Voters in more than two dozen Minnesota cities and five counties will have local sales tax proposals on their ballots this fall after the Legislature approved a record number of sales tax proposals in 2023, but there could be stricter guidelines next time a city seeks a sales tax.
Until recently, it was rare to see a local sales tax outside Minneapolis and St. Paul, and regional hubs like Duluth and Rochester. But in the last five years, sales taxes have been enacted in suburbs and rural cities, with more cities making the argument that projects should be funded with a sales tax. Rules around sales taxes require the projects to be a "regional benefit," but what that means has been highly open to interpretation, and cities have had to ask the Legislature for permission.
"It seems kind of silly that municipalities have to come cap-in-hand to us, to ask permission to put something on their own ballot," said Sen. Aric Putnam, DFL-St. Cloud. "It made more sense to me that we come up with rules."
Bills in the Senate and House tax committees aim to provide some guidelines around what projects are of regional benefit and should be eligible for sales taxes.
If cities and counties want to use sales taxes to build convention centers, jails, district courts, regional law enforcement centers, libraries, parks, trails and sports complexes, the House bill would let them move ahead with the sign-off from the state auditor's office. The Senate bill adds water, sewer and street projects to that list. Other projects could still be eligible, but only with approval from the Legislature.
The House bill likely to clear the tax committee Friday has other guardrails, implemented after committee Chair Rep. Aisha Gomez, DFL-Minneapolis, raised concerns about how sales taxes were approved in 2023. Cities and counties seeking a sales tax for a court or a jail have to document what is wrong with their current buildings. And sports complexes would have to be at least 8 miles away from a similar complex in the Twin Cities metro, or 15 miles from something similar in the rest of Minnesota to qualify for sales taxes.
The Legislature approved 36 local sales tax proposals last year, signing off on projects that ranged from community centers and hockey arenas to basic infrastructure. Five cities with odd-year local elections voted on the proposals last fall, with taxes approved in Bloomington, Edina, Golden Valley and St. Paul, and rejected in Mounds View. The remaining cities and five counties will vote on sales taxes in November.
Several of the projects the Legislature approved in 2023 would have been disqualified had the proposed rules been in place, including Golden Valley's new police and fire headquarters, and renovations to hockey arenas in Bloomington and Edina that are not quite 7 miles from each other. None of the already-approved projects will be affected if the bills pass.
The House bill would also require two letters of support from neighboring communities attesting that the project really is of regional benefit, and not just an item on a city's wish list. The bill also requires a public hearing about the tax and the project. If all those conditions are met, city or county leaders would then pass a resolution to put the tax on local ballots for voters to decide.
In a letter, the League of Minnesota Cities said the current process can be opaque, but the new proposal created a "relatively narrow strike zone," and asked for a middle ground.
The bills could also cap local sales taxes at 1% and they would have to end after 30 years, which would limit the amount of money a city can raise, especially a city without much commercial activity.
"There's a bit of discipline that the statute requires," said Sen. Ann Rest, DFL-New Hope, who chairs the Senate tax committee.
