Bill seeks clarification on 2013 sales tax law

South Lake Minnetonka Police Chief Bryan Litsey testifies before the House Taxes Committee March 11 on Rep. Cindy Pugh’s bill, HF2703, which would exempt local government purchases made under joint powers agreements from sales and use taxes. Photo by Paul Battaglia

With projected costs on these bills for the 2014-2015 biennium running upwards to $41.7 million (HF2532 sponsored by Rep. Nick Zerwas, R-Elk River), Rep. Ann Lenczewski (DFL-Bloomington), committee chair, said the group will have to look long and hard at what exemptions, if any, it wants to extend.

While the law is directed toward counties, cities and townships, bills being offered would extend the exemption to public housing agencies, port authorities and Housing and Redevelopment Authorities — all considered quasi-government entities organized under the local government umbrella to fulfill housing or economic development initiatives.

But several testifiers specifically addressed bills targeting groups organized by local governments through joint powers. An example is HF2703, sponsored by Rep. Cindy Pugh (R-Chanhassen).

She said the Revenue Department has concluded that a joint powers group is not exempt from sales tax, even though each member of the joint powers would be exempt.

In her area, the South Lake Minnetonka Police Department, located in the western Twin Cities metropolitan area, operates under a joint powers agreement between four cities. Under the law it pays sales tax, while a neighboring city-only operated department is exempt.

“This was clearly not the intention of the legislation, as there is no public policy justification for requiring one police department to pay sales tax when a neighboring one does not,” Pugh said.

Bryan Litsey, the chief of police, told the committee that “the exclusion has a chilling effect on collaborative efforts of municipalities across the state,” and it discourages local governments from working together for better efficiencies to maximize tax dollars.

Gary Carlson, representing the League of Minnesota Cities, echoed the concern. “As you can tell by the volume of bills, you can see it is an issue for our cities and counties. … We think these [bills] are very important clarifications to the law enacted last year.”

Lenczewski said her intent is to address some of the exemption issues, but to what extent will depend upon how much money the committee has to spend on tax cuts.