Why is most of the North Loop excluded from the downtown sales tax district?

Much of downtown Minneapolis is subject to a special 3% liquor, lodging and restaurant tax. But as downtown continues to see a declining office and retail market, the city has looked to expand the district into the North Loop, where development and entertainment have boomed in comparison to other neighborhoods and the city’s core. 

As Minneapolis faces the crunch of declining post-pandemic commercial property tax revenues, it’s worth asking why the burgeoning North Loop isn’t included in a special tax district that’s been in place for years elsewhere in downtown. 

The district’s boundary currently ends along the Burlington Northern Railroad tracks just northwest of Target Field. This means most of the bustling North Loop’s restaurants, bars and storefronts aren’t included in the downtown sales tax district. For example, the tax is applied at Fairgrounds Coffee and Tea on North Second Street but is not collected at Egg on a Roll at the other end of the same block. 

In last year’s legislative agenda, Minneapolis sought to expand the district. House Bill HF 3715, authored by Rep. Esther Agbaje, and its companion Senate bill, SF 4243 authored by Sen. Scott Dibble, would have amended the boundaries. But the bills were ultimately referred to the Legislature’s property tax committee and never moved past that stage.

The district would have been expanded on the northwest through the North Loop, with the new cutoff at Plymouth Avenue North. It also would have been expanded on its southeast side into Elliot Park. This legislation also would have reduced the maximum 3% levy to a 2.5% maximum, at least for liquor and food. Lodging and hotel taxes would have remained at 3%. Revenue from the tax is used for economic development. 

It wasn’t the only legislation that didn’t make the cut before the session ended. Many remaining bills were placed in a 1,430-page omnibus bill in less than 10 minutes in the House and 15 in the Senate.

“A lot of the stuff that we were trying to do got cut in order to make the deadline,” Agbaje said. “We’ll probably take another crack at this again. I’m still having conversations with the city.” 

Officials are still looking to make the expanded district revenue neutral, Agbaje noted. While some tax levies for infrastructure projects get put to a vote via ballot referendum, this is not a case where that would happen, she clarified. 

Revenue from the tax district doesn’t directly offset resident property tax burdens, which is notable in a year Minneapolis Mayor Jacob Frey is proposing a 8.1% increase in 2025 property taxes. Rather, money from this district is funneled into the city’s general fund. The tax was created in 2013 to help finance the construction of the U.S. Bank Stadium. 

At that time, the North Loop looked very different, Agbaje added. 

“When it first started, there wasn’t a whole lot in the North Loop area, but as the North Loop grew and expanded, they wanted to bring it into the North Loop area,” Agbaje said of the sales tax. “It’s an ongoing conversation over what’s included in downtown Minneapolis.” 

The U.S. Bank Stadium project funding was meant to wrap in 2020. While the state has completed its payments on the project, the city “does still have an obligation to U.S. Bank,” Agbaje said. 

Minneapolis is in the process of evaluating its legislative agenda and policies to determine what may need to be changed ahead of next year’s session, according to a city statement sent to MinnPost.  

“This is a staff and elected official process that will conclude before the end of the year,” the statement read. “Our legislative ask last session was to expand the special restaurant and liquor tax downtown boundary while lowering the tax rate, with the net result being revenue neutral. The city is currently evaluating whether this position is still beneficial for the city, or if this legislative ask should be modified in some way.”

Last week, the president of the Board of Estimate and Taxation (BET), Steve Brandt, was taking time to refamiliarize himself with the city’s tax system when he said he saw the map at the bottom of the state’s revenue sheet for Minneapolis’ special local taxes “and I thought ‘Woah, we leave out a lot of territory between restaurants and liquor establishments.’” 

Brandt asked why and learned the city had been seeking the expansion of this district, at least to the North Loop. He said a case could also be made to include the area around Surdyk’s at University and Central Avenue in Northeast and even into Cedar-Riverside. 

“It just struck me as an equity issue,” Brandt said. “If establishments downtown are already paying the tax, and you’ve got people two blocks away who aren’t, it seems like what’s good for one would be good for another.”

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