Olmsted County sales tax didn't see drastic dip in 2020

Randy Petersen, Post-Bulletin, Rochester, Minn.
·4 min read

Mar. 13—Increased interest in home and garden projects bolstered sales during the COVID-19 pandemic, which in turn has buoyed sales taxes.

"Our garden centers were definitely busier," said Jay Maier, general manager for Sargent's Gardens in Rochester.

Wilfredo Roman-Catala, Olmsted County's chief financial officer, said that activity was a key factor in the county's reported minimal decline in sales tax revenue.

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The county collects a half cent for each taxable dollar spent in the county.

While March projections estimated a $2 million in loss county sales tax revenue due to the pandemic, the final numbers for 2020 show the county's sales tax revenue was only $12,000 short of the $14.27 million budgeted.

Roman-Catala said increased demand at garden and home-improvement centers catering to do-it-yourself projects fueled sales tax collections in 2020.

Maier said he expects the trend to continue.

"The people I talk to say they don't want it to go back to the way it was," he said, and people want to continue their home-related efforts that were kick-started during the pandemic.

He said Sargents in bracing for increased demand for garden, patio, lawn and home goods for a second year. It's an expectation that's already being supported by garden and home centers down South as the early growing season emerges.

If many of the practices continue, this year's sales taxes, which typically make up relatively small percentages of city and county operating budgets, will likely reflect the 2020 collections.

In Olmsted County, the $12,000 drop from the initial 2020 projection comes after two years of collections exceeded estimates, even though the county's sales tax rate was increased in 2017.

"We didn't have a good understanding of how much we would get," Roman-Catala said, pointing to adjustments made in recent years.

Still, he said the results are welcome and likely mean the 2021 budget, which includes a projected $600,000 drop in estimated sales tax revenue, is on solid ground.

"If situations continue the way they're going, hopefully we'll easily beat that budget by quite a bit," he said.

In addition to garden center and home improvement purchases, Roman-Catala said county sales tax revenue also benefited from increased orders through Amazon.com and other online services offering home delivery.

Grocery stores also saw an uptick, he said.

While other businesses saw drastic reductions in revenue because of closures and restrictions, Roman-Catala said those that were able to adjust to changing conditions contributed to the sales tax collections.

"Even though the restaurants were hurting, because they were not open, places that could offer carryout helped," he said. "It's not the same as being open and having for consumption there, but that helped a little bit since they were able to at least have some activity and generate sales taxes."

The same can't be said for lodging taxes, which are a larger portion of city revenues. Hotels with empty rooms often didn't have an option for alternate sales.

As a result, the city of Rochester reported an estimated $1 million decline in sales tax revenue between March and October, compared to the same period a year earlier. It was largely due to a $4.15 million reduction in hotel and lodging taxes during the eight-month period.

Rochester Deputy City Administrator Aaron Parrish said the city is still waiting for final reports related to the city's tax revenues.

"We should have the December data soon and be able to provide a better assessment of the whole year," he said, noting the declines have been manageable but impact the city's cash flow when revenues are delayed.

State Auditor Julie Blaha issued a report this week indicating struggles with reduced tax collections are being seen throughout the state, which is putting an emphasis on property tax revenue.

"On the revenue side, local governments will continue to rely on property taxes, as they remain the largest revenue source for both counties and cities," she said. "In addition, some cities are bracing for a reduction in all other taxes, such as sales, liquor and hotel/motel taxes."

A related study of city and county budgets reportedly shows local option city taxes, such as sales, liquor and lodging taxes, saw significant decreases between what was budgeted heading into 2020 and what is planned for this year.

"This indicates that cities expect on-going impacts on activities generating these taxes through 2021," the report states. "For cities, all other taxes decreased 26.9 percent from the original 2020 budget to the 2021 proposed budget."

Rochester's 2021 budget shows lodging tax expectations dropping from $6 million before the pandemic to $4.35 million this year.