City Purchase Sales Tax Exemption Bill Introduced (We Need Your Input)

A bill that would exempt cities and counties from the state sales tax on purchases was recently introduced. On a related note, the League is collecting information from cities about the overall impact of the Governor's sales tax plan.
(Published Jan 24, 2013)

Today, Senator Chuck Wiger (DFL-Maplewood) and Senator Susan Kent (DFL-Woodbury) introduced SF 104, a bill that would exempt cities and counties from the state sales tax on purchases. The budgetary benefits of this sales tax exemption bill could be even more important with the Governor’s proposal to broaden the state sales tax base to include services.

We need your city’s input

The League is collecting information from cities to find out if the governor's sales tax plan will overall help, or hurt, cities in the state. The governor's sales tax plan includes a decrease in the sales tax rate from 6.875% to 5.5%; it also includes additional sales tax to professional services (services are listed below).

Please send information about the net impact of the governor's sales tax plan on your city to Gary Carlson at gcarlson@lmc.org or Rachel Walker at rwalker@lmc.org

History

Purchases of taxable items by Minnesota cities and counties have been subject to the sales tax since 1992. During the state budget crisis in the early 1990s, the state balanced its budget, in part, by extending the sales tax to local government purchases.

According to a fiscal note prepared by the Minnesota Department of Revenue in 2007, cities and counties were projected to pay $150 million in sales taxes to the state on taxable purchases during state fiscal year 2011.

The League's legislative policy on "Sales Tax on Local Government Purchases" (FF-9, page 91 of 2013 City Policies) supports a sales tax exemption for cities and calls for any future expansion of the sales tax base to exempt cities.

The governor’s sales tax plan

The Governor’s proposal to broaden the state sales tax base includes professional services such 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. This list of newly taxable services and items has been pulled from the budget documents and we have not yet seen any actual statutory amendment language.

Although the Governor’s plan includes an overall sales tax rate reduction from 6.875 percent to 5.5 percent, the base broadening to professional services could, in some cases, more than offset the sales savings from the rate reduction.

Questions? Contact Gary Carlson at (651) 281-1255 or gcarlson@lmc.org Rachel Walker (651) 281-1236 or rwalker@lmc.org

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