2007-01-06_PR Comm Packet - Laserfiche WebLink

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The Department's findings show that relative to the typical city, cities with local sales taxes tend to be less dependent on local property taxes and other local funding sources. But this does not suggest that property taxes are lower in cities that have local sales tax. Generally speaking, cities that have a local sales tax also have higher property tax rates when compared to cities with similar population. The likely reason is that cities with a local sales tax also have greater demands for services that extend beyond their borders — the byproduct of being a regional service center. Summary of the Policy Issues The report outlines various policy issues related to the enactment of local option sales taxes. In summary, the report drew upon previous writings submitted by the National Conference of State Legislatures, whom in their 1997 report 'Critical Issues in State -Local Fiscal Policy, a Guide to Local Options Taxes' offered the following: Local option taxes allow local people to have more control over tax decisions and improve local flexibility to meet regional service needs. However, they may create local accountability problems, hamper state flexibility and impose additional administrative and compliance costs on businesses and individuals. They may also affect the balance and .fairness of the state -local system and create harmful competition between local governments. Reviewing Public Comments As part of their study, the Department of Revenue conducted public meetings in 2003 to solicit comments on local sales taxes. Meetings were held in Brainerd, Rochester, and St. Paul. Attendees included; city and county officials, legislators, individual citizens, business organizations, and associations representing cities and counties. As is noted in the report, the comments were generally centered on criticism of the current process, appropriateness of a local sales tax as a component of state and local revenues, and issues raised by the prospect of wider local authority for sales taxes. Criticism and discontent were observed with respect to the process of authorizing local sales taxes. The lack of consistent and objective criteria, meant some cities were granted approval whereas others were not, and not always for consistent reasons. Concern was also raised that the approval process was driven by politics rather than by merit. Although no unanimity was reached on the appropriate role of a local sales tax as a revenue tool, it was acknowledged by many that larger communities with a relatively strong economic base are better able to raise local monies than their smaller counterparts. And that this basic fact should be a consideration in granting approval for a local option sales tax. Public comment was also received with respect to requiring wider local authority before granting approval of local sales taxes. It was suggested that for local taxes that would be paid primarily by those who live outside the taxing jurisdiction, the referendum ought to be a regional one rather than confined to the taxing jurisdiction. Finally, considerable comment was made regarding a general desire for cities to demonstrate a regional benefit that overlaps multiple jurisdictions as criteria for approval. Although most would acknowledge the difficulty in defining what "regional benefit" might be. 3