House Property and Local Tax Division Releases Initial Report

May 4, 2020

The division’s slim bill excludes local sales tax proposals sought by 20 cities.

Note: There is updated information on this topic. Read the latest article.

The House Property and Local Tax Division released its initial division report on May 1. The slim bill includes a number of provisions of interest to cities, but notably excludes all 20 local sales tax requests that had been proposed under the revised statutory process enacted in 2019.

Pause on new local sales taxes

The bill effectively imposes a moratorium on new local sales taxes during the 2021 legislative session. It requires that a resolution for a local sales tax be passed in the 12-month period prior to the start of that session, while also prohibiting local governments from passing a resolution between March 1, 2020, and July 1, 2021.

As a result, none of the 20 current city sales tax resolutions would qualify as valid resolutions under the House timeline. Cities would have to adopt a new resolution, presumably under a new set of criteria developed by a newly created working group charged with developing evaluation criteria for future local sales tax requests.

Specifically, the new working group created by the bill would be charged with developing a list of capital projects that may qualify as projects of regional significance. It would also develop criteria to assess whether a proposed project qualifies as regionally significant. In addition, it would create a list of capital projects that should not be considered as projects of regional significance for local sales tax purposes.

The group would be required to submit a report with recommendations to the ranking members of the House and Senate committees with jurisdiction over local sales taxes by Nov. 1, 2021.

The group would be comprised of:

  • The commissioner of Revenue or the commissioner’s designee
  • A member appointed by the League of Minnesota Cities
  • A member appointed by the Association of Minnesota Counties
  • A member appointed by the Minnesota Association of Townships
  • A member appointed by the Minnesota Association of Small Cities
  • A member appointed by the Coalition of Greater Minnesota Cities
  • A member appointed by Metro Cities
  • Four public members, appointed by the governor, representing both the metropolitan area and Greater Minnesota.

The four public members must meet the following criteria:

  • Two members who represent the interests of residents of small cities and rural areas with little retail base.
  • One member who represents the interests of main street retailers.
  • One member who represents the interests of online retailers.

Interim property tax distributions

The bill also allows counties to choose an interim date to distribute property tax receipts between the June and November distribution dates.

Many counties are waiving penalties on late property taxes that are due on May 15. Without legislative clarification, counties might not be able to distribute late May tax payments until November.

TIF changes

The proposal would allow tax increment financing (TIF) authorities to transfer unobligated increment to the municipality’s general fund. The transferred increment is limited to the excess of increment that is required to make bond payments or other financial obligations within six months of the transfer.

Transfers under this authorization could be made through Dec. 31, 2021. This authorization includes a requirement for the municipality to approve a spending plan, amend the TIF plan, and hold a public hearing that discusses the use of transferred increment.

Other TIF changes in the bill would:

  • Extend the TIF five-year rule to 10 years for all redevelopment districts located outside of the seven-county metro area. This change only applies to districts certified after June 30, 2020.
  • Extend the TIF six-year rule that requires increment to be spent on efforts to decertify the district to 11 years for redevelopment districts whose five-year pooling rules are extended to 10 years.

Lodging tax clarification

The proposal also clarifies that local lodging taxes collected directly by local governments apply to the entire price of lodging, including services provided by accommodation intermediaries (online lodging providers).

This clarification conforms to the definitions used for the state sales tax and for local lodging taxes currently collected by the state.

More flexibility with local tax revenues

The bill would give local governments the temporary authority to redirect a portion of certain unencumbered local tax revenues for general fund purposes through Dec. 31, 2021. This applies to the following local taxes:

  • General local taxes, including county transit sales taxes.
  • Food and beverage taxes.
  • Liquor taxes.
  • Admissions and amusement taxes.
  • Lodging taxes imposed by special law, except for the portions dedicated to funding a local tourism or convention bureau.

The local government may only redirect the money received in a calendar quarter not needed to fund debt obligations in the next calendar quarter. It must also have a plan for the use of the revenues and hold a public hearing on the topic prior to the diversion of any funds.

LGA penalty forgiveness

The bill also provides local government aid (LGA) penalty forgiveness for the cities of Sargeant and Roosevelt.

Hearing on May 4

The House Property and Local Tax Division is scheduled to have a hearing on the report a 6 p.m. on May 4.