Bloomington officials want to implement the city's first local sales tax, at a time when many communities are trying to convince state lawmakers that the cost of providing services shouldn't fall to residents alone.
The proposal for a 0.5% sales tax is a reprise of a 2022 proposal, which died in the Legislature along with similiar proposals from more than a dozen other cities. Sales tax revenue would fund renovations for the Bloomington Ice Garden, a health and wellness building that would serve as a base of operations for the local health division that also serves Edina and Richfield, and for work in the Nine Mile Creek corridor parks.
"These are things that serve a community beyond Bloomington," City Manager Jamie Verbrugge said. "I think there's a real appeal, for property taxpayers especially, to see a broader pool of people who are benefitting from things paying for those things."
City voters would have the final say after the Legislature votes on whether to approve the local sales tax option for Bloomington, as cities around the state weigh their own sales taxes.
The proposed tax would not apply to goods and services that aren't already taxed, so clothes at the Mall of America will still be tax-free. But lots of purchases connected to trips to the mall, such as restaurant meals and hotel stays, will be taxed.
The idea of taxing non-residents can make sales taxes appealing for cities, said University of St. Thomas finance professor John Spry, because it generates revenue from people beyond city limits.
Cities with more retail stand to gain more from a sales tax, Spry said, especially if they are surrounded by communities with little shopping and commercial activity. Bloomington, for example, will draw income from residents of nearby cities doing their regular shopping, as well as people flying from all over the world to fill up their suitcases at the Mall of America.
"With 494, the Mall of America, IKEA, Bloomington is a huge shopping destination," Spry said. "I can really understand why Bloomington might like this."
Sales taxes are less attractive to cities and towns with little commercial activity, where residents may be forced to pay sales taxes elsewhere and feel fewer benefits at home, Spry said. So cities have to show the Legislature that there will be a benefit beyond city limits.
"In the past, the Legislature has only approved these when there's some regional benefit," Spry said. But he said he has noticed more requests being approved in recent years, with the definition of "regional benefit" expanding.
The Legislature will likely receive 15 or more local sales tax requests this session, said Gary Carlson of the League of Minnesota Cities, as communities that didn't get their sales taxes considered last session ask again, and others try for a sales tax for the first time.
While some cities, like Bloomington, are focusing on using a sales tax to fund recreation areas that draw people from out of town, others, such as Golden Valley — which is proposing a 1.25% sales tax this year — are trying to make the case that their police, firefighters and public works departments benefit more than just their residents. Richfield is also trying to make the case for a local sales tax to renovate a city pool and fund a new building at the Wood Lake Nature Center, which draws school groups from neighboring cities.
Verbrugge said Bloomington has lots of capital needs, including replacements and renovations for public buildings and systems in the years ahead. But he said the city chose the ice arena, health building and park system as recipients of potential sales tax dollars because of their regional appeal.
"Projects that are serving a broader community will be paid for by a broader community," he said.
