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Heidi Shaffer, Published November 07 2010

Fargo sales tax will be highest to date

Fargo consumers will pay a 7.5 percent sales tax starting April 1 when Cass County’s half-cent rate approved on Tuesday takes effect.

The change will mark Fargo’s highest total sales tax rate to date, and makes the city’s sales tax tied for the highest in the state, surpassing every other municipality in the metro area and county.

In North Dakota, local sales tax increases must be approved by voters, and can be a good tool for funding larger projects or infrastructure maintenance, said Fargo Mayor Dennis Walaker.

Sales tax is “the lesser of two evils when it comes to taxes,” because it spreads the cost to everyone who uses the city’s streets and facilities, not just residents, Walaker said.

Who gets what?

North Dakota shoppers pay a 5 percent rate to the state, in addition to any county and city sales taxes.

West Fargo, Casselton, Harwood, Mapleton, Oxbow, Page and Tower City in Cass County all have a 1-cent city tax. The city rate, combined with the state and new half-cent county tax means each city will have a 6.5 percent rate starting in April.

When Fargo’s sales tax hits 7.5 percent, it joins Valley City, Medora, Pembina and Williston for the highest rates in the state.

Across the Red River, Moorhead and Clay County are limited to a 6.875 percent rate that goes solely to the state of Minnesota.

Minnesota’s local jurisdictions – cities, counties and schools – keep all of their property taxes.

As in North Dakota, city or county sales taxes in Minnesota must be approved by a majority of voters, but then must also go to the state Legislature for final approval.

The “rigorous” process of getting a local sales tax approved has only been done by 24 of 856 cities in Minnesota, said Moorhead Mayor Mark Voxland.

In 2009, the state collected about $480 million in Minnesota.

What’s it spent on?

In 2009, Minnesota raised its sales tax from 6.5 percent to 6.875 percent. The additional 0.875 percent goes toward arts and environmental projects. The rest goes to the state’s general fund, according to the Minnesota Department of Revenue.

North Dakota’s 5 percent sales tax is projected to generate $603 million each year during the current biennium, according to Kathryn Strombeck of the state tax commissioner’s office.

Of those collections, 92 percent go to the general fund, with the remaining amount going toward a local aid distribution fund, she said.

In North Dakota, necessity items such as food and prescription drugs are exempt from sales tax, said Cass County Auditor Mike Montplaisir. Minnesota includes clothing in its exempted necessities.

Cass County projects its new half-cent tax will generate about $11 million annually, or $220 million over the tax’s 20-year lifespan.

The new county sales tax marks only the second time Cass has used a sales tax to generate funds for a special project.

In 1999, voters approved a half-cent sales tax to pay for a county jail. The tax was set to run four years, but was retired about six months early because it had generated enough funds, Montplaisir said.

The latest increase is intended to pay for a portion of the North Dakota-side expenses associated with a Fargo-Moorhead diversion and county flood control.

The city of Fargo has three separate sales tax measures in place: a 1 percent infrastructure tax, another half-percent infrastructure tax and a half-percent for flood control.

Fargo expects to collect $400 million from city sales taxes in 2011, according to city budget documents.

Over the past 20 years, Fargo voters have generally favored taxes toward infrastructure and flood control, but several measures for sports arenas and other recreational projects were defeated, said City Commissioner Mike Williams.

Williams said he would like to see the city restrict using sales taxes to pay for only “the highest-priority items.”

And voters historically have agreed, he said.

Measures for a downtown events center, wildlife park, multipurpose events center and parks and recreation funding were all turned down by voters.

“When it’s a good enough project, (voters) will support it,” Williams said, who added that he will be interested to see whether a 7.5 percent sales tax will have an impact on retail sales.

Fargo shoppers may not have to wait long to see that effect.

One of the city’s infrastructure taxes is set to expire in 2012, and Walaker said he’s not likely to seek renewing it.

“I always thought 2 percent sales tax for local use makes some sense. Anything above that is a stretch,” Walaker said.

“I think we’re going to need to sit on that for a period of time,” he said.

Sales taxes approved in Fargo, Cass County

  • Dec. 6, 1988: 61 percent of Fargo voters approve a 20-year half-cent increase for the Fargodome. Tax expired in 2008.

  • April 21, 1992: A 10-year, half-cent city sales tax for water plant and streets projects is approved with 66 percent “yes” votes. The tax was renewed in 1998 with 74 percent “yes” votes and will expire in 2012.

  • April 16, 1996: 75 percent of voters OK allocating 25 percent of the Fargodome’s sales tax revenue for city street projects.

    Voters also approved a proposal that required a 60 percent supermajority to pass sales tax measures.

  • April 20, 1999: 71 percent of Cass County voters approve a half-cent, four-year tax for the county jail. Tax expired six months early in March 2003.

  • Nov. 2, 2004: Half-cent sales tax increase for the Fargo Library system approved with 63 percent “yes” votes. The 18-month tax expired in June 2006.

  • June 13, 2006: 70 percent of Fargo voters passed a 1 percent infrastructure sales tax set to expire in 2028.

  • June 30, 2009: Almost 91 percent of Fargo votes favor a half-cent tax for flood control set to expire in 2029.

  • Nov. 2, 2010: 64 percent of Cass County voters approve a half-cent flood control tax expected to expire in 2031.

    Readers can reach Forum reporter Heidi Shaffer at (701) 241-5511