City: Sales tax collections more than enough [UPDATED]Published 11:10am Tuesday, March 26, 2013 Updated 2:28pm Friday, September 13, 2013
The local option sales tax collections for Fergus Falls in 2012 weren’t quite up to pre-Great Recession projections, but were more than enough to cover the annual payments for the community arena, according to city Finance Director Bill Sonmor.
“For me, this is very encouraging,” Sonmor said. “This is good news.”
The city collected $114,118.52 in sales taxes in December, bringing the annual total to $1,106,217.81. December represented the highest month of the year.
Retailers within Fergus Falls city limits charge a sales tax of 7.375 (6.875 percent state sales tax plus .5 percent city sales tax) on any items that would be subject to the state sales tax.
The sales taxes collected are used specifically to pay a $4 million bond to pay for its share of the community arena, which must be repaid with interest in five years.
The $1.1 million — representing about $221 million in sales on products subject to the tax in Fergus Falls — is about 15 percent below the city’s initial projection of $1.3 million in sales tax revenue annually. However, the $1.3 million, representing about $260 million in sales, came from discussions with the State Department of Revenue and based on Fergus Falls sales tax collections in 2008, essentially prior to the Great Recession.
“There is no perfection to that number,” Sonmor said. “That’s simply an estimate.”
While not up to the estimates, the $1.1 million is more than enough to pay the annual principal and interest payments. Sonmor said the city needed about $820,000 annually to make the payment requirements. The city surpassed that in October.
“Long story short, if we receive $1.1 (million) each year plus the donations coming in… we’re on schedule,” Sonmor said.
The city received an extremely low 0.94 percent interest rate on the bond, representing only $37,600 in annual interest in 2012.
“Very low rate,” Sonmor said. “I don’t think we’ll see that again.”
Now that the city has this first year under its belt, it will have those numbers to use as the benchmark going forward until the bonds for the community arena are paid off.
With the sales tax revenue that came in this year, there is also a potential that the bonds could be paid off early, before the five-year mark.
The Legislature approved the sales tax in May of 2011, after Fergus Falls residents passed a sales tax referendum in 2012.