Legislators begin looking into how to reform state taxes

Skoe

By Danielle Killey

Minnesota lawmakers have started making the case for tax changes — including the possibility of a tax on clothing purchases — they say will simplify the tax code and balance the state’s budget.

Dozens of bills affecting property, sales and income taxes have been proposed in the Legislature and could be part of a plan to reform the state’s overall tax system. It is a priority cited by Republicans and Democrats, though they disagree on the best changes to make.

“Tax policy tends to be one of the areas where you see the biggest differences between the two parties in philosophy,” said Sen. Rod Skoe, DFL-Clearbrook, who chairs the Senate Taxes Committee.

He said there are areas where the parties can work together, though.

Gov. Mark Dayton will release a tax reform plan along with his budget proposal on Tuesday. That likely will include a pitch to raise income taxes on the highest-earning Minnesotans and measures to reduce property taxes, which Skoe said is a top priority.

“The most important thing is that we need to bring some balance back into the revenue,” he said. That change will have to be offset by shifts in income and sales tax.

A Senate tax group started digging into some of the first of many tax bills Wednesday.

One of the proposals would tax individual clothing purchases of more than $200 while another would erase the clothing tax exemption but give Minnesotans a clothing tax credit.

Maureen Bausch, executive vice president of business development for the Mall of America, said the change would significantly impact the state’s largest tourist site.

“When people are deciding to come to Minnesota, the fact that we don’t have tax on clothing is one of the top three factors,” Bausch said. “If we add this tax on apparel, it will absolutely affect our tourism trade.”

Skoe said while he is not a big fan of clothing tax, he does not think it would necessarily drive business elsewhere. He said on the North Dakota border with Minnesota, for example, people drive through Moorhead to get to malls in Fargo. The same happens near Grand Forks, he said. North Dakota taxes clothing.

Broader support came for a bill that would allow Minnesota to collect sales tax from items sold online to local residents. A handful of business owners and others who testified Wednesday said it would help level the playing field for Minnesota brick-and-mortar retailers.

“It has never made sense to me that we should put our Minnesota businesses at a disadvantage,” Sen. Dave Thompson, R-Lakeville, agreed.

Some Republicans are concerned about the extent of tax proposals put forward.

“It seems like the DFL has proposed every new tax conceivable for Minnesotans,” former tax committee chair Sen. Julianne Ortman, R- Chanhassen, said after Wednesday’s meeting.

Lawmakers have said the conversation needs to go beyond individual bills and changes.

“We are in a global economy and we need to be recognizing that,” said Sen. Ann Rest, DFL-New Hope.

She said the governor is keeping the details of his plan under wraps, but after it is released next week, lawmakers will better be able to work on a comprehensive tax reform plan.

Skoe said the first step will be discussions about policies and ideas. Then as the state’s financial situation becomes clearer, such as after an updated forecast in February,  “we can start to understand how much money the state needs to raise” and adjust proposals accordingly.

Thompson warned against changes that increase taxes for Minnesotans.

“At a time when the economy is struggling and could easily lapse into another recession, it is important to remember how families are affected by these possible tax proposals,” he said.

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