREAS, the state sales tax currently paid by the city of __________ each year is estimated to be $__________; and
  • WHEREAS, the cost to cities and counties is estimated to grow by approximately 2.6 percent per year; and
  • WHEREAS, future state sales tax rate increases or expansions of the state sales tax base to additional goods and services would increase the cost of the sales tax on cities and their taxpayers and ratepayers
  • NOW THEREFORE BE IT RESOLVED, that the city council of the city of ________ supports HF 295, HF 466, HF 469, SF 329, SF 104 and SF 435, legislation now before the 2013 legislature that would re-exempt the purchases of cities and counties from the state sales tax.

Questions? Contact Gary Carlson at (651) 281-1255 or gcarlson@lmc.org

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