Moratorium on new local sales tax requests part of property and local taxes mini-omnibus

Perhaps you live in a Minnesota city that was making plans to put a referendum on the November ballot about raising local sales taxes for a particular purpose. If the final report of the House Property and Local Tax Division becomes law, that won’t be happening – in this year or next.

A moratorium on new sales tax requests is part of the delete-all amendment for HF346, which is something of a mini-omnibus bill designed to become part of the larger omnibus tax bill. Sponsored by the division chair, Rep. Andrew Carlson (DFL-Bloomington), the bill contains several proposed changes in state tax law, some intended to create flexibility for local governments in meeting deadlines and how they use local option sales taxes.

The bill was introduced at Monday evening’s division meeting, although members had heard most of its provisions at earlier hearings. It provided an opportunity for House nonpartisan research staff to explain the bill’s provisions, and for testifiers to voice their support or concerns. The division intends to take action on the bill at a Wednesday meeting.

Currently, its companion is SF473, sponsored by Sen. Melissa Wiklund (DFL-Bloomington), but, like the original HF346, that's likely just a vehicle bill that the Senate Taxes Committee is expected to replace with a separate property and local tax bill of its own.

Here are the primary proposals contained in the House bill:

Property tax changes

The bill would:

• provide property tax deferrals for elderly living facilities;
• create a new classification for short-term rental property;
• allow a deceased veteran’s spouse a one-time transfer of the disabled veterans’ homestead exclusion;
• allow counties to choose a second settlement date for first-half property tax payments; and
• provide local government aid penalty forgiveness to the towns of Roosevelt and Sargeant.

Local tax changes

When it comes to how municipalities levy taxes, the bill would allow them to:

• be temporarily flexible in using tax increment financing (TIF) revenues and most local sales taxes;
• have 10 years to use TIF funds in Greater Minnesota, rather than five; and
• include accommodations intermediaries (such as Expedia or Travelocity) in the tax base.

There are several modifications and clarifications proposed in the bill, such as altering provisions on the powers, duties and education requirements of county and city assessors, and clarifying rules on solar energy production taxes. It would also update how fire and police state aid programs are codified.

Carlson also addressed two provisions that hadn’t appeared in any previous bill before the division: One that would prohibit new sales tax requests until the 2022 legislative session, and another that would launch a local sales tax working group to establish criteria for “regional significance,” a nebulous term that provoked much discussion in local option sales tax proposals.

“The proposals were all over the map, both literally and figuratively,” Carlson said. “What this language does is it hits pause on local sales taxes. Local governments have been required to come up with what qualifies as regional significance, and we have had shifting definitions. This will increase transparency and objectivity. … The benefit of hitting pause now is that there’s other language in the report that opens up the process.”

Nonpartisan House Fiscal staff estimate that the property tax aids, credits and refunds contained in the bill would amount to $3.87 billion for the 2020-21 biennium, increasing to $4.17 billion for fiscal 2022-23.

Rep. John Petersburg (R-Waseca) bemoaned the state’s changing rules for cities to come to the Legislature with local option sales tax proposals, which were altered in the 2019 state tax law.

“It does seem like we’ve changed the rules from one year to the next,” he said. “I have concern that we’re bouncing the ball back and forth. We asked that they vote them in and then come to us. Now we ask that they come to us before they vote on them. Now they feel caught in the middle with some projects ready to go.”

Indeed, the city of Grand Rapids expressed exasperation in a letter to the division about its inability to submit to voters a local sales tax proposal to fund improvements to an ice arena.

But Rep. Paul Marquart (DFL-Dilworth) supported the proposal for a moratorium.

“The last few years, we’ve had 20 to 24 local options sales tax proposals in this division each year,” he said. “It’s become a whole new animal. And there are always comments and questions on what qualifies as regional significance. … This working group will establish that. And we will also be able to examine if other funding sources are available, rather than sales taxes.”