St. Louis County Among MN Counties and Cities to See Sales Tax Break

Published On: 1st January 2014

Right now, it would make sense for city and county governments throughout Minnesota to wait until after the holiday season to make any major purchases

On January 1, much of the stuff that they will purchase will be tax-free.

As part of the budget deal passed in May, the Legislature exempted most local government purchases in the state from the 6.875 sales tax. This will save cities and counties millions of dollars annually.

Because of the amount of lead time that the local governments had, some big equipment purchases and supply runs were either postponed or they weren’t as high as usual.

The commissioner of St. Louis County said that they held off on things that would not affect service delivery.

Once the break kicks in, the commissioner estimates that St. Louis County could save $1.3 million to $1.5 million annually. There was a lot of sales tax associated with the purchase of squad cars for the sheriff’s department and other large purchases.

In 2012, the 87 counties and over 850 cities paid approximately $54 million in sales tax, according to the League of Minnesota Cities, the Minnesota Inter-County Association, and the Association of Minnesota Counties. The projection by the Department of Revenue places the savings at a much higher dollar amount at $130 million in 2014.

Some of the things that will no longer be taxed include phone service, paper clips, gravel, police accessories, road salt, fire trucks, and lawn care. The tax will still apply to items that are bought for the marinas, public golf courses, fitness centers, liquor stores, campgrounds, and other enterprises that are operated by the Minnesota State government. This is so they can effectively compete with private businesses.

Unmarked squad cars, candy, and electricity will remain taxed, however.

Minnesota hasn’t always required local governments to pay Minnesota sales tax. In 1992, they worked through a budget crunch where state lawmakers offered to avoid government aid program cuts in exchange for purchases being made taxable. Local leaders figured it would not be a permanent tax. However, it stayed and lobbying groups have been pushing for repeal for quite some time. Townships saw their break in 2011.

Early in 2013, the Minnesota Revenue Commissioner approached state officials with a surprising proposal. This has resulted in the sales tax exemption, as well as adding to the amount of government aid that municipalities receive. In a letter this month to city officials around Minnesota, they learned that the tools made available to them were designed to rebuild the state-local fiscal partnership.

The expectation was that the steps would help relieve property tax pressures, but some levies could cause them to rise anyway. Some of the local governments had lean years that they are still catching up from, so they could be in worse shape if lawmakers hadn’t taken out the sales tax obligation.

While many municipalities are cheering the new law, they do have a way to go to fine tune the law. Nonetheless, for some, this could result in a reduction of property taxes for the citizens, which is something that many Minnesota property owners will be seeing in 2014.