Special session should
also look at other damage
Tuesday, August 13, 2013 4:02 AM
When Gov. Mark Dayton proposed tax reform early in the last legislative session, I was one of many that criticized his proposal to place a sales tax on business-to-business transactions and services. The criticism was that it would raise consumer prices when businesses increase rates to compensate for the extra tax and it would make the state less competitive for professional services in what has become a global economy.
With the overwhelming opposition to this component of his plan, Dayton scrapped the whole reform proposal and sales tax had little change from historical norms.
However, a few changes did sneak into the budget this session with the repercussions not being debated until after the Legislature ended the session. Those business-to-business sales taxes are on labor for repair and maintenance of business and farm equipment, storage and warehousing of business related goods and purchases of telecommunications equipment by telecommunications providers.
Dayton has said he hopes lawmakers will agree to a quick special session for sometime after Labor Day to approve disaster assistance for Minnesota counties, including Fillmore and Houston, that had flood damage from June storms. He has also said that he won't open the door to other initiatives that could bog down the main issue of flood relief.
The flood relief issue is of prime importance to local residents since much of our readership area has had damage from flooding. It will also likely have bipartisan support, making the issue an easy choice for most legislators.
Although there is a danger in adding to the agenda, and others are already coming up with proposals including raising the minimum wage, these business-to-business taxes have bipartisan opposition that should have an easy path as well. Even though he wants to keep the special session simple by focusing on just one issue, Dayton has said he could support repealing the sales tax on repairs for farm equipment and, at some point, the warehouse sales tax, as have DFL legislative leaders.
If a bipartisan consensus can be reached that these taxes are a mistake, they should be addressed in the special session.
As the president of the Minnesota Corn Growers noted in an opinion piece in this newspaper last week, the farm machinery repair tax that went into effect July 1 hurts farmer and all rural communities in Minnesota. Farmers sell the food, feed, fuel and fiber they grow in a national market that includes states that lack such a hefty tax on machinery repair and maintenance.
The tax also hurts other small businesses not related to agriculture because they are less likely to perform repairs in-house, instead hiring the work out to a company that would be required to pass the tax on to the other business.
The warehouse tax also has near universal opposition, but leaders say it can wait until the regular session because the law doesn't go into effect until April 1, 2014. The problem is warehousing - either building a facility or signing a contract that usually goes for a year - are not small projects. Businesses need to plan ahead and they may look at other states if there is no guarantee that the tax will be repealed in Minnesota.
There has been less debate on the telecommunications equipment tax. However, on the face of it, the tax, which makes it more expensive for providers to expand the state's telecommunications infrastructure, doesn't make sense when Dayton's Broadband Task Force has allocated $500,000 to create a broadband development office to encourage more investment of high-tech equipment and capacity in Minnesota.
As the Minnesota Chamber of Commerce notes, the business-to-business taxes make Minnesota an "outlier regionally and nationally. There are important economic reasons why almost all states have chosen not to impose a retail sales tax on business inputs. This type of tax creates economic distortions, great inefficiencies, administrative complexity and tax pyramiding."
Bipartisan agreement is always hard to come by, but business-to-business taxes were able to break through that barrier earlier this year. If leaders from both parties express a desire to work together on this issue, it should be included in the special session and, along with flood relief, come to a quick conclusion.
The results will make Minnesota a stronger state, even in areas not affected by storms.