Overview

Lodging taxes are imposed on short-term lodging by a number of local governments in Minnesota, mainly by cities and towns. All cities and towns, and counties on behalf of unorganized townships, may impose up to a 3 percent tax by statute, if 95 percent of the revenue raised is used for tourism promotion. Lodging taxes imposed at a higher rate or for other purposes are generally imposed under special law, although a few enacted before 1972 were imposed by city charter. The first part of this publication explains the current general lodging tax law and discusses variations in the lodging tax under city charter or special legislation. This is followed by three appendices:

• Appendix A – Statutory history of the general lodging tax provisions
• Appendix B – List of lodging taxes currently imposed under general law
• Appendix C – Chart of cities imposes lodging taxes under charters or special law

Statutory Authority for Lodging Taxes

Cities, towns, and counties may impose the tax

Most local lodging taxes are imposed under the general authority contained in Minnesota Statutes, section 469.190. Under this statute a city can impose the tax by ordinance, and a town can impose the tax by a vote of the electors at a general or special town meeting. A county may impose the tax in its unorganized territories, but to do so the board must pass a resolution to that effect, put a public notice in the newspaper, and hold a public hearing prior to passing a final resolution imposing the tax. If 5 percent of the voters in the unorganized territories petition for a vote within 30 days of the final resolution, the tax may not be imposed until approved by the voters in the unorganized territories at a general or special election.

Lodging taxes are generally administered locally
Most local governments collect their lodging tax locally but jurisdictions may negotiate with the Department of Revenue to have them collect the lodging tax. The department is allowed to retain from the collected revenues an amount to cover the costs of collection. Currently the state only collects lodging tax for the cities of Minneapolis, St. Paul, Rochester, and Biwabik.

Definition of lodging subject to the tax varies
A local lodging tax imposed under the general law applies to rentals of 30 days or less for lodging at a “hotel, motel, rooming house, tourist court, or resort.” A city may also choose to impose its lodging tax on camping receipts at a municipal campground, but not at private campgrounds. Any local lodging tax collected by the state is required by law to use the statutory definition of “lodging” in the state sales tax statute as the tax base. This differs slightly from the definition in the general lodging tax statute, because it explicitly includes ancillary charges including charges by accommodation intermediaries (online travel companies). The definition of lodging for lodging taxes imposed under some of the special laws may also differ.

Use of lodging tax revenues
The local government may use 5 percent of the proceeds for administration costs but the remaining 95 percent of the revenues from a tax imposed under the general authority must be used to fund a local convention or visitor’s bureau for tourism and convention center promotion. This required use does not apply to lodging taxes enacted prior to 1972 or to taxes authorized by a special law.

The allowed use of revenues from lodging taxes imposed under special laws is contained in each special law.

A special statutory provision also allows cities of the first class to divert lodging tax revenues from a tax authorized by special law if the revenues raised exceed the amount needed for the original purpose authorized in the special law. The excess revenues may be used to fund construction or renovation of a large sports facility, convention center, or civic center.

Lodging Taxes Authorized by Charter or Special Legislation

Lodging Taxes Authorized by Charter or Special
Legislation

Taxes imposed under city charter authority

Prior to 1972 the state did not prohibit local governments from imposing local sales taxes on either general sales or sales of specific items, including lodging. Home rule charter cities could enact local lodging taxes if allowed under the charter. Bloomington, Duluth, and St. Paul all passed 3 percent transient lodging taxes under city charter amendments in 1970. Rochester adopted a 3 percent local lodging tax under a charter amendment in 1971. Brooklyn Center also adopted a 3 percent lodging tax under its charter although the date of adoption is currently unknown.

Taxes imposed under special legislation

Other jurisdictions that wanted to impose a local lodging tax could go to the legislature for special legislation to impose a tax. Minneapolis was allowed to impose a 3 percent tax on admissions, transient lodging, and sales at restaurants and bars with live entertainment in 1969.

In 1971 the state enacted a general prohibition against new or increased local sales and income taxes. The law states that “No county, city, town, or other taxing authority shall increase a present tax or impose a new tax on sales or income.”4  However, notwithstanding the statutory prohibition, cities continued to seek special legislation to impose local sales taxes.  Between 1972 and 1983 only two new lodging taxes were authorized under special law: a 3 percent tax in the city of St. Cloud (1979) and a Minneapolis tax (1979) in the downtown area to fund the Metrodome.

