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The League is collecting information from cities to find out if the governor’s sales tax plan will increase or decrease city sales tax liability.
(Published Jan 28, 2013)
1. Get Informed
The governor’s proposal for sales tax will broaden the state sales tax base and lower the sales tax rate. The governor’s plan would reduce the general state sales tax rate to 5.5 percent from the current 6.875 percent. This rate reduction would be offset by including in the definition of taxable items such professional services as legal, accounting, architecture, specialized design, computer, management consulting, advertising, employment, and business support services.
In addition, the governor’s sales tax plan would extend the sales tax to auto and other repair services, telecommunications equipment, court reporter documents, advertising materials, and publications.
Cities are subject to the sales tax, and cities purchase many of the services that would become taxable under the governor’s proposal. This makes the net impact of the governor’s sales tax plan, including the rate reduction, difficult to estimate.
According to a fiscal note prepared by the Minnesota Department of Revenue based on a bill introduced in 2007, cities, counties, and townships (townships were subject to the tax in 2007) were projected to pay roughly $150 million in sales taxes to the state on taxable purchases during state fiscal year 2011.
2. Take Action
The League is collecting information about the potential impacts of Gov. Dayton’s sales tax proposal. We need information from cities about whether the net impact of the proposed decrease in sales tax, and additional sales tax on professional services would have a net positive or negative impact on city budgets.
We greatly appreciate your time in this information-gathering effort. It will help the League provide crucial information to lawmakers about the impact this proposal will have on cities.
3. Stay Involved
The League's legislative policy on "Sales Tax on Local Government Purchases" (FF-9, page 91 of the 2013 City Policies [pdf]) supports a sales tax exemption for cities and calls for any future expansion of the sales tax base to exempt cities. (See related article on a city sales tax exemption bill.)
Stay tuned to League publications and an upcoming webinar for more information on this issue.
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