Bloomington sales tax information

Council Minute with Mayor Busse featuring Bloomington Sales Tax updates

Overview

In January 2023, the City filed a formal request to the State Legislature for permission to hold a referendum authorizing a local sales tax in Bloomington for certain capital projects.

The Bloomington sales tax would be a 0.5% (one-half of one percent) added tax charged on the gross receipts from retail sales in the city. The new tax would only apply to items that are currently taxable, meaning that items such as clothes and staple groceries would still not be taxed. According to an independent analysis by the University of Minnesota Extension Service, this local sales tax would generate approximately $12 million each year over 20 years. The revenue collected by the sales tax would stay inside Bloomington.

Each proposed project must meet the statutory requirement of regional significance at the state legislature. If approved by the legislature, the next step would be for Bloomington voters to vote on the referendum at a general election.

Frequently asked questions

What is a Bloomington sales tax?

The proposed Bloomington sales tax is a local sales tax that would be charged within the boundaries of the city. Approximately 80 units of government in Minnesota have a local sales tax. Revenues collected stay within the specific city where it is charged. Cities are required to get legislative approval and then voter approval before imposing any local sales tax. All projects considered for funding through a local sales tax must be regionally significant. See Minnesota Statute 297.99A for the state requirements for a local sales tax.

The Bloomington sales tax would be a 0.5% (one-half of one percent) added tax charged on the gross receipts from retail sales in the city. The new tax would only apply to items that are currently taxable, meaning that items such as clothes and staple groceries would still not be taxed. This local sales tax would generate approximately $12 million each year over 20 years. The revenue collected by the sales tax would stay inside Bloomington.

Who would pay a Bloomington sales tax?

It is estimated that 60 percent of a Bloomington sales tax would be paid for by visitors to Bloomington, and 40 percent would be paid for by Bloomington residents, according to an independent analysis by the University of Minnesota Extension Center for Community Vitality. written in 2022 using 2020 sales tax data.

The strength of Bloomington’s retail economy is such that local stores attract a significant number of metro area and regional visitors to shop in the community. In addition, residents from other cities commute to Bloomington for work, and purchase goods and services in the city. As a result, a local sales tax would generate considerably more revenues from non-residents who shop in Bloomington than from local residents.

The local sales tax would apply to items typically subject to a sales tax such as meals and drinks, admissions, and lodging and related services. See the Minnesota Department of Revenue for local sales tax information.

What would a Bloomington sales tax be used for?

The estimated $12 million generated each year through a Bloomington sales tax would be used to pay for specific capital improvement projects that have a regional impact.

Many of Bloomington’s facilities are in need of significant investment or replacement. A Bloomington sales tax would give the City a tool to shift the impact for improvements to these facilities onto a much broader base of taxpayers from outside of Bloomington.

In 2023, three projects were identified that could be funded through a Bloomington sales tax:

Bloomington Ice Garden renovation
A new community health and wellness center
Nine mile creek corridor renewal

When will project development and design occur?

City staff will analyze each project throughout the coming months, to consider the timing, cost and design of each project. In addition, there will be opportunities for the public to review and provide input.

It should be noted that the cost funded by the sales tax for each project must not exceed the amount of funding approved by the state legislature and Bloomington voters.

What is the approval process for a Bloomington sales tax?

Each proposed project must meet the statutory requirement of regional significance at the state legislature. If approved by the legislature, Bloomington voters would be asked to vote at a general election.

A Bloomington sales tax would reduce a homeowner’s share of the cost to improve City facilities, spreading the cost across a broader geographic area to support amenities that serve the region.

The City will have public education and information materials available for each project during the time of the legislative session and, if approved, up to the general election in November 2023 so that voters are fully aware of what they are being asked to approve.

When would a Bloomington sales tax go into effect?

Assuming that a Bloomington sales tax was approved by Bloomington voters in the General Election in November 2023, the sale tax would go into effect by second quarter 2024.

How long would a Bloomington sales tax remain in effect? Does it have a sunset or an expiration date?

The proposed Bloomington sales tax is not permanent. It is a special purpose tax that would expire when the City collects the revenue needed to fund the projects approved by the legislature and Bloomington voters.

The Bloomington sales tax is forecast to expire 20 years after implementation, the maximum allowed by state law. The revenues generated by the sales tax would fund the four proposed projects and their debt service (interest and financing costs.) If fewer than four projects are approved by the legislature and Bloomington voters, the half-cent sales tax would be implemented, but its duration would be shorter.

What happens if the revenues from the local sales tax are lower or higher than expected?

If local sales tax revenues are lower than expected, the total project costs would need to be decreased or additional funding would need to be identified from an alternative financing source.

If the revenues are higher than forecast, the tax would expire when the projects are fully funded. An example of this is Target Field, which was funded by 0.15 percent sales tax to cover Hennepin County’s payments on the ballpark’s construction. Excess revenues from the sales tax, plus lower interest rates, have helped the county pay off bonds sooner than expected.

Staff will be tracking sales tax revenues very closely. The City is confident that the analysis by University of Minnesota Extension is an accurate portrayal of where sales tax revenues will be in the future. This is because Extension identifies the amount of revenue as a floor, not a ceiling. The likelihood is that there will be sufficient revenue than what’s been estimated because Extension is conservative in its assumptions.

Would all goods and services be taxed by a Bloomington sales tax?

