State sales tax rate increased, expiration for certain laws applicable to local sales taxes provided, and revenue dedicated to local government aid distributions.
Summary
HF2973 would increase Minnesota’s general state sales tax rate from 6.5% to 7.0% for sales and purchases made after September 30, 2025. The bill also changes the state’s sales tax revenue allocation rules by carving out 0.5 percentage points of the sales tax and depositing that amount into a new local government aid sales tax revenue account. Beginning in calendar year 2026, that account would fund annual distributions to cities that did not impose a local sales tax in the prior year, with each qualifying city receiving a share based on its existing local government aid formula.
The bill also amends the statute governing local sales taxes to make the section expire when the last existing local sales tax authorized by special law before December 31, 2025 ends, and it extends the application of that section to local sales taxes authorized through January 1, 2026. In addition, it updates the state’s sales tax deposit statute to reflect the new revenue dedication and the higher general rate, while leaving in place the many existing earmarks for transportation, natural resources, fire safety, and other accounts. The new local aid account would be created in the special revenue fund and administered by the commissioner of revenue.
Impact
The bill would directly amend Minnesota Statutes sections 297A.62, 297A.94, and 297A.99, and would create new section 477A.035. Its principal fiscal effect is to raise the statewide sales tax rate and redirect a portion of sales tax receipts from the general fund into a dedicated local government aid distribution mechanism. It would also alter the treatment of local sales tax authority by adding an expiration tied to the end of the last pre-2026 special-law local sales tax, which could affect cities and other local governments that rely on local sales taxes or are governed by those statutes. The bill would therefore affect state revenue collections, the general fund, and the distribution of aid to cities that do not levy local sales taxes.
Sentiment
Based on the bill text and the absence of recorded committee testimony or votes in the provided materials, the overall sentiment appears to be policy-driven and revenue-focused rather than overtly partisan in the record available here. The bill’s structure suggests support for using sales tax revenue to bolster local government aid while preserving many existing dedicated revenue streams. Because no committee discussion or voting history is included, there is no documented public sentiment in the provided context beyond the bill’s stated purpose.
Contention
The most likely points of contention are the statewide sales tax increase and the redirection of revenue away from the general fund to a dedicated local aid account. Supporters would likely emphasize the benefit to cities that do not impose local sales taxes and the more predictable aid distribution formula, while opponents may object to a higher sales tax burden on consumers or to creating another earmark that limits general fund flexibility. Another potential issue is the bill’s treatment of local sales tax authority and the expiration of certain local-sales-tax laws, which could raise concerns among local governments that currently use or depend on those taxes.
State sales tax rate increased, expiration for certain laws applicable to local sales taxes provided, and revenue dedicated to local government aid distributions.
Cities and counties authorized to impose local sales taxes for certain projects, oversight provided, revenue sharing required, report required, and money appropriated.
Comparison of actual expenditures in forecasted programs to projected spending from prior forecasts required, notice to legislative auditor when actual expenditures deviate required, other budget oversight and accountability provisions modified, and money appropriated.