A thoughtful approach to local taxes
Advocacy
Paul Marquart | April/May 2024 Footnote
Editor's note: Updated April 1, 2024
In my first year leading the Department of Revenue, I’ve enjoyed meeting and working with many gifted people — inside and outside of the agency — to improve our state tax laws and how they’re administered.
One of many highlights in that time has been serving as chair of the Local Taxes Advisory Task Force that was formed under last year’s tax bill.
I was privileged to work with such an intelligent and motivated group of task force members, Revenue staff and consultants from Wilder Research. Together, we:
- Explored how cities and counties in Minnesota use local sales, food, alcohol and lodging taxes to fund projects. (Local property taxes were not part of the study.)
- Developed guidelines and recommendations to improve the process of proposing, evaluating and approving these taxes.
- Identified several aspects of the role of these taxes in funding local government needs across Minnesota.
The task force had many frank and thoughtful conversations from August through January — comprising 15 public meetings, three opportunities for public testimony and a public comment period.
Assessing impacts
Many of the task force discussions hinged on how local sales, food, alcohol, and lodging taxes can impact Minnesota residents and businesses — many of whom are your clients — along with other stakeholders. For example:
- Individuals: Local taxes can impact anyone who lives, does business in, or visits a city or county. The projects they fund can boost the local economy with more jobs and visitors, providing key services like community centers and libraries. But sales taxes can also be regressive, posing a heavier burden to residents with lower incomes, compared to those with higher incomes.
- Small businesses: Local taxes can place additional burdens on the small business owners who must calculate, collect, and remit them. This administration can be complex — and time-consuming — for small operators who may do their own bookkeeping, or who may use a CPA but cannot afford specialized software to handle their sales tax processing.
- Local governments: Cities and counties may need additional local tax revenue for projects that serve their residents and businesses, such as regional parks, athletic centers, or law enforcement facilities. But the current process to enact a local tax can be cumbersome, and some areas do not have a large enough retail base to raise enough revenue.
- State agencies, offices and legislators: The number of local taxes is up sharply in recent years. This increases the complexity and workload to oversee local taxes, most of which are administered by the state. As more cities and counties request legislative approval for local taxes, it’s more challenging for legislators to evaluate those requests in a consistent way.
Sharper tool
I’m proud of the work done by Local Taxes Advisory Task Force members and the Revenue staff who supported them. In all, the group made 15 recommendations to help streamline the process to request authorization for local sales, food, alcohol and lodging taxes.
These recommendations also strengthen accountability and oversight. And they point toward clearer guidelines for cities and counties, and for legislators who evaluate their proposals.
Most importantly, the recommendations would maintain flexibility and local control for cities and counties looking to add or update these local taxes — and for residents who vote on them.
If adopted, the task force recommendations will sharpen this important funding tool for cities and counties while increasing clarity and consistency for everyone involved in the process.
You can read the full Local Taxes Advisory Task Force report and recommendations on the Revenue website. To learn more, go to
www.revenue.state.mn.us and search by keyword task force.
Looking ahead
As the 2024 legislative session unfolds, we’ll update you on any updates to local sales taxes or other law changes. For the latest information, visit www.revenue.state.mn.us/tax-lawchanges or subscribe to our Tax Law Changes email bulletins.
As always, I look forward to working with MNCPA and other Revenue partners for the rest of this year’s session, and beyond. Thank you for your partnership!
Paul Marquart is the commissioner of the Minnesota Department of Revenue.
