4.11 SR 06-05-2023
Request for Action
To Item Number
Mayor and City Council 4.11
Agenda Section Meeting Date Prepared by
Consent June 5, 2023 Cal Portner, City Administrator
Item Description Reviewed by
Elk River and Minnesota Department of
Revenue Sales Tax Collection Agreement
Reviewed by
Action Requested
Direct, by motion, the city administrator and finance manager to execute the updated local sales and use tax
collection agreement with the Minnesota Department of Revenue.
Background/Discussion
The Minnesota Department of Revenue updated their agreements with local jurisdictions regarding the collection
of local sales and use taxes.
They cited increasing operational costs for rate changes. They now have a a flat rate of 1.35% effective Jan.1,
2024. They also moved to a 180-day notice for agreement changes. They will conduct annual audits to ensure the
fees cover their operating costs. They are also going to provide only one payment 40 days after tax due month
and maintain a reserve for 6 years for refunds, tax error claims, audits, etc.
Our point of contact at Revenue indicated administrators/managers and finance/treasurers typically sign the
document. Due to the timeliness of the executed agreement, I have chosen to execute it at your direction.
Financial Impact
N/A
Mission/Policy/Goal
Elk River Mission Statement
Attachments
Agreement Between the Minnesota Department of Revenue and the City of Elk River for Collection of a
Local Sales Tax Sales and Use Tax Use Tax
The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional
service, and community engagement that encourages and inspires prosperity.
Updated: August 2020
Agreement Between the Minnesota Department of Revenue
And the City of Elk River for
Collection of a Local Sales Tax Sales and Use Tax Use Tax
Introduction
This agreement concerns administration of local taxes identified below:
Elk River sales tax
Elk River use tax
Laws of Minnesota 2019, First Special Session, Chapter 6, Article 6, Section 17 authorize the above
taxes. The taxes are imposed by Elk River Ordinance Number 19-14 adopted August 5, 2019.
Administration, collection, and enforcement
The Department of Revenue (department) will administer, collect, and enforce the Elk River taxes
identified in the introduction, as authorized under:
Minnesota Statutes, section(s) 297A.99, and
any other governing laws or statutes identified in the introduction
The administration, collection, and enforcement process will follow:
Minnesota Statutes, Chapters 297A, 289A, and 270C
Minnesota rules Chapter 8130, and
Administrative procedures
Local tax administration also includes processing refunds, litigation, and authority to enter into
settlement agreements on behalf of Elk River. If the local tax revenues collected are not sufficient to
cover actions taken, Elk River must provide the department with sufficient funding to process all
adjustments.
Elk River agrees to update the ordinance listed above as needed to remain consistent with current
language and definitions used in the governing Minnesota Statutes. Elk River further agrees to take
corrective action within 90 days if notified by the department of required ordinance language changes.
The department will not enforce or engage in compliance activities for local taxes administered by the
ķĻƦğƩƷƒĻƓƷ źŅ ğƓǤ ƦƚƩƷźƚƓ ƚŅ 9ƌƉ wźǝĻƩƭ ƚƩķźƓğƓĭe is not consistent with the governing Minnesota
statutes. Local special taxes imposed before 2010 are not subject to this limitation.
Registration of vendors
The department is responsible for notifying vendors that are registered for state sales and use tax of
their obligations to collect and remit Elk River taxes covered by this agreement. The department is also
responsible for informing newly registered businesses of their obligations to collect and remit Elk River
sales and use taxes covered by this agreement.
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Accounts registered for state sales and use tax who have a ZIP Code in the Elk River tax jurisdiction will
be registered for the Elk River taxes by the department. We will mail an informational notice of
registration to these businesses.
Outreach and education
The department will register and notify all vendors that are currently registered for state sales and use
tax and the general public about the Elk River taxes ĬǤ ƦƚƭƷźƓŭ ğ ƓƚƷźĭĻ ƚƓ ƷŷĻ ķĻƦğƩƷƒĻƓƷƭ ǞĻĬƭźƷĻ
(www.revenue.state.mn.us). Other notifications will be made at the time of registration, through the
ķĻƦğƩƷƒĻƓƷƭ ǞĻĬƭźƷĻ͵
Elk River acknowledges that there is no cost-effective way to identify specific vendors located outside
the Elk River taxing jurisdiction who are required to be registered for Elk River taxes. Identification of
these vendors will be voluntary by vendor response to general notifications by the department and
through other contacts that the vendor has with the department or the Streamlined Sales Tax Governing
.ƚğƩķƭ Λ{{D.Μ ĭĻƓƷƩğƌ ƩĻŭźƭƷƩğƷźƚƓ ƭǤƭƷĻƒ͵
Publicity
If Elk River maintains an official website, it will display (on its main web page) a link to a notice that
residents and businesses may reference for more information about the local taxes. Elk River will
briefly describe the taxes and providĻ ğ ƌźƓƉ Ʒƚ ƷŷĻ ķĻƦğƩƷƒĻƓƷƭ ǞĻĬƭźƷĻ
(www.revenue.state.mn.us). Also state in the description that local use taxes on purchases of goods
and services made outside of the political subdivision that are used in the political subdivision,
are subject to local use taxes.
