Taxing water used to fight fires

A city pays no sales tax on the purchase of a new fire truck used to fight a fire, but the same can’t be said for the water it uses to extinguish the flames.

The City of Freeport was unaware of the sales tax charge on water used for public safety purposes, and was recently hit with an $8,217 bill for three year’s worth of back sales taxes on water it used for firefighting, hydrant flushing and cleaning of water towers.

Rep. Paul Anderson (R-Starbuck) told the House Taxes Committee April 12 there is some ambiguity in the law, with some cities unaware of the tax. He said Freeport learned about it because it recently underwent a sales tax audit by the Revenue Department. Under current law, residential use of water is not taxed.

“Out of common sense, the city shouldn’t pay sales tax for the water it uses (for public safety purposes),” he said. His bill, HF2905, would expand the sales tax exemption for certain goods and services to local governments to include water used for public safety purposes. It would be retroactive to June 30, 2007; however, no refunds would be made for taxes paid before Jan. 30, 2010.

His “little bill,” as Anderson called it, carries some tax policy questions, and it was laid over for possible inclusion in a committee omnibus bill.

Rep. Ann Lenczewski (DFL-Bloomington), the committee chairwoman, said some legislators question why local governments should be charged sales tax at all. Additionally, some think that all water use should be taxed as a conservation measure. The current water and sewer sales tax exemption carries a $116 million price tag, Lenczewski said. “There is a policy question: Don’t tax any water, or tax all water. … There is cost to all of this.”

A companion, SF3292, sponsored by Sen. Joe Gimse (R-Willmar), awaits action by the Senate Taxes Committee.