No. Just like today, some good and services in Minnesota are taxed, and others are not. The same items that are taxed today would see the added tax (with some statutory exceptions). Untaxed basic groups include many food and food ingredients, baby products, clothing, medication and feminine hygiene products. A full listing of non-taxable items is available on the Minnesota Department of Revenue’s website.

City staff created this quick reference sheet listing taxable items and taxable services as well as most nontaxable items with reference from the state of MN: Bloomington Sales Tax -Taxable and Nontaxable Sales (updated May 3, 2022)

Would the sales tax apply to the purchase of a home, motor vehicle, or boat in Bloomington?

Home purchase? No. Purchase of a new or used home is a not taxable for the whole-home transaction.

Motor vehicle purchase? No. Motor vehicles are taxed under a different structure. Local sales taxes cannot be assessed on the sales of motor vehicles, and the same applies to trailers such as boat trailers.

Boat purchase? The sales tax would apply to used or new boat sales using a broker or dealer. There is no tax on used boat sales between private parties in MN.

What would this tax look like in a real world example?

If you purchase a $10 toy at a store in Bloomington, the Bloomington sales tax portion of your receipt would be 5 cents.

What would it cost to pay for these projects through property taxes versus a Bloomington sales tax?

A Bloomington sales tax would reduce homeowner’s share of the cost to improve Bloomington’s facilities, spreading the cost across a broader geographic area to support amenities that serve the region.

Below is a comparison of what it would cost to pay for identified projects through the property tax levy versus paying for those improvements through a Bloomington sales tax:

If $12 million of debt service is added for the identified projects, the property tax bill for a median value home in Bloomington would increase by about $230 a year.
If $12 million is collected through a Bloomington sales tax, Bloomington residents would support an estimated 25-40 percent—or about $3.0-4.4 million—of the identified projects. Spread across Bloomington’s 42,000 households, that would be about $70-105 of additional sales tax each year.
The comparison of what it would cost each year for a median value home to fund the proposed projects is $230 from property taxes versus $70-105 from a Bloomington sales tax.

Is there any way to raise the money needed to fund the projects through fundraising or some other process?

The City would welcome contributions toward these projects. Staff are looking at all funding sources to move the projects forward in an economical way for the Bloomington community. These sources might include fundraising, naming rights or grants.

What is the University of Minnesota Extension, and why does it conduct studies for cities regarding the revenues generated by a local option sales tax?

The University of Minnesota Extension is a partnership between the university and federal, state and local governments to provide scientific knowledge and expertise to the public in a variety of areas. Extension’s mission is to build a better future through the University of Minnesota’ science-based knowledge, expertise and training.

The Extension Center for Community Vitality is a specialty area that studies the economic impacts on a region. The center provides customized retail analyses for communities to help gain insight into the local retail economy. The center has conducted a number of these studies for counties and cities, and it has a methodology that has proven to be very reliable.

How did the University of Minnesota Extension verify that 60% of a local sales tax would be paid by visitors to Bloomington?

After an analysis of a Local Option Sales Tax potential based on 2016 and 2018 sales tax statistics, the University of Minnesota Extension took another look in July 2022 at the trends of taxable sales data from 2020 for Bloomington.

Extension conducted the study to estimate overall tax proceeds and the proportion of tax proceeds generated by Bloomington residents. Comparing these results to non-resident results using sales and use tax data available from the Minnesota Department of Revenue, Extension estimated non-residents spending by adjusting proportions of non-resident spending using 2020 data based on shifts in taxable sales by category

A look at 2020 statistics points to the significant impacts of the pandemic on retail and service sales. Extension estimated that non-residents comprised 60.4% of 2020 taxable sales subject to a local sales tax. In comparison, Extension previously estimated that 74.6% of 2016 taxable sales and 75% of 2019 taxable sales subject to a local option sales tax came from non-residents. The conservative estimate of non-resident spending was calculated using the same categories with 2020 data as the previous reports.

Sales tax discussions at City Council meetings

Additional resources

Bloomington Ice Garden renovation (2023)

This PDF describes the City's proposal for a new roof, a new refrigeration system, locker room improvements, and other guest service and ADA improvements.

Community health and wellness center (2023)

This PDF describes the City's proposal to replace the Public Health building and Creekside Community Center.

Nine Mile Creek Corridor Renewal (2023)

This PDF describes the City's proposal to fund improvements in the Nine Mile Creek Corridor.

Letters sent to Legislators (January 2023)

These PDFs contain the letters sent to the Senate and House Tax Committees requesting authorization to utilize a local sales tax.

Trend Analysis: Local Option Sales Tax for Bloomington, MN (2021 report)

This PDF, an independent analysis by the University of Minnesota Extension Center for Community Vitality, provides estimates of the contributions of residents and visitors to a local option sales tax and an examination of trends from 2016 through 2019.

Trend Analysis: Local Option Sales Tax for Bloomington, MN (2022 report)

This PDF, an independent analysis by the University of Minnesota Extension Center for Community Vitality, provides estimates of the contributions of residents and visitors to a local option sales tax and an examination of trends from 2016 through 2020.

Resident Survey Report by Morris Leatherman Company (Summer 2022)

This PDF contains the survey results of a resident survey conducted in summer 2022. The City initiated a resident survey to gauge current sentiment. The Morris Leatherman Company, a local research firm, conducted a scientifically valid random sample phone survey of 400 residents in late July and early August. Peter Leatherman presented the findings to the City Council at the August 29, 2022 meeting.

Contact Information

City of Bloomington