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A bill that would exempt cities from sales tax is scheduled to be heard next Wednesday.
(Published Feb 7, 2013)
Next Wednesday, the House Tax Committee will consider HF 295, a bill introduced by freshman Representative and former Elk River councilmember Rep. Nick Zerwas, (R-Elk River) that would exempt city and county purchases from the state sales tax.
The bill is co-authored by three other former local officials: former Greenfield mayor, Rep. Jerry Hertaus (R-Greenfield), former Sartell mayor, Rep. Tim O’Driscoll (R-Sartell) and former Champlin mayor, Rep. Mark Uglem (R-Champlin). The companion bill, SF 329, was introduced by former Rochester councilmember, Sen. David Senjem (R-Rochester) and former Carver County Commissioner Sen. Julianne Ortman (R-Chanhassen).
A similar bill, SF 104, has been introduced in the Senate by Sen. Chuck Wiger (DFL-Maplewood), Sen. Susan Kent (DFL-Woodbury) and Sen. Alice Johnson (DFL-Spring Lake Park).
The sales tax has been applied to city and county purchases since the state budget crisis of 1992. That year, the legislature was confronted with a $569 million state budget deficit and during the session, the legislature debated a recommendation by then-governor Arne Carlson that would have cut city LGA by $66 million. During the debate, the House and Senate developed an alternative proposal to address the state deficit by extending the sales tax to local government purchases. In the end, the sales tax was extended to city, county and township purchases, which at that time was estimated to yield roughly $67 million in state revenues. School districts remained exempt under the 1992 law change.
Current Status of Sales Tax
Today, the state sales tax still applies to city and county purchases, although townships were exempted in 2011. The tax generates an estimated $150 million per year from the taxable purchases of cities and counties.
With the Governor’s proposal to extend the sales tax to a wide array of services, the sales tax issue has generated more discussion in the city and county communities. Although we do not yet have a bill reflecting the Governor’s sales tax rate reduction/base broadening plan, many cities have indicated that they contract for a wide variety of professional services that would likely be taxable under the base broadening plan. The League is collecting information from cities on the impact of the sales tax rate reduction—from 6.875 percent to 5.5 percent as well as information on the potential impact of applying the 5.5 percent sales tax to professional services.
If you have information and estimates on the possible sales tax impact, please forward to Gary Carlson at email@example.com.
Contact Gary Carlson at (651) 281-1255 or firstname.lastname@example.org.
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