Cities need to follow strict rules and procedures to get legislative authority for a local sales tax.
In a pre-session call with League of Minnesota Cities staff, House Property Tax Division Chair Rep. Cheryl Youakim (DFL-Hopkins) said her committee will enforce that deadline to provide the committee ample time to consider proposals.
Cities may request legislative authority to impose a local sales tax to fund up to five capital projects. A revised process for granting local sales tax authority, which includes a finding of “regional significance,” was enacted in 2019.
The law requires cities to send their requests to the “chairs and ranking minority members of the committees with jurisdiction.” The city must submit a resolution proposing the local sales tax, details on the projects that will be funded by the tax, and documentation on regional significance.
This year, the requests should be sent to the following legislators:
- Senate Taxes Committee Chair: Sen. Carla Nelson (R-Rochester)
- Senate Taxes Committee Minority Lead: Sen. Ann Rest (DFL-New Hope)
- Senate Subcommittee on Property Taxes Chair: Sen. Bill Weber (R-Luverne)
- Senate Subcommittee on Property Taxes Minority Lead: Sen. Matt Klein (DFL-Mendota Heights)
- House Taxes Committee Chair: Rep. Paul Marquart (DFL-Dilworth)
- House Taxes Committee Minority Lead: Rep. Greg Davids (R-Preston)
- House Property Tax Division Chair: Rep. Cheryl Youakim (DFL-Hopkins)
- House Property Tax Division Minority Lead: Rep. Jerry Hertaus (R-Greenfield)
New limits added in 2021
The 2021 omnibus tax law (2021 First Special Session, Chapter 14) also added definitions around permissible “regionally significant” capital projects. It limits these projects to “a single building or structure, including associated infrastructure needed to safely access or use the building or structure; improvements within a single park or named recreation area; or a contiguous trail.” This definition is generally consistent with the authorizations granted in 2021.
Last year, 18 cities initially sought local sales tax authority under the new process. The Legislature ultimately authorized 16 cities to go to the voters for approval.
Several of the requests were modified to exclude road and other infrastructure projects, on the basis that those projects are not “regionally significant” and can be financed, at least in part, with other revenue sources.
Most of the cities that received authorizations in 2021 will conduct a referendum this November. Only the City of St. Peter held its election last November, and its sales tax to fund a $9.1 million fire station was approved with 87% of the ballots cast.
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:
- 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.
- Submit resolution and supporting materials to state tax committees. The city is required to submit the adopted resolution, details on the projects, and documentation on regional significance to the chairs and ranking minority members of the House and Senate Taxes committees and appropriate subcommittees by Jan. 31 of the year that it is seeking the special law.
- 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.
- 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.
- 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.
- 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.
The statute continues to restrict the expenditure of funds to promote 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.
The League worked with 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 2022 legislative session.
If you have questions about the statutory process outlined above, contact one of these League staff members:
- Gary Carlson: firstname.lastname@example.org or (651) 281-1255
- Alex Hassel: email@example.com or (651) 281-1261
- Lisa Sova: firstname.lastname@example.org or (651) 281-1208
- Amber Eisenschenk: email@example.com or (651) 281-1227
For more information and assistance with the local sales tax process, you may also contact the Department of Revenue’s Local Government Services Unit at firstname.lastname@example.org or (651) 556-6117.