Dayton's sales tax plan would be boon to Duluth city coffers

ST. PAUL — Duluth is one of about two dozen Minnesota cities and counties that would see a gusher of new money if Gov. Mark Dayton’s proposed sales tax expansion prevails.

What those cities and counties have in common is a local sales tax that piggybacks on the state’s sales tax. If the Legislature agrees to apply the state tax to a wider range of sales, then the local taxes will apply to those sales, too.

Duluth’s 1 percent sales tax could generate an extra $8 million per year, according to a House Research estimate. Mayor Don Ness said it would come at a critical time, given recent court rulings that have kept the city from collecting what had been $6 million in annual payments from the downtown Fond-Du-Luth Casino.

“We’ve been on the razor’s edge with our budget for over a decade in the city of Duluth, and while we’re getting close to finding stability, we still have a long way to go,” Ness said Monday. Ness envisions using the revenue uptick to plug the hole from the casino decision and pay off other debt, but he’s well aware that the expansion is no sure thing.

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.

Some city and county taxes are temporary and dedicated to specific purposes, which could mean quicker repayment of public debt on civic centers, airports, stadiums and sewer projects around the state. 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.

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.

St. Paul, which levies a half-cent sales tax, is taking a wait-and-see mentality. Sixty percent of those proceeds go for neighborhood or cultural development, with the rest used to repay debt from the city’s convention center. City economic development projects could benefit, but city officials said it’s too soon to say precisely how.

“We’re moving at the speed of the Legislature,” said Joe Campbell, communications director for Mayor Chris Coleman.

One wrinkle involves the constitutional amendment voters passed in 2008 to raise the state sales tax for specific programs. That amendment permits lawmakers to shave the tax rate if the sales tax base is expanded — so the revenues match the projected income under the prior arrangement.

The added 0.375 percent tax produces hundreds of millions of dollars per year dedicated to programs protecting drinking water, enhancing wetlands and habitat, boosting the arts and otherwise preserving Minnesota’s environmental and cultural legacy. Dayton has recommended slicing the rate connected with the Legacy Amendment to 0.234 percent.

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