Gov. Dayton unveils tax plan

The head of the Duluth Area Chamber of Commerce said he is not opposed to Gov. Mark Dayton’s proposal Tuesday to cut the Minnesota sales tax rate and apply it to more sales, including services and bigger-ticket clothing items.

Dayton’s plan, which would bring in $2 billion in new revenue over two years, would reduce the sales tax rate from 6.875 percent to 5.5 percent, but expand what is taxed to include most services, such as haircuts and auto repairs. Clothing items that cost more than $100 also would be taxed.

“It was anticipated, and we see the logic in it,” said David Ross, president of the Duluth chamber. “The test will be how fairly and equitably it is implemented and applied.”

Ross said a presentation last month by state Revenue Commissioner Myron Frans helped convince him the sales tax was ripe for reform. Frans showed how the sales tax was generating less revenue than it used to, while a growing service sector paid no sales tax at all.

“It was a compelling presentation,” said Ross, adding that it showed the potential for strong revenues from the service sector.

So the tax plan announced Tuesday came as no surprise, he said.

The proposal also would increase income taxes from the current 7.85 percent to 9.85 percent for income above $250,000 for couples and above $150,000 for individuals. The hike would affect 883 taxpayers in St. Louis County and 45 in Carlton County, according to the governor’s office.

Dayton said his state budget and tax reform plan is a starting point as the Minnesota Legislature works to set a two-year budget by May 20. He said he did not know how the sales tax changes would affect consumers. Senate Minority Leader David Hann, R-Eden Prairie, said he thinks the cost would be passed on to them.

But Democrats said Minnesotans will welcome another aspect of the plan: a property tax rebate of up to $500.

Commissioner Tony Sertich of the Iron Range Resources and Rehabilitation Board said the rebate is a big deal, given how much property taxes have risen in recent years.

“It is going to make a significant dent on it,” he said.

Dayton said the lower sales tax rate should offset the expansion, and between that and the property tax rebate, middle-class Minnesotans should not pay more taxes and could pay less.

“For most Minnesota families it is a wash,” he said.

Conversation starter

Democrat Dayton said his plan is just the start of the conversation and he expects disagreement from within his own party as well as from Republicans.

He challenged those who disagree with his plan to come up with their own.

“To those who don’t want to raise any of these taxes I say, ‘Where do you want to cut?’ ” Dayton said.

Democratic legislative leaders said as they delve into the budget, which they said they have not had a chance to do, they will have more to say on specific provisions. But in general they said Tuesday they were happy with the theme of the budget and tax plan.

Republicans were not as pleased, especially when it came to taxes. Hann refuted Dayton’s claims that the average Minnesotan would not pay more with the changes.

“Everybody’s going to get hit with these taxes,” he said.

Hann said he would like to see tax reform, but would rather focus on lowering the rate rather than also expanding what is taxed.

Senate Majority Leader Tom Bakk, DFL-Cook, said he plans to talk with business leaders about their reactions to the proposal.

“There’s a lot in here for the business community to like,” Bakk said.

The plan includes provisions that cut the corporate income tax rate by

14 percent and put a two-year freeze on statewide businesses’ property taxes.

Expect $99.99 deals

Taxing clothing already has proven to be controversial. Minnesota is one of the few states that doesn’t tax clothing now, and many border businesses tout the benefit in their advertising.

“That’s what makes it, I think, a pretty steep hill to climb,” Bakk said.

The tax would be applied to the full amount of clothing items that cost more than $100.

“I am sure it will give rise to a good many $99.99 deals around the state,” the governor said.

Frans said that could be the case, but “we had to pick a line somewhere.”

Dayton and officials emphasized the plan comes as a package, so it is difficult to assess specific pieces.

“Everything is connected,” Bakk said.

News Tribune staff writer Candace Renalls contributed to this report.

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