Local Taxes Advisory Task Force Continues Its Work

September 18, 2023

The task force continues its biweekly meetings to determine criteria for evaluating local sales tax proposals.

On Sep. 13, the Local Taxes Advisory Task Force conducted its third meeting. The task force is charged with determining objective evaluation criteria for local sales tax, lodging tax, and food and beverage tax proposals. The first two meetings took place on Aug. 16 and Aug. 30.

The authorizing legislation requires the task force to examine the current process for permitting these local taxes, if those should be changed, and what entity should review and give final approval of these taxes.

The group will meet again on Sept. 27 to hear public testimony on what types of projects should be paid with special local taxes.

Initial task force discussions

The first meeting was largely introductory and established a schedule and process for how the task force would proceed. During the second meeting the task force began discussing what projects are appropriate to be funded with local sales taxes and whether there should be a regionality test.

Representatives of cities and counties noted that the definition for “regional” varies drastically in different parts of the state and that it would be difficult to come up with a clear-cut test. Minnesota Department of Revenue Commissioner Paul Marquart noted that in the past some tax chairs had publicly stated that they did not believe that water infrastructure and road projects met the threshold for “regional.”

The task force also discussed whether it’s appropriate for all types of cities to be eligible to use local sales taxes. City representatives pointed out that if the use of the project was widespread and not just for city residents that it may be appropriate for the costs to be shared by nonresidents as well.

Drawbacks of local sales tax

At the most recent meeting on Sept. 13, several task force members focused on the drawbacks of local sales taxes.

The Department of Revenue presented on the regressivity of local sales taxes and how the number of those has grown, which can be difficult for mobile and online businesses to track. The group discussed possible options for compensating businesses for the work of tracking and remitting the different taxes, such as a vendor allowance.

The task force also discussed the extent to which issues caused by local taxes impact counties, which have a local sales tax authorization for transportation projects that does not require legislative or voter approval. Some said that because counties use the local sales tax for fewer purposes, it causes fewer issues.

What’s next?

The Local Taxes Advisory Task Force will take public testimony on what types of projects should be eligible to be paid for with these special local taxes on Sept. 27. That meeting will be dedicated entirely to public testimony. The task force will accept written letters, in-person testimony, and remote testimony from those who sign up in advance.

Following public testimony on Sept. 27, the task force will begin examining what entity should review local tax proposals. The task force is required to submit its report to the Legislature by Jan. 15, 2024.

Access public testimony registration, video of prior meetings, and all meeting documents for the task force on the Minnesota Department of Revenue website.

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