By Don Davis
Some Minnesota businesses are pushing the pause button on constructing new facilities, awaiting word about whether state legislators will allow a new tax to be collected.
A $20 million Red Wing Shoes distribution center is on hold “until we find out what happens,” John Sachen of the company said Thursday during a state Capitol news conference.
“We have already stopped business,” said Rep. Tim Kelly, R-Red Wing. “That’s jobs.”
Kelly and other Republicans asked Democratic Gov. Mark Dayton to call a special legislative session to repeal a tax to be placed on businesses that pay to store goods. The warehousing tax was part of a $2.1 billion tax increase the Democratic-controlled Legislature and Dayton approved as the regular legislative session ended in May.
During legislative tax bill debate, key Democrats indicated implementation of the tax was
delayed until next April because they knew it may need to be changed.
Kelly said a special session is needed right away to kill the tax and allow businesses to plan.
Dayton, the only person who can call a special session, would have none of it.
“This is a stunt, not a solution,” Dayton Deputy Chief of Staff Bob Hume said. “The Legislature is coming back more than a month before this tax would take effect, which is more than enough time, if the revenues permit, to review and possibly revise the tax.”
Rep. Pat Garofalo, R-Farmington, said he would expect “a 15-minute special session, in and out.”
“Why wait?” he asked. “There is bipartisan agreement that this is a mistake.”
Kelly said the $100 million in revenue due from the warehouse tax easily could be filled by another source, especially since the state has received a series of better-than-expected revenue reports.
Sachen said Red Wing Shoes put its $20 million distribution center-warehouse on the back burner because of the tax, delaying construction at least a year.
The company, which sells shoes and boots worldwide, plans for another business to build the facility, with the shoe maker leasing space. If the company built its own warehouse, the tax would not apply, but Sachen said the company is in the shoe-making business, not warehousing.
If the tax is allowed to start in April, the shoe maker would be charged a 6.5 percent tax on its lease payments.
Sachen stopped short of threatening to build the new warehouse in another state that does not charge the tax, but trucking and warehouse company owner Stephen Lawrence, also from Red Wing, said it is possible that his next warehouse could be in Wisconsin.
“We are not sure what to do next,” Lawrence said.
Lawrence said a special session is preferable because if the issue waits until next year, “we are just concerned that this is going to get lost in the shuffle.”
House Speaker Paul Thissen, DFL-Minneapolis, said any change should come only after more consideration.
“Rather than rush to judgment without more facts and feedback, it is important we listen to the public and business community so we are prepared to make any needed changes next session,” Thissen said.
Garofalo said there is no reason Lawrence, Red Wing Shoes and other businesses must build in Minnesota.
“These services they are providing can be provided in other states,” he said, mentioning places like Hudson and Prescott, Wis., in his Twin Cities area.
Several local businesses have told him that the tax would hurt them, Garofalo said.
At his news conference, Kelly said he had not talked with the governor or House leaders about his request. However, a spokeswoman said that after he finished talking to reporters, Kelly left a message for Dayton, who is recovering from a muscle tear.
Sen. Matt Schmit, DFL-Red Wing, said he has met with Red Wing Shoes, Lawrence trucking and other businesses that would be affected.
“I have made a commitment to them that I will lead the charge next session to repeal the warehouse tax,” the senator said.
However, Schmit said, he is not calling for a special session.
“I’m convinced this is going to hurt our border communities,” he said of the warehouse tax.
Sachen said Red Wing Shoes President Dave Murphy discussed the tax over dinner with Dayton.
Several questions remain about the tax.
Rep. Kurt Zellers, R-Maple Grove, said one of those questions is about whether some agricultural products would be taxed. While it appears fertilizer that farmers own but is stored in warehouses will be taxed, the governor candidate and longtime House Taxes Committee member said some types of seeds also could be affected.
Revenue Commissioner Myron Frans said more information about the warehouse tax will be coming in July.