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Cautions Gross Sales Gross sales is a comprehensive measure of business activity,but readers should be aware that the numbers in this report are self-reported by holders of sales and use tax reports. Furthermore,the gross sales are not audited by the State of Minnesota. It is believed that the gross sales figures are generally reliable,but there is the possibility of distortions,especially in smaller cities where misreporting may have occurred. Misclassification Holders of sales and use tax permits select the Standard Industrial Classification(SIC)category that best fits their business. Regardless of who makes this classification,errors are occasionally made. Also,sometimes a business will start out as one type of business,but may evolve over time to a considerably different type of business. Misclassifications can distort sales among business categories,especially in smaller towns. For example,a furniture store that is classified as a general merchandise store,will under-report the sales in the furniture store category and over-report the sales in the general merchandise category. Suppressed Data The sales data for merchandise categories that have less than four reporting firms are not reported. This is a measure taken by most states to protect the confidentiality of sales tax permit holders. The sales for suppressed categories are placed into the miscellaneous category and are included in total sales. Consolidated Reporting Vendors doing business at more than one location in Minnesota have the option of filing a separate return for each location or filing one consolidated return for all locations. The consolidated return shows,for each business establishment,the sales made,tax due and location by city and county. Data for the establishments of consolidated filers are combined with data for • single-location filers to produce the figures in this report. Occasionally consolidated reports may not be properly deconstructed and all the sales for a company may be reported for one town or city. Whenever misreporting is discovered, contacts are made with the Minnesota Revenue Department to clarify the situation. Changes Between 2000 and 2003 For fiscal year 2003,the Minnesota Department of Revenue implemented two major changes to improve their reporting of sales and use tax data. First,they adopted a geo-coding system,which accurately identifies the location of all business reporting sales and use tax to the state rather than relying on the businesses'postal addresses. One effect of this change is a movement of sales between neighboring cities(and in some cases,counties)in the year 2003. Thus,in several of the suburbs of Minneapolis and St.Paul and in cities such as Hermantown,which is adjacent to Duluth,the data show large increases in retail sales between 2000 and 2003,a substantial portion of which is due to the re-coding of business location and not to The second change implemented by the Department of Revenue in 2003 was a shift from the Standard Industrial Classification system(SIC codes)to the North American Industry Classification System(NAICS codes). This switch does affect the comparability of the data series prior to 2000 with that of 2003(and beyond),especially for merchandise categories. Overall retail and services sales are highly comparable over time. In many cases,the merchandise categories for the data prior to 2003 are very closely related to the new categories. For example,approximately 97%of the 2003 statewide sales in the general merchandise category were accounted for by firms also classified as general merchandise under the SIC system. In other cases,the correspondence is less straightforward. For example,only 56%of 2003 statewide sales in the Food and Beverage store category were accounted for by firms classified as Food Stores under the older classification system;41%of 2003 Food store sales were accounted for by firms previously categorized as Miscellaneous Retail. The NAICS system does provide greater detail and introduces some new sectors,such as Retail Electronics. Over time,these changes will improve the information available for retail trade analysis.For additional information,please see www.taxes.state.mn.us/taxes/1 egal_policy/other_supporting_conten t/salesuse_%202003_stati stics_introduction.shtml. Changes Starting in 2006 0 The Sales and Use Tax Statistics report for 2006 uses a slightly different methodology than in previous years.Rather than basing the report on the year in which sales were made(as was true in earlier reports),the 2006 report is based on when returns were processed.To best approximate the economic activity for calendar year 2006,this report includes all returns processed from February 2006 through January 2007.Returns are included in the report regardless of the date of sale. Page 4