The Free Press, Mankato, MN

December 20, 2013

Sales tax change helps local property taxpayers

By Tim Krohn
tkrohn@mankatofreepress.com

---- — A Jan. 1 change in state law will give a break to area governments — and property taxpayers.

The Legislature this year exempted most local government purchases from the state's 6.875 percent sales tax beginning in the new year, which collectively will save cities and counties tens of millions of dollars each year.

"It's quite a windfall," said Blue Earth County Administrator Bob Meyer about the estimated $495,000 in sales tax savings the county will see next year.

"We were able to freeze our property taxes at the 2013 level. It allows us to weather some cost increases without having to increase our property taxes."

"Some of the big savings for us are in public works — things like gravel that were taxable. Those are critical items, so it's nice not to have those tax burdens," Meyer said.

St. Peter City Administrator Todd Prafke said they are estimating a savings of $60,000 to $80,000 a year.

He said the city can't be more precise at this time in its estimates because they are still waiting for some final rule interpretations from the state. That's because some things local governments buy will still be taxed.

The exemption does not apply to purchases used to provide services that are generally provided by a private business, including liquor stores, golf courses and gas and electric utilities.

St. Peter has an electric utility and Prafke said he's unsure what purchases for the utility will be taxed and which won't. "If we buy a piece of equipment to dig trenches, we'd not only use that in the electric department but also in waste and water departments. So how is that taxed?"

Mankato City Manager Pat Hentges is estimating the city will save around $200,000 annually.

But he said the savings won't show up immediately in the city's operational budget because the biggest savings will be when the city buys large pieces of equipment or buys materials that go into constructing a new city building.

He said, for example, the city won't be buying many police squad cars for a while because they bought several the past couple of years.

"Our capital improvement and equipment dollars will go further because we're not paying sales taxes on those big purchases."

He said the city was planning to buy a road grader and street sweeper this year but is holding off until after the first of the year to get the benefit of not paying sales taxes on the equipment.

Having local governments use local tax money to pay state taxes was an idea that came about in the 1992 budget crunch. Lawmakers offered to avoid deep cuts to local government aid programs in exchange for making their purchases taxable. Local leaders figured it would be temporary but it's stuck around.

"It was a classic example of how we would pay the state taxes only to assess local property taxes. But I understand it. Budget struggles make odd situations," Meyer said.

The state's 87 counties and more than 850 cities paid an estimated $54 million in sales taxes last year.