5.f) Staff Report-Resolution Supporting Re-exemption of City Purchases from State Sales Tax cC' ' �
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SCANDIA
Staff Renort
Date of Meeting: March 19, 2013
To: City Council
From: Kristina Handt, City Administrator
Re: Resolution Supporting Re-exemption of City Purchases from State Sale Tax
Agenda Item#: 5.fl
Background:
At the February Council meeting, staff provided information on the impact of the Governor's
proposed sales tax expansion. Council directed staff to prepare a resolution opposing the sales
tax expansion. There was also discussion about how MN is one of only 10 states where cities are
required to pay sales tax. It was noted that a number of bills had been introduced in the
legislature to exempt city purchases from sales tax.
Issue:
Should the Council adopt a resolution supporting the re-exemption of city purchases from state
sales tax?
Proposal Details:
Included in your packet is Resolution 03-19-13-02,which was prepared by the League of
Minnesota Cities. While the Governor has since withdrawn his proposal to expand the sales tax
to business to business services, the City of Scandia still pays an estimated $22,000-24,000 per
year in sales tax.
The resolution notes the City's support for a number of bills at the Legislature that have been
introduced to exempt City purchases from sales tax.
As requested,the resolution also allows for the signature of each Council member.
Fiscal Impact:
NA
Options:
1) Approve Resolution 03-19-13-02
2) Amend and then approve Resolution 03-19-13-02
3) Take no action on Resolution 03-19-13-02
Recommendation:
Option 1.
CITY OF SCANDIA
RESOLUTION NO. 03-19-13-02
RESOLUTION SUPPORTING THE RE-EXEMPTION OF CITY PURCHASES FROM
THE STATE SALES TAX
WHEREAS, cities, townships, counties and school districts are partners with the state in
providing services to residents and businesses across the state of Minnesota; and
WHEREAS,prior to 1992, cities, counties,townships and school districts were exempt
from paying the sales tax on purchases; and
WHEREAS,the state legislature extended the state sales tax to city, township and
county purchases during the 19921egislative session to address an estimated $569 million
deficit; and
WHEREAS,the extension of the state sales tax to cities, townships and counties was
estimated in 1992 to raise approximately$67 million per year in state revenues; and
WHEREAS, the application of the state sales tax on city purchases puts pressure on
local property taxes and local user fees; and
WHEREAS, since the state sales tax was extended to city purchases, funding for Local
Government Aid has also been repeatedly cut to balance state budget deficits; and
WHEREAS, the homestead and agriculture aid program was repealed in 2001; and
WHEREAS,the 2008 constitutional amendment increased the state sales tax rate from
6.5 percent to 6.875 percent, increasing the cost of the state sales t� for cities and counties; and
WHEREAS,the Washington County Board of Commissioners adopted a quarter cent
sales tax increase in 2008 resulting in a sales tax increase to 7.125 percent, further increasing the
cost of sales tax for the City of Scandia; and
WHEREAS, the 2011 legislature exempted townships from the state sales tax; and
WHEREAS, the cost to cities and counties is now estimated to have increased to $129.2
million per year for state fiscal year 2015; and
WHEREAS, the state sales tax currently paid by the City of Scandia each year is
estimated to be $22,000-24,000; and
WHEREAS, the cost to cities and counties is estimated to grow by approximately 2.6
percent per year�, and
WHEREAS, future state sales tax rate increases or expansions of the state sales t�base
to additional goods and services would increase the cost of the sales tax on cities and their
taxpayers and ratepayers
NOW THEREFORE BE IT RESOLVED, that the City Council of the City of Scandia
supports HF 295, HF 466,HF 469, SF 329, SF 104 and SF 435, legislation now before the 2013
legislature that would re-exempt the purchases of cities and counties from the state sales tax.
Adopted by the Scandia City Council this 19th day of March, 2013.
Randall Simonson,Mayor
Sally Swanson, Council Member
Jim Schneider, Council Member
Chris Ness, Council Member
Dan Lee, Council Member
ATTEST:
Kristina Handt, Administrator/Clerk