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ATTACHMENT 6 Overview Me�no re: Local Sales and Use Tax State and Local A�proval Reauirements Under State Law, both state and local approval is required before a local option sales tax can be enacted. Those requirements include: 1) Before seeking legislative approval, the governing body (city council) �nust adopt a resolution in support of the tax. It must include information on the proposed tax rate, how the revenues will be used, the total amount to be raised before the tax expires, and its estimated duration. 2) If authorized by the legislature, the question must be put to a vote at a general (not special) election, which may be either a state or local general election. Reeional vs. Local Benefits The Department of Revenue was asked to review the authorized uses of the local sales tax to determine if they have been regional in nature or of more limited benefit. Acknowledging that vat-yin�; definitions of "regional" can exist, the Department nonetheless determined that a regional component was present in all cities that have enacted a local option sales tax. It was reasoned that Minneapolis and St. Paul, as core cities, inherently carry benefit beyond their borders, whereas the other cities served as a"regional center" in their respective areas in greater Minnesota. Resident vs. Non-Resident Impacts The Department of Revenue was also asked to estimate what portion of revenue raised through the local option sales tax co�r�es from residents of the jurisdiction, as compared to non-residents. There was concern among State Officials that local jurisdictions that enacted local option sales taxes were not necessarily accountable to those that had to pay the tax. The Department acknowledged the data needed to make such estimates was not readily available. However, from a conceptual standpoint, it can be demonstrated that communities export their local sales tax burden when nonresidents purchase taxable items from local businesses. Therefore, a community's ability to export its local sales tax burden is directly correlated with; l) the relative number of residents in nearby jurisdictions, and 2) the relative strength of its own economic base. Stated another way, a community with a large retail base that sells taxable goods, with a relatively s�r�all population, will export a greater share of the sales tax burden than a community with the same retail base with a large population. Roseville falls into the former category — a relatively small population (compared to the collective population around us) and a relatively large retail base that sells taxable goods. Therefore, if Roseville enacted a local sales tax, a substantial portion of the tax would be borne by nonresidents. Local Revenue Raisin�Capacity Within its report, the Department of Revenue looked at the ability of a local jurisdiction to raise revenue by other means, including the property tax. This was done in an effort to determine whether jurisdictions that request approval for a local option sales tax, truly have a need to do so because they lack adequate sources typically available to local governments. ATTACHMENT 6 2 Overview Memo re: Local Sales and Use Tax