Local governments that bill residents and businesses for utilities must include a notice of the
local taxes at least once per year. The notice must include a brief description of both the local
ƭğƌĻƭ ğƓķ ǒƭĻ ƷğǣĻƭ ğƓķ ƩĻŅĻƩĻƓĭĻ ƷŷĻ ķĻƦğƩƷƒĻƓƷƭ ǞĻĬƭźƷĻ ƌźƓƉ͵
Returns and remittance
Vendors will collect and remit Elk River taxes covered by this agreement as part of their Minnesota sales
and use tax returns, which include simplified elecƷƩƚƓźĭ ƩĻƷǒƩƓƭ Λ{9wƭΜ ğǒƷŷƚƩźǩĻķ ĬǤ ƷŷĻ {{D.͵
Revenues collected by the department are deposited in the State Treasury and credited to a special
account. The department will draw from this account to recover department costs as provided in this
agreement, and to transmit collections to Elk River. Elk River will accrue no interest on this amount.
Transmittal of tax
The department will transmit the taxes reported on returns monthly through the automatic
clearinghouse system.
For each month of collection related to July through December 2023, the department will continue to
make two transmittals. The first will be transmitted approximately five business days after month end.
The second transmittal will be sent approximately 40 days after month end. The second transmission
will reflect any adjustments made for refunds issued by the department for tax reported in error. The
department retains, from the second monthly payment, a fee for administering, collecting, and
enforcing the Elk River taxes as provided in this agreement. The department sends notification each
ƒƚƓƷŷ Ʒƚ ƷŷĻ ĭƚƓƷğĭƷ ƦĻƩƭƚƓ ƭŷƚǞźƓŭ ƷŷĻ ĬƩĻğƉķƚǞƓ ƚŅ ƷŷĻ ƒƚƓƷŷƭ ĭƚƌƌĻĭƷźƚƓƭ ğƓķ ğķƒźƓźƭƷƩğƷźǝĻ ŅĻĻƭ
deducted.
2
For each month of collection beginning January 1, 2024, the department will transmit taxes reported for
that month in one monthly payment. The transmittal will be sent approximately 40 days after month
end. The department retains a fee for administering, collecting, and enforcing the Elk River taxes as
provided in this agreement. The department sends notification each month to Elk River with the
ƒƚƓƷŷƭ ƭğƌĻƭ ğƓķ ǒƭĻ Ʒğǣ ĭƚƌƌĻĭƷźƚƓƭ ğƓķ ƷŷĻ ğķƒźƓźƭƷrative fees deducted. See the calendar examples
below.
Reports
Upon request, the department will provide Elk River with a report showing information about taxpayers
and the amount of taxes remitted. This report can be requested once per year at no additional cost. Elk
River must submit a written request via email or US mail. The department will consider requests for
more frequent reports for an additional administrative fee.
Disclosure
Elk River understands that any local sales and use tax account information given to it by the department
is subject to the classification and disclosure provisions in Minnesota Statutes, chapters 13 and 270B.
Pursuant to Minnesota Statutes, section 270B.12, subdivision 2, such information can only be used to
the extent necessary to administer the local sales or use tax.
The department will provide disclosure training materiğƌƭ Ʒƚ 9ƌƉ wźǝĻƩƭ ķĻƭźŭƓğƷed representative. Elk
River must train any employees with a business need to access not public Minnesota sales and use tax
information provided by the department. All employees who have a business reason to access not
public tax information must complete the required training annually. New employees and other users
who did not previously have a business reason to access not public tax information must complete the
training before they may be granted access it.
Elk River must update its disclosure authorization form by December 31 of each year, providing a list of
all personnel who are trained and authorized to view not public Minnesota sales and use tax
information. If an authorized employee or official no longer needs access to tax information due to a
change of duties, separation from employment, or ğƓǤ ƚƷŷĻƩ ƩĻğƭƚƓͲ źƷ źƭ 9ƌƉ wźǝĻƩƭ ƚĬƌźŭğƷźƚƓ Ʒƚ
źƓƭƷƩǒĭƷ ƷŷĻ ķĻƦğƩƷƒĻƓƷƭ ƌƚĭğƌ Ʒğǣ ƌźğźƭƚƓ Ʒƚ ƷĻƩƒźƓğƷĻ access rights for that individual by the start of
the next calendar quarter.
Failure to conduct the required disclosure trainings or update the user access list as described above will
ƩĻƭǒƌƷ źƓ ƷŷĻ ķĻƦğƩƷƒĻƓƷ ƭǒƭƦĻƓķźƓŭ 9ƌƉ wźǝĻƩƭ access to not public Minnesota sales and use tax
information until such training is completed.
