Local Revenue Structure

A revenue structure describes the many sources of income a local government receives. The major sources of revenue include taxes, other revenue sources, and intergovernmental transfers are described below:

Revenue from Taxes--taxes are the essential source of revenue for all levels of government.

Property Tax—the property tax is the oldest tax levied in the U.S and is the only major tax common to all fifty states.

Sales Tax—a local sales is percentage of the transaction price of broad range of goods and services levied at the point of sale.

Income Tax—the income tax is a flat rate or sliding scale tax on earned income (including wages, salaries, tips, and commissions) from individuals residing in the city, earned income from those work in the city and net profits from unincorporated businesses.

Minnesota’s state and local governments collected 35.8 billion in “own-source” revenue in fiscal year 2012. Taxes comprise the largest share of this revenue, at 26.4 billion. The reminder comes from fees and charges. The 26.4 billion comes from a mix of state and local taxes, primarily on income, sales, and property. All income and most sales taxes are at the state level, while the property tax is chiefly local.

Revenue from Other Sources—in order to bolster revenue, there are several other revenue sources, including local option taxes, services charges, and fees levied by cities, counties, or special district government with state approval.

Fees—the voluntary charges imposed on an individual or business for a service or facility provided directly to that individual.

Licenses—the charges that authorize an individual or business to operate an ongoing activity.

Permits—the charges that authorize an individual or business to undertake a one-time activity for a fixed period of time.

Development Fees—the charges to construction companies for building inspection and impact assessments.

Special Assessments—it recoups the costs of municipal expenses from the individuals who benefit.

Excise Taxes—it is ‘selective sales taxes’ that levy specific classes of transactions at a specific rate.

Utilities—the charges to electric, gas, wastewater, potable water, and sewer, that are required to earn enough revenue to support the service they provide to local customers in addition to operations, overhead, capital improvements, and debt service costs.

Revenue from Intergovernmental Transfers—intergovernmental transfers are transfers of funds from one level of government to another. This may be to fund general government operations or for specific purposes.

State Aid—local revenue is greatly enhanced by various forms of state aid, which may include sharing a portion of state revenue from various taxes, giving grants, reimbursing for prison expenditure or payments in lieu of taxes.

Federal Aid—it includes establishing federal tax exemptions that reduce municipal borrowing costs. Federal tax exemptions for local property, sales and income taxes encourage homeownership and consumption of goods and services, thereby increasing municipal revenue from local sales, income and property taxes.