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Please note: During the 2023 legislative session, the state imposed a moratorium on new local option sales taxes. At this point, they will not consider requests during the 2024 or 2025 legislative sessions. A task force will convene in July 2023 and issue recommendations in early 2024 for how to treat future requests.
Cities need to follow strict rules and procedures to get legislative authority for the creation of a local sales tax. Cities seeking local sales tax authority must file requests with legislators on the House and Senate Taxes committees by Jan. 31.
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. Cities may request legislative authority to impose a local sales tax to fund up to five capital projects of “regional significance” (Minn. Stat. § 297A.99).
Projects of Regional Significance
Local option sales taxes can only be used for “regionally significant” capital projects. State law 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.” In recent years, 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.
Steps of the statutory process
To impose a general local sales tax, 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 (Stat. § 297A.99, subd. 2).
- 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 (Stat. § 297A.99, subd. 3).
- 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 (Stat. § 297A.99, subd. 3).
- 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 on referendum
State law restricts cities’ spending of funds to promote the passage of a local sales tax referendum (Minn. Stat. § 297A.99, subd. 1(d)). Cities may only 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.
Notification requirements
A city with a local sales tax must notify the public about the local sales tax in specific ways (Minn. Stat. § 297A.99, subd. 12a):
- Provide notice on the city website. The city must post a notice on its official city website that residents and businesses in the city may owe a local use tax on purchases of goods and services made outside of the political subdivision limits. The notice must provide information, including a link to any relevant Department of Revenue website, on how the taxpayer may get information and forms necessary for calculating and paying the tax. The city must display a link to this notice on the homepage of its website.
- Provide notice on billing statements. If the city provides and bills for sewer, water, garbage collection, or other public utility services, the billing statement must also include at least once per year a notice that residents and businesses may owe a local use tax on purchases made outside of the political subdivision limits. The notice must also explain how the taxpayer may get information and forms necessary for calculating and paying the tax.
Resources
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 request.
Download the model resolution (doc)
If you have questions about the statutory process outlined above, contact one of the League’s Intergovernmental Relations staff.
For more information and assistance with the local sales tax process, you may also contact the Minnesota Department of Revenue’s Local Government Services Unit at localgovernmentservices.mdor@state.mn.us or (651) 556-6117.
