In Mounds View, a stir over how much the 1.5% proposed sales tax on the ballot would cost residents

A proposed sales tax on the ballot Tuesday in Mounds View may have a bigger impact on residents' wallets than advertised.

The Ramsey County city is one of several in the metro where voters will decide whether or not to approve a proposed local sales tax. But on the eve of the election, some residents have raised concerns that estimates for how much Mounds View — and other cities — might generate with new taxes have omitted a critical variable: online purchases.

In Mounds View, the 1.5% tax would raise $16.5 million to help expand the community center to include an indoor walking track, new gyms, an expanded fitness area, community space, a kids' play area, renovated locker rooms and more.

Literature from the city, including a recent mailer and a post on social media last month, estimates the tax would cost the average Mounds View resident $3 a month, a figure based on a University of Minnesota Extension Center for Community Vitality study.

But residents and city officials say they have learned that the $3 monthly estimate doesn't include purchases and services, like online shopping and utility bills, that would generate sales tax but come from businesses outside of Mounds View.

Eric King, a community economics educator with the University of Minnesota Extension, has compiled analyses for many Minnesota cities, including Mounds View, that estimate how much money a local sales tax could raise, and what proportion of that revenue would come from residents vs. nonresidents.

Other cities relying on those same studies, including Bloomington and Golden Valley, may also not be accounting for sales tax from online purchases. Sales taxes are also on the ballot in Edina and St. Paul, but because both cities have local sales taxes in place, King said state data used in the studies captures online sales.

King said his studies use data from the Minnesota Department of Revenue that include taxes reported from businesses within city limits. They do not include data from sales based outside city limits because, without a local option sales tax, the data is not available.

The amount of spending online varies from city to city, he said, but he said a rough estimate is that 15% of all spending is now done online — up from about 10% before the pandemic.

"Some [cities] will probably be lower than estimate and some will be higher than estimate," he said.

Mounds View resident Valerie Amundsen said she and other residents received the mailer last week. She said the proposed 1.5% sales tax could have a substantial impact on some residents' budgets. "We're not a really wealthy city to begin with," she said.

She did some math and concluded that the sales tax would likely include things that didn't seem to be considered in the study, then contacted city leaders.

"I thought: 'Goodness, that doesn't seem feasible,' " Amundsen said. "Just my Xcel bill alone was going to be more of an impact than that."

Zach Lindstrom, a City Council member who is running for mayor, said he learned about residents' concerns on Thursday. He said he contacted the Department of Revenue and King and learned that the study's estimate did not account for sales generated outside city limits.

"There is a uncaptured portion that every city deals with, because until you have an assigned sales tax, you don't know what's being sold or delivered into your city," Lindstrom said.

Lindstrom, who supports the sales tax proposal, said he wishes the Extension study included some estimate of online sales. He stressed that how much residents would pay depends on their spending, including online.

"The question has always been the same question," Lindstrom said. "What does this sales tax, this 1.5 percent increase, mean to you and mean to your budget?"

The city released a statement following discussion of the tax study at a council work session Monday night.

"The University of Minnesota provides the most reliable analysis about the average impact of a local sales tax in the state," it reads. "The University estimated that the proposed sales tax would average about $3 a month per Mounds View resident. Depending on how you spend your money, you may pay more or less than that estimate. The same holds true for total collections from the tax, which could be higher or lower than projections for any number of reasons."

City Administrator Nyle Zikmund also emphasized that the estimate is an average, and residents who spend more will pay more. He said people debating the number on social media are entitled to their opinion.

"We used the same source as every other city that's done this," he said, referring to the Extension study.

In many Twin Cities suburbs, the studies estimate nonresidents will pay a majority of the sales taxes — a key selling point for sales tax proponents.

Other cities, including Bloomington and Golden Valley, used the studies to estimate what proportion of the sales tax would be paid by residents and nonresidents.

The studies estimated nonresidents would pay 65% of the sales tax in Bloomington, and that 61.6% of the tax in Golden Valley and 59% of the tax in Mounds View would be paid by people from outside those cities. None of those figures included what residents will pay in sales tax on goods and services they buy online but will be subject to local sales tax — including online purchases, utility bills and television streaming services.