By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
Paying the utility bill is never a particularly joyous occasion. But last month the city of Minneapolis, following a half-hearted order by the state of Minnesota, gave the billing process an asinine little twist by enclosing a yellow-colored flyer alongside the invoice that reminds you to pay taxes to the city for stuff you bought outside the city limits.
Specifically, the mailer points out, "If you buy goods or services for personal use for a total of more than $770 outside the City of Minneapolis within one calendar year, those purchases are subject to the 0.5-percent local use tax." A high-definition TV from a store in Richfield, an iPod from a dealer in Elk River, that lantern you needed from the sporting goods store out near Yellowstone, and that Sopranos DVD boxed set off you bought from Amazon.com? The city wants its cut—a penny in "local use tax" (whether you actually use the stuff or not) for every two bucks you spent. As the flyer helpfully points out, all individuals have to do is complete Form UT-1 and mail it in to the Minnesota Department of Revenue before April 15.
The closer you look at this gambit, the more absurd it becomes. First of all, figuring out your local use tax is no easy matter: Take a gander around your house and figure out what you bought, and where you bought it, in 2006. Now find the receipt for every purchase. Then you can total it up and fill out Form UT-1. (Don't count things you bought within the city limits of Minneapolis, because you've already paid a city sales tax on goods and services here.)
Second, the tax is harder to enforce than it is to calculate. What auditor is going to knock on your door, snoop through all your merchandise, and demand you justify each relatively new-looking item with a receipt? What does he say if you answer that it's a gift from your brother, or that you bought it in December of the prior year?
Finally, let's say you or the auditor have done Herculean due diligence and come up with $50,000 worth of stuff that is subject to a local use tax for just one year's time. The amount you owe—$25—isn't worth the time and labor required to arrive at that figure. The same "more trouble than it's worth" argument can be applied to the cost of writing, printing, and sending out the flyers. City of Minneapolis CFO Patrick Born estimates that 100,000 of the notices were mailed out with Minneapolis water bills, but says city staff have put together the estimated cost of creating and producing it. Even if we conservatively peg that price at 5 cents per mailing, that's $5,000. In order to recoup that amount and simply break even, the handbill will have to compel city residents to fill out tax forms claiming a million dollars' worth of purchases outside the city of Minneapolis. (Born said the city's communications department did not have a cost figure.)
So why in the world was the flyer produced and enclosed in the utility bills? "State law," replies Born, who was unaware of the missive and needed to go back to city staff to get an answer. "In particular, I'd refer you to Minnesota Statute 297A.99. It says that any political subdivision that imposes a local use and sales tax needs to enclose a notice about the tax on its official website and include a mailing in the utility bills at least once a year.
"About a dozen of us have these local option sales and use taxes—St. Paul, Duluth, some others," Born continues, adding that those cities get the money through the state's Department of Revenue. "I don't know how much we get from the use tax, but the sales and use tax together is considerable, about $28 million in 2006, which by law can only be used on the Convention Center."
So are all the other local units of government hewing to the law and churning out aggravating, penny-wise, pound-foolish flyers? "I don't know. We haven't heard anything about it," says Rebecca Christenson, Communications Director for the Minnesota Department of Revenue, who, like Born, was totally ignorant of the law's existence before being contacted by City Pages. "It was a legislative insertion last year in the Senate Tax Committee. We weren't looking for it and our attorneys didn't even know about it," Christenson says. "I think the Senate was looking for more tax compliance. They get it from businesses, but businesses are audited. They originally wanted a line in the [form in the] tax booklet, but we told them that would cost $600,000." Lawmakers apparently opted for the flyer and website statute.
"The problem is that the concept of the use tax is very difficult," Christenson adds, implying that most people don't understand it, and that even more people aren't going to fill out a form and pay it. "The other thing our attorneys told me is that during the debate on the bill, we [the Department of Revenue] said we weren't going to staff the policing of it. It really is more for educating individuals."
Consider us educated in Bureaucracy 101.