Inspection of records and audit information
The department will allow Elk River to inspect and audit all data, records, and other information relating
to its local sales or use tax, the cost of collecting the tax, and the performance by the department under
this agreement. Elk River will submit any requests to inspect the sales or use tax data to the department
in writing, as prescribed by the department.
Reimbursement of costs
The department will review its own direct and indirect costs for administering, collecting, and enforcing
local taxes as needed and adjust costs accordingly. If changes are required, the department will notify
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Elk River of the estimated cost for administering, collecting, and auditing the local taxes at least 180 days
prior to when the change will be implemented.
For each month of collection related to July through December 2023, the following calculation of
reimbursement for administrative costs will continue to apply.
All local jurisdictions share in the cost of local tax administration. The calculations are based on
the share of total revenues and total tax lines reported on Minnesota sales and use tax returns
for each local area. The department weights each ƆǒƩźƭķźĭƷźƚƓƭ ƦĻƩĭĻƓƷğge of revenue by one
third and their percentage of tax lines by two thirds to compute their monthly percentage of
total administrative costs.
Example:
Assume monthly totals for all Local Sales Taxes:
Total Tax revenues $20,000,000.00
Total Tax lines on returns 90,000.00
Total Administrative costs $200,000.00
If Local Tax A has revenues of $1,600,000.00 (8% of the total) and 9,000 tax lines (10% of the
total) their share of monthly expenses would be 9.34% or $18,680.00, which represents
approximately 1.17% of their monthly revenues. The following is how the 9.34% was calculated:
8% x 1/3 = 2.67%
10% x 2/3 = 6.67%
9.34%
For each month of collection beginning January 1, 2024, the following calculation of reimbursement for
administrative costs will apply.
Minnesota Statutes, section 297A.99, subdivision 11 states the Department shall deduct the
direct and indirect costs to administer local taxes. Elk River will pay a flat rate of 1.35% of sales
taxes collected to cover the administration, collection, and auditing of local sales taxes. Any
changes required to balance costs and fees will be communicated according to the notification
schedule noted above. Any shortfalls or reserves will be managed across years to the extent
possible.
Termination of a local tax
The department will provide a report to Elk River after the last month that the tax is in effect. The report
will indicate the total amount of Elk River taxes, corresponding adjustments made, prior month
corrections, and administrative fees retained. In addition, when a tax ends, the department will work
with Elk River to determine a reserve amount the department will retain which will be used as a fund to
make adjustments or refunds. Please see the Responsibilities section below for more details. The
portion of this fund not used for refunds or adjustments will be transmitted to Elk River at the close of
the period of limitations. The account remains open for a period equal to the statute of limitations
provided in Minnesota Statutes, section 289A.40, for sales and use tax returns. The account will be
reconciled, and Elk River will be notified of the final settlement.
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Responsibilities
When the boundary limits for Elk River change, it is the responsibility of Elk River to notify and provide
the department with the updated boundary information. The department will only update the rate
calculator and ZIP Code guide upon receiving this information. Minnesota Statute requires that the
department notify vendors of their tax obligations when boundaries change. Vendors not notified will be
relieved of liability until notification occurs. The department will not engage in compliance activities for
vendors in the new boundary area who have not been formally notified of the change.
If Elk River updates or amends the city ordinance relating to the Elk River tax covered by this agreement,
Elk River must provide a draft of the changes to the department for review before it is made final. The
department will review the changes to ensure compliance with governing statutes. Elk River will then
provide the department with a signed copy of the revised or amended ordinance.
Elk River must provide the department with current contact information annually and advise when any
changes occur. This includes, but is not limited to, the contact person, phone number, address, and
email.
Elk River will notify the department prior to the 90-day notification requirement for when the tax will
end. The department will work with Elk River to project an estimated amount to retain for the reserve
fund. This amount retained will allow for adjustmeƓƷƭ ğƓķ ƩĻŅǒƓķƭ ğƭ ƒĻƓƷźƚƓĻķ źƓ ƷŷĻ ͻĻƩƒźƓğƷźƚƓ ƚŅ
ƌƚĭğƌ Ʒğǣͼ ƭĻĭƷźƚƓ͵ LƓ ƷŷĻ ĻǝĻƓƷ ƷŷĻ 5ĻƦğƩƷƒĻƓƷ does not retain enough revenues to cover any
adjustments once the tax ends, a bill will be sent for the outstanding amount. See Minnesota Statutes,
section 297A.99, subdivision 9.
Effective date
This agreement is effective the day following imposition of the tax and supersedes any previous
agreement.
Modifications
Any portion of this agreement may be modified. Modifications must be in writing and signed by the
Commissioner of Revenue and an authorized representative of Elk River.
Minnesota Department of Revenue
Signature: ______________________________
Paul Marquart
Commissioner of Revenue
Date: __________________________________
Elk River Representative
Signature: ______________________________ Signature: ______________________________
Print Name: _____________________________ Print Name: _____________________________
Print Title: ______________________________ Print Title: ______________________________
Date: __________________________________ Date: __________________________________
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