Item Description:
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Neg Agmt PR00005705 with the MN Dept of Revenue for administration, collection, and enforcement of Hennepin County local sales taxes
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Resolution:
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BE IT RESOLVED, that the County Administrator be authorized to negotiate Agreement PR00005705 with the Minnesota Department of Revenue for the administration, collection, and enforcement of Hennepin County local sales, use, and excise taxes, with an effective date of January 1, 2024, and with a contractual reimbursement rate of 1.35% of gross sales tax receipts; and that following review and approval by the County Attorney’s Office, the Chair be authorized to sign the agreement on behalf of the County.
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Background:
Hennepin County has imposed two different local sales taxes. In 2006, the Minnesota Legislature authorized Hennepin County to approve a county ordinance to impose a 0.15% local sales and use tax to assist in funding a new major league ballpark and related infrastructure, and for other specified purposes (Laws of Minnesota 2006, Chapter 257; and Minn. Stat. 473.757, Baseball Stadium, County Activities). Accordingly, the county board adopted Ordinance 26, which authorized the 0.15% ballpark sales tax with an effective date of January 1, 2007.
In 2017, Hennepin County imposed its second local sales tax. Pursuant to state law, the county board approved Resolution 17-0207 on June 13, 2017, to impose a 0.5 percent local sales and use tax and a $20 motor vehicle sales tax that is dedicated to transit and transportation purposes (Minn. Stat. 297A.993, County Transportation Sales and Use Tax). The 0.5% county transportation sales tax had an effective date of October 1, 2017.
State law requires the MN Department of Revenue (the “Department”) to administer, collect, and enforce all local sales taxes (Minn. Stat. 297A.99, Local Sales Taxes).The statute also requires that the Department deduct its costs of administration from the gross tax collections, prior to remitting tax proceeds to the county (Minn. Stat. 297A.99, subd. 11). Both Ordinance 26 imposing the 0.15% ballpark sales tax, and Resolution 17-0207 imposing the 0.5% county transportation sales tax, include authorization for the Department to administer, collect, and enforce Hennepin County’s local sales taxes. Accordingly, Hennepin County has entered into multiple administrative agreements with the Department that specify the calculation of the administrative costs that are deducted from the tax collections. The most recent agreement is A177859, which became effective on July 1, 2017.
In December 2022, the MN Department of Revenue sent Hennepin County a letter providing notice that the Department planned to update certain provisions of the agreement for local sales tax administration. Administrative fees will be charged as a flat rate of 1.35% of gross tax collections, instead of a weighted allocation formula. The flat rate will result in increased costs to the county. The process for terminating a local sales tax has been refined to adjust the time period and the amount of revenue that is withheld by the Department for close out of audits through the end of the statutory tax enforcement period. Other administrative measures are also refined to allow for operational efficiency. The proposed agreement with the Department, PR00005705, incorporates the Department’s requested changes, with an effective date of January 1, 2024.
Current Request: This resolution would authorize negotiation of Agreement PR00005705, with the MN Department of Revenue, for administration, collection and enforcement of Hennepin County’s 0.15% ballpark sales tax and the 0.5% county transportation sales tax, with an effective date of January 1, 2024.
Impact/Outcomes: Compliance with statutory requirements for administration of local sales taxes by the MN Department of Revenue.
recommendation
Recommendation from County Administrator: Recommend Approval