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Dayton’s controversial ‘snowbird tax’ may not fly

beach resort
REUTERS/Desmond Boylan
Trouble in paradise: A new Dayton income tax proposal would hit residents who escape harsh Minnesota winters for warmer environs, as well as other part-time residents.

A tiny portion of the $2.1 billion revenue increase in Gov. Mark Dayton’s budget — a controversial proposal to tax part-time Minnesota residents known as “snowbirds” — has risen from the ashes of the governor’s last budget proposal.

Under Dayton’s plan, non-residents who live in Minnesota for two months to six months would be subject to the tax. The Republicans, who controlled the Legislature in 2011, beat it back then, along with the rest of the governor’s tax hikes.

The prorated income tax would fall largely on older vacationers and retirees — colloquially known as “snowbirds,” who leave the state for more than six months and set up residency in such places as Arizona and Florida.

When he unveiled the key pieces of his proposed $37.9 billion budget last week, Dayton said he included the tax as a matter of fairness.

Estimate: $30 million for biennium

The tax would raise about $30 million a biennium, according to Revenue Department estimates.

The tax would be levied on non-residents’ “income from intangibles,” such as stocks and bonds, capital gains and dividends, said Joel Michael, a legislative analyst with the Minnesota House.

Income taxes are currently levied on work done in Minnesota regardless of residence status — for instance, a non-resident college student flipping burgers near the U of M pays state income tax — which would not change under the plan. Dayton’s tax proposal would apply to income that’s not “Minnesota-driven.”

At the Capitol, where $30 million is pocket change in the context of the state’s overall government operations, Dayton took a strong position.

“There is a snowbird tax — absolutely,” the DFL governor told reporters. “It’s one of the unfairnesses that somebody can spend six months and one day out of the state and pay no state personal income taxes and come back here and take advantage of all the state has to offer for five months and 29 days. So, yes, there’s a snowbird tax.”

The Revenue Department couldn’t provide details about how many people would pay the tax. Commissioner Myron Frans said that information might become available when the department revises the governor’s budget numbers for the February economic forecast.

State would be first to try such a tax

Frans said he believes Minnesota would be the first state to implement such a measure.

Self-reporting would make it difficult to enforce.

Incredulous Republicans — who said the tax would only serve to drive people away from Minnesota — questioned the enforcement angle and whether the measure is even legal.

“I don’t even think that’s constitutional,” Senate Minority Leader David Hann said shortly after the governor released his plan. “I don’t even know how you’d do that. As far as I can see, there’s not a lot of money attached to it. To me, it seems sort of gratuitous to say ‘We’re going to try do that.’ I mean, why? Is it $15 million attached to that? I don’t even get that.”

Frans reiterated that Dayton’s budget should be viewed as a package of taxes and spending that will unravel if altered too much.

“You could start pulling out little pieces,” Frans said. “Even if it’s on something as small as this … if you start taking out revenue, something’s got to give.”

GOP Sen. Julianne Ortman, who chaired the Senate Taxes Committee when Republicans controlled the Legislature, described the move as “desperate” and said she doubted many DFLers would agree to the proposal.

“The administration of it would be incredibly challenging. How do you know how many days people are here in Minnesota, and do we even want government to try and track that?” she said. “I hope that cooler heads will prevail and common sense will be restored at some point.”

Frans said his department believes the proposal “would pass constitutional muster,” specifically citing a 1999 Minnesota court case related to taxes. He doesn’t expect legal challenges initially.

Acknowledging that the measure would require “voluntary compliance,” Frans said it would be incumbent on the state to educate people affected by the snowbird tax and provide an easy way to pay it. He didn’t provide specific enforcement measures.

“So many people do file multiple state returns … the compliance issue is not as complicated as it used to be,” Frans said.

DFL support uncertain

It’s unclear where DFL lawmakers stand on the measure.

Sen. Ann Rest, chairwoman of a Senate tax reform committee, said she only quickly reviewed the snowbird provision at the request of a reporter.

The New Hope Democrat, who will consider much of the governor’s tax plan, said she wouldn’t offer a snowbird tax bill. Rest’s committee has already heard two of her proposals to expand the state sales tax to clothing.

Her committee will get an overview of the governor’s overall proposal this week. Until then, she was reluctant to talk about the plan’s chances in the Legislature.

“I wouldn’t call it an obscure provision, because it would affect any number of people, but I need to know more about what his intent was and how they would administer it, and whether they do believe that it would survive a constitutional challenge,” she said.

“I don’t have any preconceived notion about whether it’s a good idea or not.”

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Comments (10)

Hrm

I, too, have a hard time believing that such a tax would or could be imposed on snow birds. However, expanding the sales tax base will help in making snow birds pay for their use of Minnesota resources. Pick your battles. Stand firm on a broader sales tax base, including high end clothing and services, and drop the snow bird tax.

