Some Cities Required to Submit Tax Savings Report

Cities with populations over 500 must submit a report showing either actual or estimated sales taxes paid to the state in 2012.
(Published Aug 19, 2013)

In conjunction with the preliminary levy certification and coupled with the sales tax exemption for cities and counties included in the 2013 omnibus tax bill, some cities have a new report to submit. Each county and each city within the county with a population of over 500 must provide the county with either the actual or estimated sales taxes paid by the city to the state in 2012 on taxable city purchases.

The intent of the law is to provide taxpayers with information on the potential benefits of the newly enacted sales tax exemption on city purchases. When the provision was first discussed in the Senate, the report would have required cities to provide actual sales taxes paid and the report would have become an annual requirement filed in conjunction with the preliminary levy certification. League staff urged that the bill require either an estimate of sales taxes paid OR the actual sales taxes paid, and that the report only be made in the first year of the new exemption. Both of those suggestions were incorporated into the final tax bill.

Many cities have contacted the League asking about the intent of the requirement and looking for suggestions on how to compute an estimated 2012 sales tax liability. The law does not provide any specific guidance on how to develop an estimate, but some cities are taking their 2012 general fund budget, subtracting expenditures that clearly would not be subject to the sales tax, such as employee salaries and benefits, and then estimating the proportion of the remaining expenditures that could be potentially subject to the sales tax.

That figure can be converted into an estimate of the sales taxes paid by multiplying the total taxable expenditures (which presumably includes sales tax paid) by .064328 (6.4328 percent) to yield an estimate of the sales taxes paid by the city.

A similar technique can be used for other funds, such as enterprise funds, even though those funds may not be supported by property taxes.

In addition to submitting the actual or estimated sales taxes paid in 2012, each city over 500 in population will be required to discuss the savings with taxpayers at the fall budget hearing. At their fall 2013 truth-in-taxation meetings only, the county and each city over 500 in population must discuss the savings they expect in 2014 due to the new sales and use tax exemption. The session law refers to a “public hearing,” but according to the Minnesota Department of Revenue, the requirement in Minnesota Statutes, section 275.065, subdivision 3, is for a “public meeting” and therefore, a formal hearing is not required.

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