Dayton To Drop Business Sales Tax

By Don Davis

Gov. Mark Dayton heard the complaints and is revising the tax reform proposal he announced six weeks ago.

Gone is a business-to-business sales tax that drew most of the ire. He told that to a Chamber of Commerce meeting this morning, but said details about his new plan will come Tuesday.

Dayton proposed to lower the sales tax rate 20 percent, but to begin collecting it on most services and clothing costing $100 or more.

At the time he announced the plan, Dayton said he did not know how much of the taxes collected on services one business provides to another business would be passed on to consumers. Testimony in legislative committed indicated that most of it could be passed on.

While Democrat Dayton continues to push for his proposal to increase income taxes on the richest Minnesotans, a plan that has plenty of traction in the Democratic-controlled Legislature, it was not immediately clear if he still could press ahead with a $500-per-homeowner property tax refund.

It also was not clear if Dayton would continue to call for a lower sales tax rate.

Dayton spokeswoman Katharine Tinucci said that she expects him to drop his clothing sales tax request.

Tinucci said Dayton plans to meet Saturday with Revenue Commissioner Myron Frans and Commissioner Jim Schowalter of Minnesota Management and Budget to decide how his new tax plan will look, as well as other budget tweaks he may propose.

After an improved state revenue outlook was released last week, Dayton suggested that he might consider tax cuts. There was no word of they still are possible after dropping the business sales tax.

The income tax increase is expected to bring in an extra $1.1 billion and Dayton’s original sales taxes changes would result in a $2 billion net increase in revenue.

In his $38 billion, two-year budget proposal, the first order of business is to plug a $627 million gap (down from $1.1 billion earlier expected). But Dayton and other Democrats want more money for education, economic development and other programs so he suggested the higher taxes.

Taxes one business charges another attracted lots of criticism from businesses, and Democratic legislative leaders refused to embrace the changes as well.