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Local Option Sales Tax Overview

Counties and cities can impose a tax on sales and services up to 1%. The revenues can be used for any local lawful purpose. To impose the tax, a countywide vote must be held. The tax only applies in the areas (categorized as incorporated or unincorporated) of the county where the tax was approved by a majority vote. Thus, a local option sales tax (LOST) may or may not be in effect across an entire county. 

Application of LOST

The local sales tax is imposed on the same basis as the state sales tax or the state use tax. Specifically excluded from the tax are the sales of any property or services not taxed by the state, motor fuel, the sale of equipment by the state department of transportation, natural gas, and electricity where the local government has imposed a franchise or user fee. Delivery location is the taxable event that determines where a sale occurs. If the delivery of the product or service does not occur in a jurisdiction where the tax is imposed, the local option sales tax is not due.

Placement on the Ballot

There are two ways to put a LOST on the ballot:

  1. Present a petition requesting a LOST to the county board of supervisors with signatures equal to 5% of people in the county who voted in the last general election.
  2. A governing body of a city or county, representing at least 50% of the county population, may present a motion to the county board of supervisors.

Election

Within 30 days after a petition or motion is presented to the county board of supervisors, they should direct the county commissioner of elections to place the question of whether to impose a LOST on the ballot. The county election must be held at a time that fulfills the following criteria:

  • At least 60 days after publication of notice of the ballot proposition,
  • At least 30 days after the commissioner is notified, and
  • The first available of the following dates:
    • the first Tuesday in March or
    • the second Tuesday in September.
    • In an odd-numbered year, the vote may also be held on the first Tuesday after the first Monday in November.

Ballot requirements

The ballot language must include the following information:

  • the type and rate of the tax
  • the date the tax will be imposed (must be on either January 1 or July 1 of any year and at least 90 days after the election)
  • the approximate amount of the local option sales tax revenue used for property tax relief, if any
  • the specific purpose(s) for which the revenue will be spent
  • the date which the tax will automatically be repealed if the county board chooses to sunset the tax

Because the contents of the ballot must be very specific, the Secretary of State has developed sample form ballots to assist parties with this process. An example of the local option sales tax ballot language would look like this

Lifetime of Tax

Unless the ballot proposition contains a “sunset” provision, the tax is imposed until it is repealed. However, the tax cannot be repealed if the tax has been in effect less than one year or there are outstanding obligations. The tax may only be repealed on June 30 or December 31 of any year. The tax is repealed when:

  • A majority vote by those imposed by the tax favor the repeal
  • In an unincorporated area, the county board repeals the tax on its motion
  • For a city tax, the county board can repeal the tax if the city’s governing body presents them with a motion.

Distribution of Revenue

The revenue is distributed according to a formula based on 75% of the population and 25% on property tax levies. The property tax proportion is based on the three years of levy data from July 1, 1982, through June 30, 1985.

Improper Use of Tax Funds

State law does not address a situation where supervisors try to spend the revenue as they wish instead of how described at the time of the election. However, case law suggests that in the event of improper usage, the revenue would go into the general fund. Therefore, it is important to include very specific language on the ballot when identifying the use and purpose of the tax.

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Disclaimer: This document is intended for general informational purposes only and is not meant to provide legal advice for your specific situation or to infer an attorney-client relationship. Please contact your legal representative with any questions regarding your rights and available options. This document was last updated Aug. 20, 2020, and may not reflect the most recent changes in the law. For additional information, contact your county Farm Bureau office.