2010-03-23_PWETC_AgendaPacket - Laserfiche WebLink

Home

Criteria for granting For a complete analysis of how cities in Minnesota are classified by the League of authority to tax Minnesota Cities, visit the League's website: www.lmnc.org. It should be noted that most of the local sales and use taxes, excluding St. Paul and Minneapolis, have been imposed in Greater Minnesota cities. City representatives have made the assertion that any benefits to these cities should be deemed regional because they are regional centers. Criteria for Granting State Authority for Local Sales Taxes Resident/Nonresident Impacts (Tax Exporting) The department was asked to estimate what portion of revenue raised through the local sales and use taxes comes from residents of the tax jurisdiction, Minnesota residents outside the jurisdiction, and nonresidents. Unfortunately, the data needed to make such estimates are not readily available, and it is not possible to make good estimates of resident and nonresident shares of the local sales taxes levied in each of the 10 cities. Local residents do seem to be concerned about how much of the tax will be borne by city residents. Conceptually, we know that communities export their local sales tax burden when nonresidents buy taxable items from local businesses-either directly by shopping in the community, or when local businesses ship products to nonresident purchasers. As a result, a community's ability to export its local sales tax burden will be directly correlated with (1) the relative number of residents in nearby jurisdictions, and (2) the relative strength of its own economic base. The department's Tax Incidence Study indicates that initially about 44 percent of the state sales and use tax falls on businesses and 56 percent falls on individuals, and that a portion of these shares are paid by nonresidents. The study estimates that nonMinnesotans pay about 3.8 percent of Minnesota state sales tax collections. However, these proportions will vary from community to community. Asa prelimi- narystep to estimating how the tax will be distributed, an estimate of the local portions paid by businesses (44 percent statewide) versus those paid by individuals (56 percent statewide) needs to be obtained. Further, each then needs to be divided into the exported and local portions. Estimating tax exporting potential for every city requires population and economic data on neighboring communities for some relevant distance around the taxing jurisdiction. Unfortunately, the "relevant distance" depends on the drawing power of the taxing community and a host of other factors that might affect the decision to shop outside one's own community. A crude estimate of a community's relative ability to export local sales taxes might be derived using its commercial and industrial (C/I) property tax base relative to its total property tax base. The larger the business share of the local property tax base, the more likely it is that the community will be able to export a greater share of its local sales taxes to nonresidents, who are likely to account for a greater share of local retail sales. Shares of C/I tax base for cities with population over 10,000 are shown in Appendix B. Lacking the ability to make city-specific estimates of tax exporting, the department asked cities that currently have local sales and use taxes to identify resident/non- residentimpacts of their local tax. Most often the city representatives did not cite specific statistics or studies. Some city officials referred to estimates done by con- 5