The Free Press, Mankato, MN

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January 28, 2013

Changes in sales tax could be windfalls for some cities

— About two dozen Minnesota cities and counties whose sales taxes piggyback on the state's would see a gusher of new money if Gov. Mark Dayton's proposed sales tax expansion prevails.

Most of the local taxes are temporary and dedicated to specific purposes, which could mean quicker repayment of public debt on civic centers, airports, stadiums and sewer projects. That would mean the local sales taxes would end sooner. Other cities have more flexibility on how they could spend a windfall from taxes that either never expire or won't for decades.

Several Twin Cities-area counties impose a quarter-cent sales tax to pay for regional mass transit projects, and the amount raised from that would shoot up.

The trickle-down effect of Dayton's sales tax proposal has garnered little attention since the Democratic governor released his budget plan last week. Dayton's budget would subject a range of consumer and business services — haircuts, tattoos, legal bills and accountant fees among them — to the tax while lowering the state's overall rate from 6.875 percent to 5.5 percent.

As it is now structured, the local sales taxes would remain at their current rates but apply to everything the state considers taxable.

Early estimates by the Minnesota Department of Revenue provided to The Associated Press show that cities and counties with their own sales tax could expect to take in 60 percent more than they take in now. Counties would be in line for $79 million more in 2014; cities with extra sales taxes would gain a combined $60 million. The actual amount each city or county could expect would vary because consumption of the newly taxed goods or services isn't the same from place to place.

Duluth's 1 percent sales tax could generate an extra $8 million per year, according to a separate House Research estimate. Mayor Don Ness said it would come at a critical time, given a recent court loss that deprives the city of $6 million in annual payments from an American Indian band that operates a downtown casino.

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