By Gabe Licht
DELANO, MN Amidst dealing with flooding and the logistical problems that came along with it during the 2014 Delano 4th of July Celebration, event chair Alex Roeser didn’t think his luck could get much worse.
That is until July 3, when the committee received a $38,000 tax bill from the Minnesota Department of Revenue.
“I was afraid it was going to be the last parade,” Roeser said.
Not only was that not the case, but during the special session, the Minnesota Legislature approved a grant for the 4th of July committee to pay the back taxes.
“It’s been a long road,” Roeser said. “It has taken an enormous amount of time.”
The history of the issue
“A long time ago, when Tom Emmer was our state rep, we had gotten a notification saying sales taxes had changed,” Roeser said. “Tom had his staff research it. They said, ‘Stay at four days, and you’re just fine.’”
That would have been the case if the event had been operated solely by 501c3 nonprofit organizations.
“501c3s that have events for four days or less are sales tax exempt,” Rep. Joe McDonald said.
However, three of the entities involved with the event the Delano Lions, Delano Sportsmen’s Club, and Delano Area Chamber of Commerce are considered 501c4 organizations. Furthermore, some of the community causes that receive 4th of July profits do not qualify as 501c3 organizations.
Roeser said committee members once again wondered if they were in compliance when the Hamel Rodeo was required to pay $76,000 in taxes. They consulted with a CPA and were told they were in compliance.
“It’s important to note that the 4th of July committee, comprised of nonprofit organizations, believed they were in compliance with state law,” McDonald said.
They learned that was not the case after being audited in October 2013.
“The Minnesota Department of Revenue was very impressed with us,” Roeser said. “They said it often takes just two questions to determine organizations are not tax-exempt. We made it through 13 of the 20 questions before they said we weren’t tax-exempt.”
Because Department of Revenue staff did not believe the 4th of July committee was avoiding paying taxes on purpose, Roeser said, the penalty was amended.
“While we thought we’d been following the rules, they said it was obvious we were trying, so much so that they forgave penalties on back taxes,” Roeser said.
Resolving the situation
Once the committee members learned of the penalty, they began the appeals process.
Roeser reached out to McDonald and Sen. Bruce Anderson and testified in front of both legislative bodies, along with former 4th of July chair Jack Lynch.
“Both Alex and Jack did a great job testifying,” McDonald said. “All the lawmakers realized it’s important to keep those dollars going toward the community.”
“The legislature has taken it on and seen the problem, that it was an unintended consequence,” Roeser said. “This was something unforeseen. They weren’t intending to tax town events all over the state of Minnesota. That wasn’t the legislature’s intent.”
For that reason, McDonald authored a bill to exempt Delano from paying those taxes. The bill had bipartisan support, but was included in the tax bill that was not passed.
However, the bill in the Senate was written to provide a grant from the Minnesota Department of Employment and Economic Development to Delano for the payment of those taxes. That bill was a part of the jobs bill that Gov. Mark Dayton initially vetoed, but which was ultimately passed during the special session.
Furthermore, McDonald and Anderson have authored legislation to help communities hosting town events throughout the state in the future.
“Joe McDonald and Bruce Anderson have bills that provide for communities to designate a town event, and by designating that town event, as long as they stay less than five days, they will be sales tax exempt,” Roeser said.
McDonald said those bills would be included in the tax bill that he anticipates to pass in 2016.
Roeser thanked both legislators for their efforts.
“We’ve been working with Joe and Bruce and it’s been great,” Roeser said.
He is pleased to see a change coming for community events throughout the state.
“This is a positive thing that’s going on for all the communities in the state,” Roeser said. “It’s a great message from leaders saying, ‘We want you to be involved.’ I was greatly heartened to hear legislators say, ‘We need to fix this.’ It gives you a little bit of hope.”
After enduring the past year of appeals and working through the tax issue, Roeser said he will appreciate the event more, and hopes the community does, as well.
“Hopefully, the community can come out and enjoy it. I know I’ll enjoy it more,” Roeser said. “It’s a fun time and all the money goes back to the community.”