Legislature Must Find Money Before New Taxes Can Disappear

By Don Davis

Many Minnesota lawmakers from both political parties want to erase some newly enacted business taxes off the state books, but there is no guarantee that will happen next year.

“It’s finding the money,” House Tax Chairwoman Ann Lenczewski, DFL-Bloomington, said of what has to happen before the taxes can be overturned.

Getting rid of taxes must be covered by cutting spending, raising other taxes or state revenues just coming in higher than expected.

Minnesota business leaders say the taxes must be eliminated. As it is, they say, the new taxes are part of the reason the state is becoming less competitive with its neighbors.

Taxes on business equipment repairs, including on farm implements, and telecommunications equipment sales already have begun, and a sales tax on goods that firms store in warehouses owned by others is to begin in April.

They were taxes that many lawmakers did not expect until the last minute of this year’s legislative session. They were part of a $2.1 billion tax increase that featured higher income taxes on the richest Minnesotans and a tobacco tax boost.

Lawmakers would need to find more than $300 million to wipe away the new business taxes.

Lenczewski said the taxes’ future will depend on revenue and economic reports, the first of which is due in early December. The second is expected days after lawmakers return to St. Paul on Feb. 25.

Current state law requires the first excess money to go to schools that have loaned the state funds over the years. If any money remains, the tax chairwoman said, that may be used to repeal taxes, although many lawmakers may have other priorities for it.

However, there is a chance the reports could indicate a deficit, such as the state has experienced several times recently, and the only ways to eliminate the taxes would be to cut programs or raise other taxes.

Rep. Sarah Anderson, R-Plymouth, said the taxes are costing Minnesota businesses and hurting the state.

If the warehouse tax is allowed to proceed, she said, 7,000 warehouse workers’ jobs would end. That is about half of the state’s warehouse employees.

“What does that mean about job growth?” she asked while speaking to a manufacturing summit with Lenczewski. “It is hard to make up 7,000 jobs.”

Other states that have enacted a warehouse tax quickly overturned it, Anderson said.

Operations Director Eric Fisher of AGCO, a farm equipment maker in Jackson, said his company is looking to use an Iowa warehouse because of the 6.5 percent tax. He said AGCO, which builds tractors and other farm equipment in southwestern Minnesota, needs to make the decision before lawmakers will have a chance to decide if they will overturn the tax.

If the company goes with an Iowa warehouse, he told Lenczewski, some businesses growing up around the 1,300-worker plant also may locate in Iowa.

There appears to be lots of support behind overturning the warehouse tax, and perhaps the other business taxes, too, if money is available.

Lenczewski, who did not favor enacting the taxes in the first place, said she thinks the House could vote to repeal them. However, it was the Senate that insisted on the taxes during negotiations in May, and senators may be less willing to kill the taxes.

Anderson said the taxes are not needed. State revenues are growing at 3 percent a year, but the budget is growing 5 percent, so “overspending” needs to end, she said.

The Minnesota Chamber of Commerce complains that taxes are helping drive business out of state, such as a Willmar firm that will expand in South Dakota.

At the manufacturing summit, it was revealed that some Minnesota businesses recently sat down with Republican Wisconsin Gov. Scott Walker to discuss opportunities to move or expand there. Minnesota Gov. Mark Dayton is a Democrat, and both legislative chambers are controlled by Democrats.

Neighboring states like Wisconsin need “gimmicks” such as subsidies to attract businesses, Lenczewski said. Minnesota’s business climate is among the best in the country, she said.

Even businesses ask the state to spend money on things like transportation and education, the chairwoman said. That equals higher taxes, she added.