Senate tax committee lays over sales-tax exemption pilot for two Northeastern Minnesota housing projects

The Minnesota Senate Taxes Committee on Feb. 13 laid over Senate File 542, as amended, a measure that would exempt construction materials from state sales tax for two pilot housing projects in St. Louis County — a private redevelopment of a former Central High School site in Duluth and a Housing and Redevelopment Authority project in Ely.

The bill sponsor, Senator Hauschildt, told the committee the proposal "may seem familiar to you as we did bring this bill last year" and that she had offered an author’s amendment (A3) to limit the exemption to those two projects rather than the entire county. The committee adopted the A3 amendment before laying the bill over for inclusion in the omnibus tax bill.

Supporters said the pilot is intended to address a severe shortage of housing in northern Minnesota and the higher local cost of construction. "In Northern Minnesota we have a huge housing crisis across the state…we cannot attract the workforce that we need because we have no place for these folks to live," said Annie Harala, St. Louis County commissioner and chair of the county board. Harala, who said she graduated from the high school at the Duluth site, described the location as long sought for development and argued a targeted exemption could help get a committed developer to move forward.

Jack Carlson, president of the Duluth Building and Construction Trades Council, said construction costs in Duluth are "usually 20% to 30% more expensive" than other parts of the state because of materials and local topographical challenges. "This exemption limited to just 2 years could help jumpstart housing construction in the Duluth and Northern St. Louis County areas," Carlson said.

Some committee members raised concerns about granting tax relief to private development. Senator Knowles said she was "somewhat concerned about expanding that to a local development" and noted a longstanding caution in avoiding one unit of government effectively subsidizing another. Senator Nelson asked for clarification about which Central High School the bill targeted after confusion over multiple buildings with the same name.

Committee action: the sponsor offered the A3 author’s amendment to narrow eligibility to two projects; the amendment was adopted by voice vote. The committee then laid Senate File 542, as amended, over for possible inclusion in the omnibus tax bill.

Why it matters: proponents said the limited exemption is a pilot to test whether cutting construction-materials costs will make large, costly projects viable in higher-cost, rural parts of the state. Opponents warned about the precedent of exempting sales tax for private development and urged caution.

What’s next: Senate File 542, as amended, will be considered along with other tax legislation when the omnibus bill is assembled.