State Sales Tax Could Benefit Local Governments

Posted at: 01/28/2013 10:42 PM
Updated at: 01/28/2013 10:46 PM
By: John Doetkott

(ABC 6 News) -- Under Governor Dayton's new budget proposal, the state sales tax would be expanded to cover new products and services, including things like clothes and haircuts.

And while that money goes to the state, the expansion could boost local governments as well.

Cities like Rochester, Austin, and Albert Lea, all have local option sales taxes that are added on top of the state sales tax, and are collected on all the same purchases. So expanding the state tax could end up generating a lot of unexpected revenue for local governments.

More than two dozen Minnesota communities collect a local sales tax in addition to the base state tax.

Albert Lea, Austin, and Rochester all have a half percent tax collected to fund civil improvement projects.

And that half percent adds up. Since it was enacted back in 2007, the Austin sales tax has generated roughly $1.4 million each year.

But according to the Associated Press, estimates from the Minnesota Department of Revenue show cities could end up bringing in up to 60 percent more money each year if the governor's proposal passes.

There's only one problem.

“As of this point we just don't know how much it will increase,” said Jim Hurm, Austin City Administrator. “And I think it will increase, but how much will it increase our revenues?"

With no revenue projections, exact funding amounts for city projects are unclear.

Projects like the flood wall outside of Kuehn Motor Co. in Austin, where work was only completed on one side of the river.

“Hopefully we don't have to worry about it,” said Chad Kuehn. “Hopefully they're able to finish the other sections before the flood hits again, if it does."

And while Austin city officials say they're in good shape financially, the extra revenue could end up benefiting Austin residents as well.

With the local sales tax set to expire when projects are completed, more money now could mean a faster end to higher taxes.

“We're doing fine, but if we get additional revenues because of this, that makes it end sooner, Hurm said. “It's positive either way."

While city officials said they don't know at this point how much money the change could bring in, they do expect those projections to come down from the statehouse as the legislature moves forward throughout the year.