Considering a Local Sales Tax in 2021? Follow These Steps

October 12, 2020

Despite discussions during the 2020 session, no further changes to the process were enacted into law.

A new process for local sales tax authority was enacted in 2019 and, despite discussions during the 2020 session, no further changes to the process were made.

Under the 2019 law, cities are required to receive legislative authorization prior to seeking approval from voters.

In addition, the law requires cities to provide detailed information on the proposed uses and regional significance of the projects to be funded. It also limits the number of “regionally significant” projects that can be included in a sales tax authorization request.

More changes considered in 2020

When considering local sales tax proposals brought to the Legislature in 2020, several legislators raised concerns that some of the proposals were targeting “basic infrastructure” that might not meet the regional qualification. They considered making further changes to the process, especially to the definition of what constitutes a “regionally significant” project.

In the end, none of the 20 local proposals were enacted, nor were any changes made to the process. Therefore, the process adopted in 2019 remains the same. If your city wants to seek a local sales tax in 2021, it should begin the process soon.

Steps of the statutory 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.
  1. 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.
  1. 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.
  1. 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.
  1. 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.
  1. 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.

Resources available

The League worked with the legislative staff and the Minnesota Department of Revenue to develop a model resolution that fulfills the requirements of the law. Your city may want to use the model if it is considering a local sales tax during the 2021 legislative session.

—Download the model resolution (doc)

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

Read more news articles