Fargo’s Sales Tax Cap Sparks Debate Over Financial Future
The potential implementation of a new sales tax to fund the remodel and expansion of the Fargodome in Fargo has brought attention to existing concerns surrounding the city’s sales tax cap. The use of this cap, which limits the amount of local sales taxes paid on high-value purchases, has raised questions about its impact on low-income residents and the lost revenue that could be used for citywide projects.
City Commissioner John Strand has been vocal about his concerns regarding Fargo’s sales tax cap. He believes it disproportionately affects low-income individuals and the revenue that could be generated from sales tax could be directed towards important projects. I think we always need to advocate for the ordinary people, said Strand. Goodness knows we’ve taxed people enough. We don’t need to tax them extra.
Fargo currently has a sales tax cap set at $50 for purchases of $2,500 or more. Strand has questioned how frequently the average resident makes purchases exceeding $2,500. Additionally, he has highlighted the complexities of applying for tax refunds on purchases above the sales tax cap. Many residents are unaware of the cap and the refund process, resulting in a low number of rebate requests being made.
According to a memo from the city, individual rebate requestors account for only 3% of total tax refunds, while corporations, Limited Liability Companies (LLCs), partnerships, and sole proprietors make up the majority of refund requestors. This has prompted Strand to question the fairness and effectiveness of the sales tax cap.
Strand’s concerns extend beyond socioeconomic impacts. He believes that over the next few decades, the city will lose out on tens of millions of dollars in tax revenue due to the sales tax cap. Although he wishes to change the cap, he acknowledges the difficulties in doing so.
The city of Fargo currently has a 2% local sales tax, with a total sales tax rate of 7.5%, comprising 5% for the state, 2% for Fargo, and 0.5% for Cass County. All local taxes are approved through a vote by the public. Fargo’s sales tax cap has been in place since 1989, initially limiting tax payments to $12.50 on a single purchase before being increased to $50.
While nearby West Fargo does not have a sales tax cap, Cass County has a cap of $12.50 on single purchases. The impact of rebates in Fargo over the past 14 years has amounted to nearly $14 million, according to the city’s memo. However, it remains unknown how many purchases above $2,500 were not submitted for rebates. Additionally, the memo notes that some businesses are not collecting sales tax on purchases above the cap, leading to further uncertainty about the amount of sales tax revenue being returned to purchasers.
Removing or changing the sales tax cap in Fargo is not a simple task. Assistant City Attorney Erik Johnson explains that the cap must be consistent across all of Fargo’s sales taxes to comply with the streamlined sales tax law implemented by the North Dakota Legislature. Removing the cap would require a detailed legal analysis to ensure compliance with state laws and existing contracts. Any changes to the sales tax cap would also require a citywide vote.
Strand acknowledges the complexities surrounding the issue and intends to gather feedback from residents before pushing for a citywide vote. However, he expresses doubt about the likelihood of change unless there is a significant public demand for the removal of the sales tax cap.
As it stands, Fargo’s sales tax caps are here to stay, impacting the city’s financial future for years to come. With rising inflation and the increasing ease of reaching the $2,500 threshold, the lost tax revenue from the cap will accumulate over the next 50 years. While Strand acknowledges the challenges ahead, he remains committed to exploring potential options and understanding the legal implications surrounding the sales tax cap issue.
