Council mulls sales, food and beverage taxes

The Wayzata City Council reviewed legislative priorities with an emphasis on its appetite for a food and beverage, and local option sales tax.

Both items require a resolution by the council, likely to come in January if the council moves forward, before being submitted to the state legislature by Jan. 31.

Deputy City Manager Aurora Yager presented the details of what both taxes could provide to the city in terms of revenue, based on 2019 data. She clarified that the revenue would likely be higher based on several factors including inflation.

Local Option Sales Tax

A half-percent Local Option Sales Tax would generate about $815,000 with more than 77 percent of that revenue coming from non-residents. LOST can only be used to fund capital projects with a limit of five at a time. 

A graphic presented at a Wayzata Council workshop showing an example of the Local Option Sales Tax. Courtesy City of Wayzata.

The tax cannot be applied to tax exempt purchases such as food and clothing, or to purchases that already carry a special tax such as vehicles and housing.

If you are thinking about buying or selling in the Wayzata or Lake Minnetonka area, please reach out to Dan & Elisha Gustafson and request a Comparative Market Analysis or a list of available properties by calling or texting (952) 473-1000.

To adopt this sales tax, it needs legislative approval. The city must detail how the funds would be spent and demonstrate what the capital projects’ economic benefits would be to residents, businesses and visitors.

If approved by the legislature, the council would need to reaffirm the resolution before putting it on the ballot in the form of a referendum. Voters have the opportunity to vote on each capital project individually. The council then passes an ordinance to put the tax into effect.

Once the funding outlined by the city is met it can no longer collect on LOST unless it returns to the legislature.

Yager said the most common rates for LOST are 0.5 percent or 1 percent. While cities may pursue five capital projects at a time, she noted that LOST is often used for one larger project, such as a park or event center. The projects do not need to be imminent or immediate either.

Yager included five capital projects that could benefit from LOST: Klapprich Park improvements, wayfinding park signage, Beach and Shaver park improvements, the Nature Center and the Eastman Ln. trail and boardwalk. Each of these is slated for 2024 or later. The total cost for these projects is about $2.3 million. LOST could fully fund these projects in less than three years.

Food and Beverage Tax

A food and beverage tax would raise less funding but a larger portion of the revenue would come in from non-residents. Based on 2019 data, the tax would raise $357,000 annually with about 90 percent coming from non-residents.

Unlike LOST, a food and beverage tax can be used to pay for operational expenses as well as capital projects.

The city needs to detail the uses and benefits of the tax in its proposal to the state legislature just like with the LOST, but it does not require a referendum approved by voters unless required by the legislature.

“To us this is much more appealing because it is a much more flexible use,” Yager said. “It still tends to be used more for capital projects.”

City Manager Jeff Dahl said business owners he has spoken with understand why the city may want to implement a food and beverage tax.

Councilor Alex Plechash said he would need to be convinced that adopting either tax would result in lowering the tax burden on Wayzata residents, rather than being more money to spend.

“That case would have to be made pretty strongly,” he said.

Mayor Johanna Mouton and councilors Molly MacDonald and Jeff Buchanan agreed that the food and beverage tax is the more appealing option of the two proposed.

Watch for more information and discussion to come forward on this topic. Stay tuned to, your Wayzata food and beverage tax leader.

Daniel Gustafson & Elisha Gustafson Realtors
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