House Omnibus Tax Bill Released

The bill includes several provisions of interest to cities, including those related to property taxes, state aids and credits, local option sales taxes, tax increment financing, and public finance.
(Published Apr 8, 2019)

Note: There is updated information on this topic. Read the latest article.

The House Taxes Committee this morning released a 22-article, delete-all amendment to HF 2125, the bill that will become the House version of the 2019 omnibus tax bill.

The bill includes most of the language contained in the House Property and Local Tax Division report processed last week, including provisions related to property taxes, state aids and credits, local option sales taxes, tax increment financing, and public finance. (See previous Cities Bulletin article.)

The broader omnibus tax bill delete-all amendment includes provisions related to federal income tax conformity, income and corporate income and estate taxes, special taxes, and several articles of tax recommendations from the Minnesota Department of Revenue.

The committee will take testimony on the delete-all amendment on April 9 and consider amendments on April 10.

Later this week after the Taxes Committee completes its work, the bill will be sent to the House Ways and Means Committee and then to the House floor. The Senate will not likely release its omnibus tax bill until after next week’s Easter/Passover break.

Local government aid

Included in the delete-all amendment is a $30.6 million increase in the local government aid (LGA) appropriation, bringing the program appropriation up to a level last funded in 2002. The appropriation increase will impact the LGA distributions beginning in 2020.

The amendment also standardizes the LGA formula sparsity factor and makes five special aid adjustments for the cities of Floodwood, Hermantown, West St. Paul, Flensburg, Scanlon, Lilydale, East Grand Forks, and Virginia.

—See city-by-city estimates of the impact of the bill (pdf)

PERA aid extension

The delete-all amendment includes a provision that will extend the sunset date for an aid program created in 1997 that provides aid to non-school Public Employees Retirement Association (PERA) employers.

When the aid program was originally established in 1997, the aid was intended to cover the cost of the employer increase in pension contributions to the PERA General Plan and the aid was scheduled to sunset when the PERA General Plan reached full funding, which at the time was estimated to be 2020. Although the aid was essentially frozen, it continues to provide non-school PERA employers slightly more than $13 million per year.

With last year’s omnibus pension bill, the Legislature made corrective changes in the PERA General Plan benefit structure and, although the plan funding level is projected to continue to improve, the projected full funding date has been delayed. Under this provision, the employer aid will continue until 2048 or until the plan reaches full funding, whichever comes earlier.

Local option sales taxes

The delete-all amendment includes general local sales tax authorizations or adjustments for the cities of Avon, Blue Earth, Cambridge, Cloquet, Detroit Lakes, Duluth, Elk River, Excelsior, Glenwood, International Falls, Perham, Sauk Centre, Two Harbors, Virginia, Willmar, and Worthington.

The delete-all amendment also includes new special local lodging tax for Lake County, La Crescent, and Plymouth, and a new local food and beverage tax authorization for North Mankato.

Consistent with the Property and Local Tax Division report, the sales tax authorizations in the delete-all amendment for the cities of Avon, Blue Earth, Cambridge, Duluth, Glenwood, International Falls, Two Harbors, and Worthington are contingent upon each city providing a more detailed council-adopted resolution on the projects to be funded. Each city is also required to submit their detailed resolution to the Minnesota Department of Revenue before the tax could be imposed, and they are required to post and maintain the information on the city’s website.

The delete-all amendment also includes the changes proposed in the Property and Local Tax Division report to the process for cities to seek a future local sales tax, including a requirement to seek special legislation before conducting the local referendum. (See previous Cities Bulletin article.)

Study of state-assessed property

Based on recent pending litigation over a state-assessed pipeline in northern Minnesota, the delete-all amendment includes a requirement that the commissioner of Revenue issue a report analyzing aspects of the state’s assessment of pipeline and utility property.

The report must include:

  • A detailed description of administrative appeals and tax court petitions filed since 2012, including the final results of these appeals and petitions and any refunds paid by local taxing jurisdictions.
  • A detailed description of the administrative appeal process, specifically explaining the criteria used by the commissioner to determine the appropriate increase or reduction of the original valuation.
  • A detailed description of the process by which the commissioner determines preliminary and final valuation orders.
  • A detailed comparison of the methodology used to administer Rule 8100 to methods used by other states, in at least two neighboring states and three non-neighboring states.

The commissioner is required to complete the report by Feb. 1, 2020.

Sales tax exemptions

The delete-all amendment does not include the League-supported streamlining of the sales tax exemption for construction material purchases by contractors for municipal projects.

The amendment does include specific sales tax exemptions requested by individual cities and school districts, including Monticello (fire station), Inver Grove Heights (fire station), Minnetonka (fire and police station), Mendota Heights (fire station), St. Louis Park (interpretive center), Minneota School District (school building), and Dakota County (law enforcement collaboration center). The bill includes a retroactive sales tax exemption for the water treatment facility in the city of Elko-New Market.

The amendment also includes sales tax exemptions for materials used to rebuild after fires in Melrose and Mazeppa.

Miscellaneous provisions

The amendment also:

  • Authorizes cities to appropriate funds for city historical societies. Under current law, cities are only authorized to appropriate funds for a county historical society.
  • Requires the Department of Revenue and the Minnesota Housing Finance Agency to study 4d low-income apartment classification. The study is in response to legislation to reduce the 4d classification rate.
  • Increases the homestead credit refund maximum by $200 for all recipients with incomes under $103,229.
  • Reduces the share of rent paid covered by the renter and expands the range of incomes eligible for the credit.
  • Allocates an additional $1 million to the border city enterprise zone program.
  • Increases the school building bond agricultural credit program from 40 percent to 70 percent of the tax on the property attributable to school district bonded debt levies.
  • Modifies the state business property tax general levy by converting it from a set levy to a frozen tax rate, which will generate more revenue over time with the growth in business property tax values.
  • Increases the rates of the solid waste management tax in counties with soil and water conservation districts and creates an account for 30 percent of the increase to be allocated to soil and water conservation districts for operations.

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