LOST! in Minnesota

Although known for being regressive, sales taxes have been on the rise in many localities as a means to stave off budget deficits. Locally, municipalities can implement a local option sales tax (LOST) which adds to the base state tax rate for specific geographic areas, usually cities or counties. Use of LOSTs vary state-to-state. Sixteen states do not have any local option sales tax while 100 percent of Alaska’s sales tax is derived from local option sales tax. Juneau has a LOST of 5 percent! The states with the highest average local sales tax rates are Louisiana (4.43 percent), Colorado (4.34 percent), New York (4.30 percent). The states with the lowest local rate (excluding states with no local option sales tax) are Pennsylvania (0.22 percent), Hawaii (0.34 percent), Minnesota (0.34 percent), Wisconsin (0.42 percent) and Utah (0.66 percent). The complete table can be found here. The average state combined sales tax rate is shown below.

Metro Area LOST

As you can see from the above numbers, the local option sales tax is not relied upon heavily in Minnesota. However, recent laws have increased sales tax for the Metro Area. In 2006, Hennepin County adopted Ordinance 26 which established a 0.15 percent sales and use tax to fund construction of Target Field which has proven profitable. In 2007, this tax collected $24.5 million. All other LOSTs in Minnesota are shown below as of 2007.

Obviously, there are concerns over equity regarding a sales tax that mainly benefits the rich (the Pohlads, Twins players and executives). However, Hennepin County attempted to hedge their bet by using excess income to fund local libraries and youth programs. Recently, Central library was open on Mondays for the first since 2006 because of $725,000 in sales tax revenue.

Local Option General Sales & Use Taxes in Minnesota1
City or County2	Rate	Effective Date/Year Enacted	Total Collections
			CY 2006	CY 2007
Duluth	1%	1973	11,398,159	12,225,979
Rochester	0.5%	1983	9,255,831	9,833,630
Minneapolis	0.5%	1986	28,493,948	30,425,381
Mankato	0.5%	1991	4,128,429	4,336,869
St. Paul	0.5%	1993	15,452,470	16,171,673
Cook County	1%	1993	1,079,651	1,181,754
Hermantown	0.5%	1996	1,137,678	1,193,037
Two Harbors	0.5%	1998	265,107	270,768
New Ulm	0.5%	1999	886,988	939,425
Proctor	0.5%	1999	151,314	132,582
St. Cloud (region**)	0.5%	2002	8,114,589	8,719,065
Willmar	0.5%	2005	1,475,634	1,794,419
Bemidji	0.5%	2005	1,423,560	1,690,976
Albert Lea	0.5%	4/1/2006	672,514*	1,193,642
Baxter	0.5%	10/1/2006	269,460*	1,907,480
Hennepin County	0.15%	1/1/2007	-	24,573,495*
Owatonna	0.5%	4/1/2007	-	1,240,622*
Austin	0.5%	4/1/2007	-	824,840*
Brainerd	0.5%	4/1/2007	-	556,740*
Total			84,205,334	119,212,375
*Includes St. Cloud, Sartell, Sauk Rapids, St. Augusta, St. Joseph, Waite Park.
**Partial year of collections.
1 Excludes selective sales taxes (restaurant, liquor, etc.) and lodging taxes.
These totaled $64 million in calendar year 2005 and show little growth.
2 Excludes the following new city and county taxes authorized in 2008:
5 metro counties -- transit tax at 0.25% (eff. 7/1/08)
North Mankato & Clearwater (probably eff. 10/1/08)
Winona (probably eff. 4/1/09 if referendum passes)
Mall of America (0.5% to 1% possible as early as 1/1/09)
Other county taxes for transportation projects are also possible.

On July 1, 2008 five metro counties in the “transit tax area”, added 0.25% sales tax for transit improvement. The income from this tax is handled by the County Tax Improvement Board which disburses money for transit projects in the area such as the Central Corridor LRT and Cedar Avenue BRT (CTIB). Despite the small increase, this tax creates a large amount of revenue. In two years the sales tax has amounted to $100 million in revenue for CTIB (report found here).

These two taxes highlight the contradictory nature of LOSTs in the Twin Cities. Sales taxes are inherently regressive but here they are implemented with an attempt to also aid low-income residents. This should be an interesting trend to follow locally as local option sales taxes are only gaining momentum but will likely only find political support with some attempts to mitigate their impact on low-income residents.