1g Repeal Sales Tax Local Gov'tCITYOF
CI SEN
ICily Center Drive, PO Box I47
~hanhassen, Minnesota 55317
Phone 612.93Z 1900
General Fax 612.937.5739
~gineering Fax 612.93Z9152
bbc SafeO, Fax 612. 934. 2524
3b www. ci. chanhassen, mn.us
MEMORANDUM
TO:
FROM:
DATE:
Mayor and City Council
Todd Gerhardt, Acting City Manager
April 6, 1999
SUB J:
Repeal Sales Tax on Local Government Purchases
Attached you will find a resolution supporting the repeal of the state sales tax on
local government purchases. Prior to 1992, local governments were exempt from
paying state sales tax. However, in 1992 the state was faced with a budget deficit
and looked to local governments to bail them out. The League of Minnesota
Cities has been working to repeal this decision. If they are successful, it would
save the City of Chanhassen approximately $60,000 annually.
To show our support of the League's efforts, I would recommend the Council
approve the attached resolution supporting the repeal of the state sales tax for
local government purchases and send a letter to both Representative Workman
and Senator Oliver to support House File 52 (Haas) and Senate File 330 (Stevens)
Attachments:
1. Letter from League of Minnesota Cities dated March 8, 1999.
g:\adminMg~repealsalestaxmem.doc
Ciq of Chanhassen. .4 growing cvmmuniq with clean lakes, qua/iq schooh, a charming downtown, thriving businesses, and beautiful parks. A great place to live, work, and play.
League of Minnesota Cities
Cities promoting excellence ·
145 University Avenue West, St. Paul, MN 55103-2044
Phone: (651) 281-1200 · (800) 925-1122
Fax: (651) 281-1299 · TDD (651) 281-1290
March 8, 1999
Dear Administrator/Clerk:
As you may know, the League of Minnesota Cities has been working for the past three years
to build legislative support for the repeal of the sales tax on local government purchases. This
year a record number of bills have been introduced to repeal the tax and committees in both
the House and Senate have held hearings on the topic.
Although we have raised awareness and have gained support, legislators need to hear from
you and other city officials about how important these bills are for your community. While
most legislators agree that taxing local government purchases doesn't make sense, the repeal
would permanently reduce annual state sales tax revenues by an estimated $80 million. Given
the new February budget forecast that includes an additional $730 million in surplus state
revenues through the end of the next biennium, the state can certainly afford to eliminate the
sales tax on local purchases. Legislators need to know that repealing the sales tax on local
government purchases is good tax policy and means savings to your residents.
Please contact your representative or senator to encourage them to support the repeal of the
sales tax on local government purchases. Attached is a sample council resolution to encourage
legislative support and a sample letter that you can modify and send to your legislators.
Thank you for your time and effort.
Sincerely,
Gary Carlson
Director, Intergovernmental Relations
AN EQUAL OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYER
RESOLUTION NO.
RESOLUTION SUPPORTING REPEAL OF THE STATE SALES
TAX FOR LOCAL GOVERNMENT PURCHASES
WHEREAS the Legislature imposed the sales tax on local governments in 1992 when
facing a significant state budget deficit; and
WHEREAS the state government has collected hundreds of millions of dollars in
sales tax since 1992 on local government purchases of items such as road
maintenance equipment, wastewater treatment facilities, and building materials;
and
WHEREAS the sales tax on local government purchases is passed on to residents in
the form of higher property taxes and fees; and
WHEREAS the state's financial picture has improved dramatically and the need for
the sales tax no longer exists; and
WHEREAS Minnesota is one of only seven states which impose sales tax on local
government purchases; and
WHEREAS imposing the sales tax on local government purchases is an inefficient
way to raise state revenues, especially where sales tax is paid for bonding
projects with accompanying interest costs;
NOW, THEREFORE, BE IT RESOLVED that City Council encourages its
state legislators to support the repeal of the sales tax on local governments.
DATED
Mayor
ATTEST
City Clerk
Date
The Honorable (Fname) (Lname)
Minnesota House of Representatives
*** State Office Building
St. Paul, MN 55155
Dear Representative/Senator (Lname):
The City of encourages you to support H.F. 52 (Haas)/S.F. 330 (Stevens) and other bills that
would re-exempt local government purchases from the sales tax.
The sales tax on local government purchases was extended by the legislature in 1992 at a time when the stai
was experiencing a severe budget shortfall. With recent budget forecasts that indicate a substantial state
budget surplus in the foreseeable future, the state can afford to eliminate the sales tax on local purchases.
Exempting local government purchases would save cities, counties and townships an estimated $80 million
per year that ultimately results in higher property taxes and user fees. Jif your city has tile actual or estima
of the sales tax paid last year, you should inclttde that figure ill tile letter].
We encourage state legislators to support the repeal of the sales tax on local governments.
Sincerely,
Serving' Co on Constituents
"When the Chaska City Council recently revealed the city paid sales taxes costing
[oca! property taxpayers $161,000 in 1997, it should have alerted all that one of
our governments is taxing another of our governments (again) and we are picking
up the tab for both. And that's been happening every year since 1992."
-- Chaska Herald, Feb. 11, 1999
The above Chaska Herald newspaper editorial refers to the sales tax on local
government purchases imposed by the Legislature when the state faced a significant
budget deficit in 1992. Cities, counties, and towns pay an estimated $80 million
each year to the state for purchases such as road maintenance equipment, waste-
water treatment facilities, and building materials. The local government.~s~hen must
raise that revenue through higher property taxes and fees, lik~he $161~;1~30
Chaska paid the state in '97.
Now that the state's coffers are expected to gain an additional $730 million over
and above the anticipated billion-dollar surplus, the state's financial picture looks
rosy enough to eliminate this unnecessary and duplicative tax.
The editors at the Chaska Herald realize that state legislators and local government
officials serve common constituents and that they're the ones picking up the tab.
March 17, 1999 Page 5