Ice arena sales tax begins this fall [UPDATED]Published 10:55am Thursday, July 21, 2011 Updated 10:55am Thursday, July 21, 2011
The city of Fergus Falls has been playing the waiting game for months with its half-cent local option sales tax for the ice arena, but now that it has been passed by the state Legislature, the time has come to take the next step.
Once the tax is enacted, explained Finance Director Bill Sonmor, the entire process will be handled by the state Department of Revenue. The tax will likely begin in the last quarter of the year.
“We have to give the Department of Revenue at least a three-month notice that it’s been enacted so that the (department) can get that in place, and then they will actually contact all of those (local) businesses and give them instructions on it,” he said. “The (department) will send their collections to us on a monthly basis.”
Sonmor added that no new items, like food or clothing, will be hit with the tax.
“Whatever is taxable now is taxable under the local option sales tax,” he said, adding that motor vehicles will not be taxed under the plan.
The sales tax is expected to last for about four and a half years. If the city raises enough money to pay off its ice arena bonds earlier, then the tax will end earlier.
Sonmor emphasized that the tax is legally required to end, or “sunset,” after the ice arena funds have been raised. Once the funds have been raised, the Department of Revenue will notify businesses to stop enforcing it.
Though some council members have expressed interest in using a local option sales tax to pay for other city building projects, like a new police station or a library expansion, Sonmor said the current tax cannot legally be extended to fund anything besides the ice arena.
“It has to sunset and has to be stopped for a minimum of one year,” he said, “so it has to go away for at least a year before you go back to the public and say, ‘Do you want to pay for another project?’”
Voters would then have to approve the tax all over again, as they did in the 2010 elections.
Though the city has pledged $4 million to the project, the tax allows the city to raise up to $6.6 million for the project. Sonmor said that number allows for interest rates on the bonds and also provides the city with a little bit of leeway in case some of the private donors don’t come through with their donations. The city has not yet issued bonds for the projects.
The city will keep a close eye on the effectiveness of the sales tax. If it works well, a similar tax may be examined in the future for other projects.
“I think certainly the potential is there,” Sonmor said, deferring to the council’s judgment.
The tax will charge a half cent on the dollar for a purchase, in addition to the current sales tax. For example, if an item costs $50, the arena tax would add an extra 25 cents to the price.