From Roseau to Owatonna, local governments lobby St. Paul for local sales tax power

To tax or not to tax. That is the question.

Is it nobler to finance your city or county’s capital improvements through additional retail sales taxes at your local stores, restaurants and service providers? Or better to reject this as regressive taxation that contributes to economic imbalances and seek other means toward boosting local coffers?

Such is the philosophical quandary driving a difference that keen observers of state tax policy have surely noticed in recent years. The Senate regularly entertains and approves of cities and counties setting what are called “local option sales taxes” while the House Taxes Committee hadn’t had a hearing on any such proposals since 2022 — until Thursday.

The committee’s agenda contained 11 requests from local governments, stretching across the state from Roseau to Owatonna. The proposals are to increase local sales taxes by 0.25% to 0.5% to fund construction or improvements for government buildings, community centers, parks, sports facilities and other local structures.

Each bill was laid over for possible omnibus bill inclusion, but it remains to be seen whether Committee Co-Chair Rep. Aisha Gomez (DFL-Mpls) will yield on her resistance to including any such measures in the final tax bill.

Holding the gavel and setting the agenda was her co-chair, Rep. Greg Davids (R-Preston), who takes a different approach to the issue.

“As a Legislature, we’re not going to be able to do a whole lot for LGAs and CPAs [Local Government Aid and County Program Aid],” Davids said. “I don’t want to cut anything. But these LOSTs [local option sales taxes] are bills that can help a community move forward with their current budgets. … And they all have referendums, so the people decide what they want for their community.”

Gomez responded with her perspective on the practice.

“Local sales taxes are expressly prohibited in state statute,” she said. “Every bill we’re seeing today is an exception to that prohibition. … I want us to think systematically across the state about whether this is the smart way to fund public infrastructure or not. Should only people with a big retail sales base have community centers and fire stations?

“What we’re seeing today is a proposal for hundreds of millions of dollars of tax increases.”

Rep. John Huot (DFL-Rosemount) concurred with Gomez’s philosophy during a discussion of HF4033, a bill sponsored by Rep. Jeff Dotseth (R-Silver Township) that would create a local sales tax to fund construction of an ambulance and fire station for the Cloquet Area Fire District.

“We shouldn’t be dependent on a jar sitting outside the local gas station to say, ‘Donate to your ambulance service,’” Huot said. “We’ve really got to think of this as a safety net for the whole state.”

“The [emergency medical services] problem is very real,” said Rep. Cal Warwas (R-Clinton Township). “We’ve been searching for solutions. … There was $25 million in 2023 and ’24, and a lot of that money has evaporated. … It’s really important to find at least an interim solution. If we had a statewide solution, I think that would be wonderful.”

“It’s really a Band-Aid on an open wound right now,” Dotseth said. “But it’s the only solution that we’ve got.”

There was a time when such requests were so ubiquitous in the House that it needed its own subcommittee to handle them all. It would meet once a week as recently as early this decade to go over a long list of proposals that local officials came to the Capitol to explain, PowerPoint presentations and spreadsheets in tow.

While the process has evolved over the decades — some years you had to ask before putting it on the local ballot, during others you had to get voter approval before asking — the former has become state policy on the issue.