In 1983 the state enacted the general local lodging tax authority but a number of jurisdictions continued to seek special legislation for lodging taxes. There are three main reasons that special legislation is sought: (1) to increase a lodging tax above the statutory three percent maximum rate; (2) to modify the geographic area in which a lodging tax applies; and/or (3) to allow the revenue from the tax to be used for a purpose other than funding a tourism or convention bureau.  A complete chart of all the lodging taxes imposed under charter or special law is contained in Appendix C.

Appendix: 1 Statutory history

Prior to 1972 – No statutory provision allowing or prohibiting local governments from imposing local lodging taxes.

1971 – New or increased local taxes on sales or income are prohibited. (Extra Session Laws 1971, ch.31, art. XXI, §1, subd. 18, originally codified as Minn. Stat. § 477A.01, subd. 18, and recodified in Laws 1981, 1st spec. sess. ch. 1, art. 6, § 5 as Minn. Stat. § 477A.013.)

1983 – Cities may impose a local lodging tax of up to 3 percent on transient lodging of 30 days or less. A city that imposed a lodging tax by a special law or charter provision is prohibited from using the statutory authority to increase the combined lodging tax rate to more than 3 percent. (Laws 1983, ch. 342, art. 13, § 1, adding Minn. Stat. § 477A.018.) 

1985 – The law was amended to (1) allow towns and counties in unorganized territories in the county, and any combination of cities, towns,
and counties acting under a joint powers agreement, to also impose a local
lodging tax of up to 3 percent on transient lodging; and (2) allow cities to extend the lodging tax to camping site receipts in a municipal campground.
(Laws 1985, 1st spec. sess., ch. 14, art. 2, § 15, amending Minn. Stat. § 477A.018, subd. 1, and adding subds. 4-6.)

1987 – Local lodging tax law is recodified and moved from the local government aid chapter to a new economic development chapter of statute. A provision allowing cities to enter into an agreement with the commissioner of revenue to have the state collect the lodging tax on the city’s behalf is added. (Laws 1987, ch. 291, §§ 191 and 244, adding Minn. Stat. § 469.190, and repealing Minn. Stat. § 477A.018.)

1989 – Towns are allowed to approve imposition of the lodging tax at a special town meeting as well as the regular town meeting. (Laws 1989, ch. 277, art. 1, § 30, amending Minn. Stat. 469.190, subd. 1.)  The maximum allowed lodging tax rate from the combination of general authority and special law or charter is increased from 3 to 6 percent with only 95 percent of the revenue from the first 3 percent dedicated to tourism. (Laws 1989, 1st spec. sess. ch. 1, art. 8, §§ 1-3, amending Minn. Stat. § 469.190, subd. 1-3.)

1990 – The allowed maximum rate of 6 percent for the lodging tax is repealed and the maximum of 3 percent is reinstated. (Laws 1990, ch. 604, art 6, §§ 6-8, amending Minn. Stat. § 469.190, subds. 1-3.)

2010 – A new provision requires that any special local taxes, such as lodging taxes, that are collected by the state on behalf of a local government must use the definition of terms included in chapter 297A, the state sales tax law. The definition of lodging for state sales tax purposes is broader than the definition in the general lodging tax statute. (Laws 2010, ch. 389, art. 4, § 14, adding Minn. Stat. § 270C.171.)

2012 – All cities of the first class are granted additional flexibility in the use of revenue derived from any local sales tax, including lodging taxes.  A city may divert any revenue not needed to fund the projects listed in the authorizing law for the local tax to fund construction, expansion, or renovation projects for a sports facility or convention center, if the project cost is at least $40 million. (Laws 2012, ch. 299, art. 5, sec. 6, adding Minn. Stat. § 297A.9905.)

Appendix 2: Lodging Taxes imposed under Minn. Stat. 469.190

Self-reported list of jurisdictions and joint powers groups imposing a lodging tax under the general statute. This list may be incomplete since there is no requirement that imposition of the tax be reported to the state.

Source: Explore Minnesota Tourism

*Jurisdiction imposes additional lodging tax(es) under special law or charter – See Appendix C

Appendix 3: Cities imposing lodging taxes under charter or special law