Local Option Sales Taxes in the Omnibus Tax Bills

The 2011 legislative session has been a nail biter for local governments in Minnesota. On Monday, the House passed the Tax Committee’s omnibus bill by a vote of 73-59. Rep. Davids, committee chair, said the aim of the bill is to create jobs and reduce the tax burden on Minnesotans. In contrast, House Minority Leader Paul Thissen called it, “handcuffs that chain us into awful choices.” Local option sales tax (LOST) restrictions have become points of contention in the House bill.

Tensions are running especially high in Rochester. House members removed a $58.5 million local option sales tax from the omnibus tax bill. One member of the Rochester Area Chamber of Commerce vehemently spoke out against the bill and told State Legislators to stop controlling local governments’ purse strings, “Rochester is fully capable of making intelligent decisions as to how we want to spend our money, and don't tread in that area is my recommendation to you because it is a hot subject in town.” Rochester has a history of fighting for local control of LOSTs. In 2008, the legislature imposed a moratorium on LOSTs that expired in May 2010. In 2010, Rochester worked hard to defeat an extension of the moratorium. Although the moratorium expired last May, the House bill re-imposes it by prohibiting local government spending to promote new local sales taxes until May 2012 (it does not affect LOST approved by May 24, 2011).

Hennepin County has also been keeping an ear tuned to the debates in St. Paul. Supporters and opponents of a LOST proposal to fund the Twins stadium packed a 600 seat auditorium to testify before the House Tax Committee. The proposal includes a .15 percent increase in sales tax, which amounts to about 3 cents per $20.

There is a glimmer of hope (or hurdle, depending on your point of view) for local governments like Rochester and Hennepin County. The House bill is now moving to the Senate, where it must be reconciled with the Senate Tax Committee omnibus bill. The Senate version does not renew the moratorium and authorizes a different set of LOST proposals.

LOST advocates have reason to be hopeful. Sen. Julianne Ortman, Chair of the Senate Tax Committee, has supported greater local control over LOSTs. She recently told MPR that allowing local governments more flexibility to raise their own revenue could be more efficient than forcing them to get permission from the legislature to impost local sales taxes. Although she introduced a bill to that effect, it is not included in the Senate omnibus tax bill.

Local governments around the state are anxiously (or eagerly) waiting to see what the final tax bill will look like and how it will impact their revenue options. John James, former Commissioner of Revenue and founder of Sensible Tax and Fiscal Systems, predicted that sales tax reform would be one result of this legislative session. Governments like Rochester and Hennepin County must be wondering if that includes new restrictions on local option sales taxes.