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Dayton’s sales tax reversal allows businesses to focus on defeating income tax hike

The president of the Minnesota Chamber of Commerce says his organization will fight the governor’s plan to create a fourth income tax tier.

Gov. Dayton is clearing the path for his business critics to channel their energy to try to block his attempt to raise income taxes on the wealthiest Minnesotans.
MinnPost photo by Bill Kelley

Gov. Mark Dayton abandoned his business-services tax proposal less than a week before hundreds of Chamber of Commerce members will descend on the State Capitol for some straight talk with their legislators.

On Wednesday, about 700 to 800 Minnesota Chamber members will listen to the DFL governor at a luncheon speech in downtown St. Paul. Then they’ll take buses up the hill for some candid conversations with lawmakers about how the governor’s budget affects them and their companies.

If Dayton had held fast to extending the sales tax to services such as legal and advertising, there’s no doubt that the Chamber’s 20th Annual Business Day at the Capitol would have been used to pillory that proposal.

By taking that much-maligned services tax off the table, Minnesota’s governor is clearing the path for his business critics to channel their energy to try to block Dayton’s attempt to raise income taxes on the wealthiest Minnesotans.

“We don’t have to have all of these tax discussions,” David Olson, Minnesota Chamber president, said in a MinnPost interview. “There is very little spending reform in the budget.” He wants to see more attention paid to controlling government spending.

The Chamber has been fighting Dayton’s campaign to create a fourth income tax tier, which would raise tax rates on single residents earning more than $150,000 in taxable income and on married couples with taxable incomes above $250,000.

Minnesota legislators are expected to get an earful from business owners and operators on Wednesday because many Minnesota companies flow their business income through their personal income taxes.

Since the DFL governor dropped the business-services tax idea on Friday morning, Olson acknowledged that action elevates business concerns over the income tax hike, minimum wage boost and energy costs.

“In all of my years in this business, I’ve never heard more outrage on an issue than the business-to-business tax issue,” Olson said.

The Chamber leader said that Dayton’s decision to scuttle the tax idea demonstrates that “he cares about Minnesota jobs.” After the business-services tax idea was unveiled, some company leaders talked about relocating their businesses.  “[Dayton] finally realized that this would have a dramatically negative impact,” Olson said.

By killing off the business-services tax idea in early March, Dayton also has positioned himself to challenge the business community to work with him in redesigning government services to make them more efficient and effective.

During his Wednesday speech to the Chamber, the governor can highlight the fact that he listened to the business community and responded to their concerns. But he also can seek a reciprocal relationship and ask business people to devise solutions, not simply oppose tax and spending levels.

The desire for a give-and-take exchange was evident in an e-mail that Kathy Tunheim, Dayton’s senior advisor on business and jobs, sent to business leaders on Friday afternoon.

Dayton announced that he was dropping the business-services tax during an appearance at the TwinWest Chamber. In the aftermath of that decision, Tunheim wrote that the governor’s “fundamental commitment” on the state’s overall finances remains the same.

“The budget for the next biennium must be honest — no gimmicks — and must begin the process of restoring Minnesotans’ confidence that we can and will make important investments to ensure the state’s long-term competitiveness,” Tunheim wrote.

The latest revenue forecast shows that the governor and legislators are facing a projected deficit of $627 million for the next biennium, which is down from an earlier estimate of a $1.1 billion revenue shortfall.

The Chamber contends the elected leaders should take a “revenue-neutral” approach when devising their tax reforms.

The business group also favors setting statewide spending priorities  and identifying “measurable outcomes.” The governor’s budget is moving in the direction of focusing on results or outcomes.

Olson said there is still time during this legislative session to craft reforms for the delivery of government services. He cited health care as an area where the state can do more to “provide better care more efficiently.”

Tunheim highlighted some common ground with business. She wrote: “Even as business people shared with us their concerns about the sales tax expansion, almost everyone also applauded the decision to invest in early childhood, in post-secondary education and in economic development tools designed to ensure growth in good jobs for Minnesotans.”

Dialogue between the Dayton administration and the business community will continue. It will be particularly spirited on Wednesday when business people from all corners of  Minnesota converge on St. Paul.

Fedor can be reached at