I agree

it sounds difficult to enforce, and might end up hitting only the more honest people, which in the long run could be divisive. But I also find it amusing that yet again we're hearing people will "move away" from Minnesota. If everybody who said that was right, the Dakotas would have 4 million people each and Minneapolis would be a ghost town.

Snowbird Tax

The Governor and the legislature should think long and hard about the unintended consequences of this type of tax. What about out of state people who have no other connection to MN except owning summer homes here? This kind of tax would put a quick end to that.

If you want to tax non-residents who spend time in MN, you are much better off using a broad based sales tax. Most of the snow birds I know wouldn't have a problem with that.

Seems fair

We have people who want to be in Minnesota for the good things we have here, and then claim residency in a place with low or no income taxes so they don't have to help pay for it. Rather than negotiating with himself and pre-compromising, I'm glad Dayton offered what he thinks makes sense. The nits I'd pick aren't the same as other people's nits, so I say just pass it as proposed. I'll tolerate some imperfection in a pretty good tax reform.

Good things?

What are the "good things" about MN? Because I cannot name one thing that we have here that other cities don't do better or cleaner or nicer.

The lakes are puddles! We can't support a Neimans. We're taxed to the nines because of a new stadium for the Twins. A martini costs more here than a four price tag bar or restaurant in Beverly Hills. The public school system stinks, the weather is only great for three months tops, and if Dayton institutes a tax on clothes that's the last thing cool about this state. Not to mention Blue laws that make no sense, frigid people, and high personal taxes.

I'd love to know what's so great about MN, really. Because I see nothing great here.

snowbird tax

Are they then going to give us the right to vote in local elections. If not then it is truly taxation without representation.

More on the Snowbirds

I believe everyone has a right to vote in the state they are a resident of and it's still one citizen one vote. I think if people who live here part time and another place part time should be more than willing to pay pro-rated taxes in either place. I'm also even more than willing to get rid of the people who would leave over taxes.

There are too many people who limit the time they live in Minnesota to the amount of time needed to escape taxes. In many cases they are not here but their homes, cabins, and/or apartments are. They consume services even when gone, they don't shut off the fire and police who still have to protect their homes. The infrastructure stays in place to accomodate them. If you want to live in a state without income taxes move there full time and vacation here you have two full months based on the proposed bill.

Pass the bill as is modifications can be made later if needed. I'm tired of listening to legislators who hate government and taxes and whiners about taxes who are more than willing to accept the good things taxes provide.

Snowbird taxes

The proposed legislation has got it backward. We should be granting tax relief to people of retirement age who are wealthy so they have no economic incentive to become citizens of Arizona and Florida. These people are changing their residence to avoid a high tax jurisdiction. As a result we lose a lot of taxes when these people sell their business, take their severance pay, receive dividends and interest on large investment accounts and the taxes on their estates when they die. Even if an income tax ratable to time spent in Minnesota were constitutional, it would be a bad idea. Many of these people spend a lot of money in Mn during the summer. They have a home here,

Dayton and Snowbirds

Property tax covers police and fire services that along with a number of orther services I only utilize for 5 months a year.

What Do My Property Taxes Pay For?

There are more than 70 independent local governments in Hennepin County that have authority to levy a property tax. Except for school districts, each of these taxing districts goes through a budget process annually to decide:

What public services they will or must provide
How they plan to pay for those services
The services provided by school districts, and the funding of those services, are determined by state law or by referendum.

In most cases, not all the money needed can be raised from state aid, grants, fees or fines. The rest is raised through property taxes.

All property is located in more than one taxing district. For example, property can be in a county, city, school district and other special taxing districts. Your property tax statement is really seven to ten tax bills, consolidated into one statement.

Here are some common types of taxing districts and some of the services they provide:

Services by taxing districts
County City or Town School Districts Metropolitan Special Taxing Districts Other Special Taxing Districts
Social services Roads and streets K-12 education Transportation Regional parks
Public Health Police and fire Community education Regional sewer system Regional railroads
Roads and highways Parks and recreation Mosquito control (public health) Museums
Libraries Libraries Watershed management
Corrections Building safety Public housing
Sheriff
Environmental Services

More Snowbird Taxes

Minnesota property taxes have a homestead credit of 30-50% if it is your primary residence. Living outside Minnesota makes you a non-resident for income tax purposes, BUT ALSO HIKES YOUR PROPERTY TAX BILL BY UPWARDS OF 100%. I would say that any savings in income taxes would be more than offset in property taxes for most Snow Birds. The more passive income you make, the nicer summer home you probably own, hence higher property taxes.