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Local Taxes Advisory Task Force Releases Report
The recommendations include limited general authority for certain projects.
On Feb. 2 the Local Taxes Advisory Task Force released its report to the Legislature. At a high level, the recommendations include some general authority for cities for the types of projects that task force members generally found to have a regional impact. For some projects, such as athletic complexes and community centers, there were additional steps added in lieu of legislative approval, including getting approval from at least two neighboring cities or towns.
Background
The 2023 omnibus tax bill created the Local Taxes Advisory Task Force and charged it with determining objective evaluation criteria for local sales tax, lodging tax, and food and beverage tax proposals. The authorizing legislation also required the task force to examine the current process for authorizing these local taxes, determine if it should be changed, and decide what entity should review and give final approval of these taxes.
Qualifying projects for general authority
The task force agreed that cities seeking a local sales tax should not have to request a special law authorization from the Legislature if their project met certain criteria. The report outlined recommendations on what projects and criteria the Legislature should allow to bypass the special law authorization process, including:
- A library that is part of a regional public library system as designated by the regional library board.
- An athletic complex defined area of sports pavilions, stadiums, gymnasiums, swimming pools, or similar facilities where members of the public engage in physical exercise, participate in athletic competitions, witness sporting events, and host regional tournaments.
- A community center that is a minimum of 10,000 square feet and expressly designed and constructed for the purposes of recreational, cultural, educational, or public group activities, or for civic engagement or social support, serving both residents and nonresidents of the community.
- A convention center structure expressly designed and constructed for the purposes of presenting conventions, public meetings, and exhibitions and includes parking facilities that serve the center. The convention center must have a minimum of 50,000 square feet for exhibit and meeting spaces.
- Airports
- Parks and/or trails that meet three of the five criteria to be considered a regional park or trail under the state’s Parks and Trails Legacy Plan.
- Correctional facilities, district court offices, and law enforcement centers for counties only. Law enforcement center proposals must include formal documentation with other communities that the functions will meet the needs of multiple local governments. Correctional facilities and district court offices must be at least 30 years old and provide an analysis from the Minnesota Department of Corrections.
For community centers and athletic complexes, cities would have to hold a public hearing for residents and nonresidents and provide at least one of the following:
- An analysis of the surrounding region demonstrates that there is no similar athletic complex open to nonresidents at the same cost as residents within a 15-mile radius.
- Letters or resolutions from at least two surrounding local governments that affirmatively acknowledge that there is a local or regional need for the proposed capital project.
- A shared sales tax model with surrounding local governments, with revenue generated contributing to a major capital project and some aspect of revenue sharing for smaller projects that meet local needs.
Other recommendations
The task force recommended that the Office of the Minnesota State Auditor review local sales tax proposals from cities and counties. The task force recommended retaining the voter referendum requirement and provided sample language that could be used to ensure all requests were worded in a uniform manner.
Another recommendation was that general local sales and use taxes imposed by a city or county must be limited to 1% in total for each government entity. For counties, the 1% limit would be inclusive of county transportation sales and use tax. This results in an effective 2% total local sales tax cap on top of the state rate in any given city.
What’s next?
The House and Senate tax committees will both hold hearings on the report and the recommendations included in it. Those hearing dates have not yet been set.