Focus on New Laws: Changes to Local Sales Tax Approval Process

October 14, 2019

Cities must now seek authorization from the Legislature to have a local sales tax before getting voter approval.

A new law, 2019 First Special Session, Chapter 6, modified the process cities and other local units of government must follow to impose future general local sales taxes.

Effective July 1, 2019, the new process requires local governments to secure legislative authorization for a general sales tax prior to conducting a local referendum. (Counties imposing a transportation sales tax under Minnesota Statutes, section 297A.993 are not affected by this new law.)

Other new requirements

The new process also requires cities to provide additional detailed information on the proposed uses of the local sales tax revenue and information on the “regional significance” of the projects to be funded.

In the past, the sales tax legislation for some cities included authorization for a special local excise tax on motor vehicle sales within the city. The changes enacted in 2019 included a prohibition on new special excise taxes on motor vehicles.

Steps of the new process

To impose a general local sales tax under Minnesota Statutes, section 297A.99, a city must take the following steps:

1. Adopt a resolution. The city council must first adopt a resolution proposing the tax. The resolution must include the proposed tax rate, documentation of the “regional significance” of each project to be funded, the amount to be raised with the tax, and the estimated length of time the tax will be needed.

2. Submit resolution to state tax committees. The city is required to submit the adopted resolution and documentation on regional significance to the chairs and ranking minority members of the House and Senate Taxes committees by Jan. 31 of the year that it is seeking the special law.

3. Get legislative authorization. The city must secure the passage of a special law authorizing the enactment of the local sales tax. The city would typically work with its local legislators to introduce special legislation.

4. Adopt a resolution. After approval, the city must adopt a resolution accepting the new law. The city must also file the resolution and a local approval certificate with the Office of the Secretary of State before the next legislative biennium begins.

5. Hold a referendum. The city must conduct a referendum during a general election within two years of receiving legislative authority for the local sales tax. The referendum must include separate questions for each project, and only the ballot questions approved by voters may be funded by the sales tax.

6. Pass an ordinance. The city council must pass an ordinance imposing the tax. It must also notify the commissioner of Revenue at least 90 days before the first day of the calendar quarter that the tax will be imposed.

Spending restrictions

The statute continues to restrict the expenditure of funds for the promotion of the passage of a local sales tax referendum. Cities may spend money to:

  • Give residents the information that is contained in the local sales tax resolution, including information on specific projects and costs of those projects.
  • Conduct public forums on the sales tax and projects to be funded, provided that proponents and opponents are given equal time to express their opinions.
  • Provide facts on the proposed projects and the impact of the proposed tax on consumers.
  • Conduct the required referendum.

More information

For more information and assistance with the local sales tax process, contact the Department of Revenue’s Local Government Services Unit at (651) 556-6117 or localgovernmentservices.mdor@state.mn.us.

—Learn more about the required local sales tax process from the Department of Revenue website