Tax Conference Committee Resolves Differences Between House and Senate Tax Bills

The agreement includes several provisions of interest to cities and also removes the local referendum requirements that were in the House bill.
(Published May 14, 2018)

House and Senate Tax conferees released a compromise tax agreement on May 11 that focuses on personal income and corporate income tax changes needed to conform with the federal Tax Cuts and Jobs Act of 2017. The bill also offsets personal and corporate income tax increases that would otherwise occur under the conformity changes.

The conference committee report reflects the unified position of the Legislature. Gov. Dayton had stated that he would not negotiate until the House and Senate had finalized their negotiations. The tax chairs, Rep. Greg Davids (R-Preston) and Sen. Roger Chamberlain (R-Lino Lakes), announced at the conclusion of the May 11 hearing that they would provide the governor and the Department of Revenue several days to review the legislative position. The conference committee will reconvene on May 14 or May 15 to work with the governor on a final tax conference committee report.

Provisions of interest to cities

Referendum requirements not included

  • None of the referendum requirements or modifications included in the House bill were adopted in the initial agreement. These included:
    • Gas and Electric Franchise Fee reverse referendum. The House bill included a new notification and reverse referendum provision added to the process to enact or renew a municipal gas and electric franchise fee.
    • Lease-purchase financing reverse referendum. The House bill included a new reverse referendum requirement for lease-purchase financing arrangements between an economic development authority, housing and redevelopment authority, or a port authority and a city or county. First class cities (Minneapolis, St. Paul, Duluth, and Rochester) would have been exempt from this requirement.
    • Local referendum elections moved to November. The House bill included an article that would modify a number of statutes addressing local referendum requirements to remove special election options and, therefore, require these referendums to be held at a general election in November.

Expanded local tax prohibition

The agreement includes the modifications to the existing statutory prohibition on local income and sales taxes, expanding it to also cover excise taxes and fees of food and containers. This expansion was included despite the League’s opposition. The League did successfully argue for an exemption from the fee limit for license fees.

Local government aid (LGA)

  • Lilydale. The agreement includes a one-time increase in the LGA distribution for the City of Lilydale ($150,000 for regional sewer costs), but does not increase the LGA appropriation to cover the cost.
  • Hermantown. The agreement includes a one-time increase in the LGA distribution for the City of Hermantown ($97,260 to retroactively address an unintentional LGA formula error), but does not increase the LGA appropriation to cover the cost.
  • LGA acceleration. The agreement does not include the increase in the amount of LGA that will be distributed in June 2019. Under last year’s tax bill, the state accelerated the distribution of roughly $77 million of the July 2019 LGA payment to June 2019. The House bill would have increased that acceleration to roughly $91 million.

Sales tax exemptions

The agreement includes:

  • Construction materials sales tax exemption for a public safety facility in Minnetonka.
  • Construction materials sales tax exemption for a fire station in Inver Grove Heights.
  • Sales tax exemption for the construction or remodel of a fire station in Virginia.
  • A retroactive sales tax refund on the construction costs related to an Elko-New Market water treatment facility.
  • An extension of a sales tax exemption for reconstruction projects in the City of Melrose as a result of a downtown fire.

Tax increment financing (TIF) special law provisions

The agreement includes:

  • Bloomington Central Station TIF district.
  • Champlin Mississippi Crossings TIF district.

Local sales taxes/tax adjustments

The agreement includes:

  • St. Cloud food/beverage tax and lodging taxes modification.
  • Cloquet general sales tax use adjustment.
  • St. Paul lodging tax increase.
  • Excelsior local option sales tax authorized.

Other items of interest included in the initial conference committee agreement:

  • A clarification that cities and towns may appropriate funds for historical societies in the respective city or town. Under current law, a city or town can only appropriate funds for a county historical society.
  • A grant to the city of Mazeppa for recovery efforts related to a fire.
  • A state general property tax abatement and sales tax break for medical facilities in underserved areas of Greater Minnesota.
  • A state general property tax abatement for qualifying properties in Aitken, Crow Wing, and Mille Lacs due to fishing ban.
  • A state general property tax abatement for qualifying natural gas line extensions in unserved areas.
  • A provision calling for a study of a state-level housing tax credit for investors based on a bill introduced by Sen. Carla Nelson (R-Rochester) (SF 3301) and supported by the Minnesota Housing Partnership earlier in session that would have created a tax credit program based on a model from North Dakota.

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