House Taxes Committee Hears Governor’s Supplemental Tax Bill

February 28, 2022

The bill contains tax provisions of interest to cities, including a new Public Safety Aid program.

At two hearings last week, the House Taxes Committee heard HF 3669 (Rep. Paul Marquart, DFL-Dilworth), which includes Gov. Tim Walz’s supplemental tax recommendations.

The bill, which was laid over for possible inclusion in the omnibus tax bill, includes two items of note:

  • The League-supported simplification of the sales tax on construction materials used in public projects.
  • A new Public Safety Aid program that would distribute $70 million to cities and $30 million to counties to assist with police and sheriff operational costs.  

Construction sales tax exemption

The bill would allow cities and counties to file for a refund of sales taxes paid by a contractor on materials purchased for public construction project materials. This would greatly simplify the process for local governments to take advantage of the sales tax exemption.

The governor’s proposal covers local units of government and non-profit entities, and the total estimated savings for all these entities would be $70 million per year. The governor’s proposal is retroactive to July 1, 2021, and would allow cities to file for refunds for qualified purchases made on or after that date.

The League testified in support of this provision, reflecting the League’s long-standing position in favor of the sales tax simplification.

Public Safety Aid

The bill also includes a new Public Safety Aid program, which would provide cities that employ at least one peace officer with approximately $17.16 per capita. The aid must be used “to provide public safety,” which may include, but is not limited to, “paying personnel and equipment costs.”

The bill does not define “public safety,” but given the qualification of employment of at least one peace officer, the bill suggests the funding is intended for police-related activities.

The additional funding appears to be flexible enough to assist cities with the challenges of attracting and retaining police officers. In addition, although not specifically identified in the broad definition of permissible uses, it appears that cities could use the funding for treatment and prevention of mental health issues, including post-traumatic stress disorder.

The League testified in general support of the provision but noted that under the bill, cities that contract for police services or provide services through a joint powers entity would apparently not be eligible for the aid. The League offered to work with legislators and the governor’s office to address aspects of the proposal.

For more background information about this bill, read a previous article.

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